Prairie Operating Co 10-K for FY2022
Prairie Operating Co. (PROP)
About this 10-K
Prairie Operating Co filed this 10-K on March 31, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $517.6K
- up 40.0% from $369.8K a year earlier
- Net loss
- $13.42M
- compared with a net loss of $17.27M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| (Mark One) | |
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the fiscal year ended: | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| Title of Class | Number of Shares Outstanding on March 31, 2023 | |
| Common Stock, $0.0001 par value |
TABLE OF CONTENTS
Creek Road Miners, Inc.
As used in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (this “Annual Report on Form 10-K”), (i) the terms “we,” “us,” “our,” the “Company,” the “Registrant,” “Creek Road Miners,” and “CRM” mean Creek Road Miners, Inc. and its consolidated subsidiaries, and (ii) the term “common stock” refers to the common stock, par value $0.0001 per share, of Creek Road Miners, Inc., unless otherwise indicated.
Cautionary Notice Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements (such as when we describe what “will,” “may,” or “should” occur, what we “plan,” “intend,” “estimate,” “believe,” “expect” or “anticipate” will occur, and other similar statements) include all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including assumptions about our future operating results and business plans. However, the inclusion of forward-looking statements should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K and under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those disclosed in subsequent reports we file with the Securities and Exchange Commission (“SEC”). The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements.
| ● | the availability and adequacy of cash flow to meet our requirements; | |
| ● | the availability of additional capital; | |
| ● | the ability to close the 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; | |
| ● | changes in our business and growth strategy, including our ability to successfully operate and expand our cryptocurrency mining activities; | |
| ● | changes or developments in laws, regulations or taxes in the cryptocurrency mining industry; and | |
| ● | actions taken or not taken by third-parties, including our contractors and competitors |
Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we comprehensively assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
All forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this Annual Report on Form 10-K, and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware, except as required by law. You should read this document completely and with the understanding that our actual future results or events may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
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PART I
Item 1. Business
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 (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) 2,000,000 shares of its common stock, par value $0.0001 per share (“common stock”), and (B) the product of (x) the number of issued and outstanding shares of common stock immediately following the consummation of the Restructuring Transactions (as defined below) by the Company multiplied by (y) 33.33% to the members of Prairie (the “Prairie Members”) and (b) convert certain options to purchase membership interests of Prairie into restricted performance-based options to purchase, in the aggregate, 8,000,000 shares of common stock for $0.25 per share only exercisable if specific production hurdles are achieved.
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. 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. 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 December 31, 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.
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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. As of December 31, 2022, the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement, and the remaining amount due under the Bitmain Agreement is $47,600 and presented in the table 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 | 581,000 | ||||||
| Estimated total amount due | 4,016,600 | |||||||
| Less: Payments made | 3,969,000 | |||||||
| Remaining amount due | $ | 47,600 | ||||||
As of December 31, 2022, all 600 miners purchased from Bitmain have not been delivered to the Company, and will remain undelivered until all fees are paid to ship the miners from the Bitmain facility to the Company.
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 | |||||
| Revenue recognized from cryptocurrency mined | — | — | ||||||
| Mining pool operating fees | — | — | ||||||
| Proceeds from the sale of cryptocurrency | (0.6 | ) | (11,203 | ) | ||||
| Realized gain on the sale of cryptocurrency | — | 3,853 | ||||||
| Balance December 31, 2022 (1) | — | $ | — | |||||
| (1) | Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining. |
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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 December 31, 2022 the market price of Bitcoin was $16,547, which reflects a decrease of approximately 60% since the beginning of 2022, and of approximately 75% 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 during 2022 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.
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”.
Intellectual Property
We do not currently own any patents in connection with our existing and planned blockchain and cryptocurrency related operations.
Liquidity and Ability to Continue as a Going Concern
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 $13,401,076, and $19,202,114, for the years ended December 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 December 31, 2022, we had cash and cash equivalents of $246,358, a working capital deficit of approximately $8.1 million, and an accumulated deficit of approximately $61 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. The Company may be able to 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.
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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.
Employees
As of March 31, 2023, we had 2 full time employees.
Corporate Information and History
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”).
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.
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.
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) 2,000,000 shares of its common stock, par value $0.0001 per share (“common stock”), and (B) the product of (x) the number of issued and outstanding shares of common stock immediately following the consummation of the Restructuring Transactions (as defined below) by the Company multiplied by (y) 33.33% to the members of Prairie (the “Prairie Members”) and (b) convert certain options to purchase membership interests of Prairie into restricted performance-based options to purchase, in the aggregate, 8,000,000 shares of common stock for $0.25 per share only exercisable if specific production hurdles are achieved.
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”).
Where You Can Find More Information
Our website address is www.creekroadminers.com. We do not intend our website address to be an active link or to otherwise incorporate by reference the contents of the website into this Report. The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
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Item 1A. Risk Factors
An investment in our securities involves a high degree of risk, and an investor should only purchase the Company’s securities if he or she can afford to suffer the loss of his or her entire investment. Certain factors may have a materially adverse effect on our business, financial condition and results of operations, including the risk factors described below. You should carefully consider all of the risks and uncertainties described below and elsewhere in this Annual Report on Form 10-K, as well as those risks disclosed in the Company’s other public filings, together with the other information contained in this report and the Company’s other public filings before making an investment decision regarding the Company’s securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also become important factors that could adversely affect our business, financial condition and results of operations, perhaps materially. If any of the following risks actually occur, our business, financial condition, results of operation and future prospects could be materially and adversely affected. In that event, the trading price of shares of our common stock could decline, and you could lose part or all your investment. The risks discussed below also include forward-looking statements, and actual results and events may differ substantially from those discussed or highlighted in those forward-looking statements. For more information regarding forward-looking statements in this Annual Report, please see the Section entitled “Cautionary Note Regarding Forward-Looking Statements” of this Annual Report on Form 10-K.
Risks Related to Our Company
We have historically incurred significant losses, and may be unable to maintain profitability. If we continue to incur significant losses, we may have to curtail our operations, which may prevent us from successfully operating and expanding our business.
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. For the years ended December 31, 2022 and 2021, we incurred a net loss of $13,418,814 and $17,270,703, respectively. We had stockholders’ deficit of $6,525,056 as of December 31, 2022, and stockholders’ equity of $4,197,847 as of December 31, 2021. 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 sustain 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 sustain or increase our profitability on a quarterly or annual basis.
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 to be undertaken in connection with the Merger 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. |
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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 for 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.
We may require significant additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.
We may not have sufficient capital to fund our future operations without significant additional capital investments. If adequate additional financing is not available on reasonable terms or at all, we may not be able to carry out our corporate strategy and we would be forced to modify our business plans (e.g., limit our growth, and/or decrease or eliminate capital expenditures), any of which may adversely affect our financial condition, results of operations and cash flow. Such reduction could materially adversely affect our business and our ability to compete.
We may need to undertake equity, equity-linked or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and respond to business challenges could be significantly impaired, and our business may be adversely affected.
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Our capital needs will depend on numerous factors, including, without limitation, our profitability, and the amount of our capital expenditures, including acquisitions. Moreover, the costs involved may exceed those originally contemplated. Failure to obtain intended economic benefits could adversely affect our business, financial condition and operating performances.
The cost of obtaining new cryptocurrency mining equipment is capital intensive, and may increase.
The cost of obtaining new cryptocurrency mining equipment is capital intensive, and may increase in the future. If we are unable to obtain adequate numbers of new and replacement miners at scale, we may not be able to mine cryptocurrency as efficiently or in similar amounts as our competition and, as a result, our business and financial results could suffer. The price of new miners may be linked to the market price of Bitcoin and other cryptocurrencies, and, our costs of obtaining new and replacement miners may increase, which may have a material and adverse effect on our financial condition and results of operations.
Our reliance on a third-party mining pool service provider for our mining revenue payouts may have a negative impact on our operations.
We receive cryptocurrency mining rewards from our mining activity through a third-party mining pool operator. Mining pools allow miners to combine their processing power, increasing their chances of solving a block and getting paid by the network. The rewards are distributed by the pool operator, proportionally to our contribution to the pool’s overall mining power, used to generate each block. Should the pool operator’s system suffer downtime due to a cyber-attack, software malfunction or other similar issues, it will negatively impact our ability to mine and receive revenue. Furthermore, we are dependent on the accuracy of the mining pool operator’s record keeping to accurately record the total processing power provided to the pool for a given Bitcoin mining application in order to assess the proportion of that total processing power we provided. If we are unable to consistently obtain accurate proportionate rewards from our mining pool operators, we may experience reduced reward for our efforts, which would have an adverse effect on our business and operations.
Bitcoin is subject to halving; and will halve several times in the future and Bitcoin value may not adjust to compensate us for the reduction in the rewards we receive from our mining efforts.
The primary currency for which we mine, Bitcoin, is subject to “halving,” which is the process by which the cryptocurrency reward for solving a block is cut in half. While Bitcoin prices have had a history of price fluctuations around the halving of their respective cryptocurrency rewards, there is no guarantee that the price change will be favorable or would compensate for the reduction in mining reward. We plan to keep our operating costs low by, among other means, acquiring our own energy-producing assets and more efficient mining machines, but there can be no assurance that the price of Bitcoin will sufficiently increase upon the next halving to justify the increasingly high costs of mining for Bitcoin. If a corresponding and proportionate increase in the trading price of these cryptocurrencies does not follow these anticipated halving events, the revenue we earn from our mining operations would see a corresponding decrease, which would have a material adverse effect on our business and operations.
We need to manage growth in operations to maximize our potential growth and achieve our expected revenues. Our failure to manage growth can cause a disruption of our operations that may result in the failure to generate revenues at levels we expect.
In order to maximize potential growth, we may have to expand our operations. Such expansion will place a significant strain on our management and our operations. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.
Our mining operating costs could outpace our mining revenues, which could materially impact our business.
Our mining operations expenses may increase in the future, and may not be offset by a corresponding increase in revenue. Our expenses may be greater than we anticipate, and our investments to make our business more efficient may not succeed and may outpace monetization efforts. Increases in our costs without a corresponding increase in our revenue would increase our losses and could have a material adverse effect on our business, results of operations and financial condition.
Insiders have substantial control over the Company, and they could delay or prevent a change in our corporate control even if our other stockholders want it to occur.
As of the date of this filing, our executive officers, and directors, collectively beneficially own approximately 90% of our outstanding shares of common stock. These stockholders are able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with our Company even if our other stockholders want it to occur. This may also limit your ability to influence the Company in other ways.
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We rely on a small number of cryptocurrency mining equipment suppliers, and the loss of any supplier might significantly reduce our revenue and adversely affect our results of operations.
We rely on a small number of cryptocurrency mining equipment suppliers, which is essential to our cryptocurrency mining revenue. The loss of any or all of these suppliers would significantly reduce our revenue, which would have a material adverse effect on our results of operations. We can provide no assurance that these suppliers will continue to supply us cryptocurrency mining equipment in the future.
We are exposed to credit risk on our prepayments to cryptocurrency mining equipment suppliers. This risk is heightened during periods when economic conditions worsen.
We have made prepayments to suppliers of cryptocurrency mining equipment, and there can be no assurance that we will effectively limit our credit risk and avoid losses, which could have a material adverse effect on our business, results of operations and financial condition.
We may not be able to secure adequate insurance, or any insurance at all, on our cryptocurrency mining equipment that are subject to physical and environmental damage.
Our miners and mobile data centers are located in areas where we may not be able to secure adequate insurance, or any insurance at all. Our miners and mobile data centers are subject to physical and environmental damage and any damage, including a complete loss, if it occurs without being adequately insured, or insured at all, could have a material adverse effect on our business, results of operations and financial condition.
Additionally, although we seek to control our insurance risk and costs, the premiums we pay to obtain insurance coverage have increased over time and are likely to continue to increase in the future. These increases in insurance premiums can occur unexpectedly and without regard to our efforts to limit them, and, because of these rising costs, we may not be able to obtain similar levels of insurance coverage on reasonable terms, or at all. If this occurs, we may choose or be forced to self-insure our assets, which could expose us to significant financial risk due to the high cost of new miners. If insurance costs become unacceptably high and we elect to self-insure, and we experience a significant casualty event resulting in the loss of some or all of our miners, we could be forced to expend significant capital resources to acquire new miners to replace those we lose.
Furthermore, if such casualty loss of our miners is not adequately covered by insurance and we do not have access to sufficient capital resources to acquire replacement miners, we may not be able to compete in our rapidly evolving and highly competitive industry, which could materially and adversely affect our financial condition and results of operations, and our business could suffer.
We may lose our private key to our digital wallet, causing a loss of all of our digital assets.
Digital assets, such as cryptocurrencies, are stored in a so-called “digital wallet”, which may be accessed to exchange a holder’s digital assets, and is controllable by the processor of both the public key and the private key relating to this digital wallet in which the digital assets are held, both of which are unique. We will publish the public key relating to digital wallets in use when we verify the receipt of transfers and disseminate such information into the network, but we will need to safeguard the private keys relating to such digital wallets, which are stored in the possession of certain of our officers. If the private key is lost, destroyed, or otherwise compromised, we may be unable to access our cryptocurrencies held in the related digital wallet which will essentially be lost. If the private key is acquired by a third party, then this third party may be able to gain access to our cryptocurrencies. Any loss of private keys relating to digital wallets used to store our cryptocurrencies could have a material adverse effect on our ability to continue as a going concern or could have a material adverse effect on our business, prospects, financial condition, and operating results.
The storage and custody of our Bitcoin assets and any other cryptocurrencies that we may potentially acquire or hold in the future are subject to cybersecurity breaches and adverse software events.
In addition to the risk of a private key loss to our digital wallet, see “—We may lose our private key to our digital wallet, destroying all of our digital assets,” the storage and custody of our digital assets could also be subject to cybersecurity breaches and adverse software events. In order to minimize risk, we plan to establish processes to manage wallets, or software programs where assets are held, that are associated with our cryptocurrency holdings.
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A “hot wallet” refers to any cryptocurrency wallet that is connected to the Internet. Generally, hot wallets are easier to set up and access than wallets in “cold” storage, but they are also more susceptible to hackers and other technical vulnerabilities. “Cold storage” refers to any cryptocurrency wallet that is not connected to the Internet. Cold storage is generally more secure than hot storage, but is not ideal for quick or regular transactions and we may experience lag time in our ability to respond to market fluctuations in the price of our digital assets.
We plan to hold the majority of our cryptocurrencies in cold storage to reduce the risk of malfeasance; however we may also use third-party custodial wallets and, from time to time, we may use hot wallets or rely on other options that may develop in the future. If we use a custodial wallet, there can be no assurance that such services will be more secure than cold storage or other alternatives. Human error and the constantly evolving state of cybercrime and hacking techniques may render present security protocols and procedures ineffective in ways which we cannot predict.
Regardless of the storage method, the risk of damage to or loss of our digital assets cannot be wholly eliminated. If our security procedures and protocols are ineffective and our cryptocurrency assets are compromised by cybercriminals, we may not have adequate recourse to recover our losses stemming from such compromise. A security breach could also harm our reputation. A resulting perception that our measures do not adequately protect our digital assets could have a material adverse effect on our business, prospects, financial condition, and operating results.
We are subject to risks associated with our need for significant power for our miners. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations.
Our Bitcoin mining operations have required significant amounts of power, and, as we continue to expand, we anticipate our demand for power will continue to grow. If we are unable to continue to obtain sufficient power to operate our miners on a cost-effective basis, we may not realize the anticipated benefits of our significant capital investments in new miners. There may be significant competition for suitable mine locations, and government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations in times of electricity shortage, or may otherwise potentially restrict or prohibit the provision or electricity to mining operations. Additionally, our mining operations could be materially adversely affected by prolonged power outages. Our cryptocurrency mining operations require that our miners and mining equipment function without interruption. If we experience and any unplanned or prolonged outages that re not remediated in a timely manner, or at all, could disrupt our operations. Given the power requirement, it would not be feasible to run miners on back-up power generators in the event of a government restriction on electricity or a power outage. If we are unable to receive adequate power supply and are forced to reduce our operations due to the availability or cost of electrical power, it could have a material adverse effect on our business, results of operations and financial condition.
Interruptions to our internet access could disrupt our operations, which could adversely affect our business and results of operations.
Our cryptocurrency mining operations require access to high-speed internet to be successful. If we lose internet access for a prolonged period, we may be required to reduce our operations or cease them altogether. If this occurs, it could have a material adverse effect on our business, results of operations and financial condition.
Our reliance primarily on a single model of miner may subject our operations to increased risk.
We currently only use Bitmain Antminer type miners, if there are issues with those machines, such as a design flaw in the ASIC chips they employ, our entire system could be affected. Any system error or failure may significantly delay response times or even cause our system to fail. Any disruption in our ability to continue mining could result in lower yields and harm our reputation and business. Any exploitable weakness, flaw, or error common to Bitmain miners affects all our miners; therefore, if a defect or other flaw exists and is exploited, our entire mine could go offline simultaneously. Any interruption, delay or system failure could have a material adverse effect on our business, results of operations and financial condition.
We may not be able to find suitable locations, or any locations at all, for our mobile data centers.
Our mobile data centers are located close to natural gas wellheads, and we may be forced to leave our current location, not be able to find suitable locations, or any locations at all, for our current and/or future mobile data centers. If this occurs it could have a material adverse effect on our business, results of operations and financial condition.
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We depend on the services of a small number of key personnel, and may not be able to operate and grow our business effectively if we lose their services or are unable to attract qualified personnel in the future.
Our success depends in part upon the continued service of a small number of key personnel. They are critical to the overall management of our company, and our strategic direction. We rely heavily on them because they have substantial experience with our company and business strategies. Our ability to retain them is therefore very important to our future success. We have employment agreements with our key personnel, but these employment agreements do not ensure that they will not voluntarily terminate their employment with us. The loss of any key personnel would require the remaining key personnel to divert immediate attention to seeking a replacement. Competition for senior management personnel is intense, and our inability to find a suitable replacement for any departing key personnel in a timely basis could adversely affect our ability to operate and grow our business.
Our future success depends upon, in large part, our continuing ability to attract and retain qualified personnel.
Expansion of our business and operations may require additional managers and employees with industry experience, in which case our success will be dependent on our ability to attract and retain experienced management personnel and other employees. There can be no assurance that we will be able to attract or retain qualified personnel. Competition may also make it more difficult and expensive to attract, hire and retain qualified managers and employees. If we fail to attract, train and retain sufficient numbers of the qualified personnel, our prospects, business, financial condition and results of operations will be materially and adversely affected.
We rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties fail to perform or terminate any of their contractual arrangements with us for any reason or cease operations, or should we fail to adequately identify key business relationships, our business could be disrupted and our reputation may be harmed.
If any of our business partners or contracting counterparties fails to perform or terminates their agreement(s) with us for any reason, or if our business partners or contracting counterparties with which we have short-term agreements refuse to extend or renew the agreement or enter into a similar agreement, our ability to carry on operations may be impaired. In addition, we depend on the continued operation of our long-term business partners and contracting counterparties and on maintaining good relations with them. If one of our long-term partners or counterparties is unable (including as a result of bankruptcy or a liquidation proceeding) or unwilling to continue operating in the line of business that is the subject of our contract, we may not be able to obtain similar relationships and agreements on terms acceptable to us or at all. If a partner or counterparty fails to perform or terminates any of the agreements with us or discontinues operations, and we are unable to obtain similar relationships or agreements, such events could have an adverse effect on our operating results and financial condition.
Breaches of our data systems or unintended disclosure of data could result in large expenditures to repair or replace such systems, to remedy any security breaches and to protect us from similar events in the future.
Our infrastructure may be vulnerable to physical or electronic break-ins, computer viruses, or similar disruptive problems. In addition to shutdowns, our systems are subject to risks caused by misappropriation, misuse, leakage, falsification and accidental release or loss of information. Disruptions or security compromises of our systems could result in large expenditures to repair or replace such systems, to remedy any security breaches and protect us from similar events in the future. We also could be exposed to negligence claims or other legal proceedings, and we could incur significant legal expenses and our management’s attention may be diverted from our operations in defending ourselves against and resolving lawsuits or claims. In addition, if we were to suffer damage to our reputation as a result of any system failure or security compromise, it could have a material adverse effect on our business, results of operations and financial condition.
We are exposed to risks associated with PCI compliance.
The PCI Data Security Standard (“PCI DSS”) is a specific set of comprehensive security standards required by credit card brands for enhancing payment account data security, including but not limited to requirements for security management, policies, procedures, network architecture, and software design. PCI DSS compliance is required in order to maintain credit card processing services. Compliance does not guarantee a completely secure environment and notwithstanding the results of this assessment there can be no assurance that payment card brands will not request further compliance assessments or set forth additional requirements to maintain access to credit card processing services. Compliance is an ongoing effort and the requirements evolve as new threats are identified. In the event that we were to lose PCI DSS compliance status (or fail to renew compliance under a future version of the PCI DSS), we could be exposed to increased operating costs, fines and penalties and, in extreme circumstances, may have our credit card processing privileges revoked, which would have a material adverse effect on our business.
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Our failure to comply with the terms contained in our loan agreements could result in an event of default that could adversely affect our financial condition and ability to operate our business as planned.
Our failure to comply with terms contained in our loan agreements in the future may adversely affect our ability to operate our business and we may not be able to continue operations as planned, implement our planned growth strategy, or react to opportunities for, or downturns in, our business.
Government regulations related to the Internet could increase our cost of doing business, affect our ability to grow or may otherwise negatively affect our business.
Governmental agencies and federal and state legislatures have adopted, and may continue to adopt, new laws and regulatory practices in response to the increasing use of the Internet and other online services. These new laws may be related to issues such as online privacy and data protection requirements, copyrights, trademarks and service mark, sales taxes, fair business practices, domain name ownership, and the requirement that our operating units register to do business as foreign entities or otherwise be licensed to do business in jurisdictions where they have no physical location or other presence. In addition, these new laws, regulations or interpretations relating to doing business through the Internet could increase our costs materially and adversely affect our revenue and results of operations.
Regulatory changes or actions may restrict the use of cryptocurrencies in a manner that adversely affects an investment in us.
As cryptocurrencies have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the CFTC, the Commission, FinCEN and the Federal Bureau of Investigation) have begun to examine cryptocurrencies. On March 9, 2022 President Biden signed an executive order on cryptocurrencies. While the executive order did 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.
Digital assets currently face an uncertain regulatory landscape in not only the United States but also in such foreign jurisdictions as the European Union and China. While certain governments such as Germany, have issued guidance as to how to treat cryptocurrencies, most regulatory bodies have not issued specific policy determinations.
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, but such change could be substantial and adverse to us and could adversely affect an investment in us.
Unfavorable general economic conditions in the United States, Europe, Asia, or in other major markets could negatively impact our financial performance.
Unfavorable general economic conditions, such as a recession or economic slowdown in the United States, Europe, Asia, or in one or more of our other major markets, could negatively affect demand for our services and our results of operations. Under difficult economic conditions, businesses may seek to reduce spending on our services, or shift away from our services to in-house alternatives.
We encounter competition in our business, and any failure to compete effectively could adversely affect our results of operations.
We anticipate that our competitors will continue to expand and aggressive expansion of our competitors or the entrance of new competitors into our markets could have a material adverse effect on our business, results of operations and financial condition.
Acquisitions, joint ventures or similar strategic relationships may disrupt or otherwise have a material adverse effect on our business and financial results.
As part of our strategy, we may explore strategic acquisitions and combinations, or enter into joint ventures or similar strategic relationships. These transactions are subject to the following risks:
| ● | Acquisitions, joint ventures or similar relationships may cause a disruption in our ongoing business, distract our management and make it difficult to maintain our standards, controls and procedures; | |
| ● | We may not be able to integrate successfully the services, products, and personnel of any such transaction into our operations; | |
| ● | We may not derive the revenue improvements, cost savings and other intended benefits of any such transaction; and | |
| ● | There may be risks, exposures and liabilities of acquired entities or other third parties with whom we undertake a transaction, that may arise from such third parties’ activities prior to undertaking a transaction with us. |
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Acquisitions may result in significant impairment charges and may operate at losses. We can provide no assurance that future acquisitions, joint ventures or strategic relationships will be accretive to our business overall or will result in profitable operations.
The COVID-19 pandemic could negatively impact our future operations and results.
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 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.
Our Certificate of Incorporation provides for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.
Our Certificate of Incorporation and applicable Delaware law provide for the indemnification of our directors and officers against attorney’s fees and other expenses incurred by them in any action to which they become a party arising from their association with or activities on our behalf. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933, as amended (the “Securities Act”), and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter, if it were to occur, is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares if such a market ever develops.
Risks Relating to Ownership of Our Common Stock
The beneficial ownership by Mr. Paul L. Kessler, Executive Chairman of the Board, of our common stock and other convertible securities, will likely limit the ability of minority stockholders to influence corporate matters.
Mr. Paul L. Kessler, Executive Chairman of the Board, is the beneficial owner of a substantial amount of the issued and outstanding shares of the Company’s common stock, Series A Convertible Preferred Stock, stock options and warrants, and a secured convertible debenture, and beneficially owns approximately 78% of the shares of our Common Stock. As a result, Mr. Kessler has significant influence over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions, even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our Company that other stockholders may view as beneficial.
In order to raise sufficient funds to expand our operations, we may have to issue additional securities at prices which may result in substantial dilution to our shareholders.
If we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of our common shares outstanding. We may also have to issue securities that may have rights, preferences and privileges senior to our common stock.
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Our common stock is quoted on the OTCQB, which may have an unfavorable impact on our stock price and liquidity.
Our common stock is quoted on the OTCQB. The quotation of our shares on the OTCQB may result in a less liquid market available for existing and potential stockholders to trade shares of our Common Stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
There is limited liquidity on the OTCQB, which enhances the volatile nature of our equity.
When fewer shares of a security are being traded on the OTCQB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in shares of our Common Stock, there may be a lower likelihood that orders for shares of our Common Stock will be executed, and current prices may differ significantly from the price that was quoted at the time of entry of the order.
Our stock price is likely to be highly volatile because of our limited public float.
The market price of our common stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell shares of our Common Stock following periods of volatility because of the market’s adverse reaction to volatility. Other factors that could cause such volatility may include, among other things: actual or anticipated fluctuations in our operating results; the absence of securities analysts covering us and distributing research and recommendations about us; overall stock market fluctuations; economic conditions generally; announcements concerning our business or those of our competitors; our ability to raise capital when we require it, and to raise such capital on favorable terms; conditions or trends in the industry; litigation; changes in market valuations of other similar companies; announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or joint ventures; future sales of common stock; actions initiated by the SEC or other regulatory bodies; and general market conditions. Any of these factors could have a significant and adverse impact on the market price of our common stock. These broad market fluctuations may adversely affect the trading price of our common stock.
Our common stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your investment in our common stock.
The market for our common stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our share price is attributable to a number of factors. First, our common shares may be sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its share price. Secondly, an investment in us is a speculative or “risky” investment due to our lack of meaningful profits to date and uncertainty of future profits. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.
Our stock is thinly traded, so an investor may be unable to sell at or near ask prices or at all.
The shares of our Common Stock are traded on the OTCQB and are thinly traded, meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a smaller reporting company that is relatively unknown to stock analysts, stockbrokers, institutional investors and others in the investment community who generate or influence sales volume. Even in the event that we come to the attention of such persons, they would likely be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, our stock price may not reflect an actual or perceived value. Also, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as is currently the case, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broader or more active public trading market for our common shares may not develop or if developed, may not be sustained. Due to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money or otherwise desire to liquidate your shares.
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Currently, there is a limited public market for our securities, and there can be no assurances that any public market will ever develop and, even if developed, it is likely to be subject to significant price fluctuations.
We have a trading symbol for our common stock, namely ‘CRKR’. However, our stock has been thinly traded, if at all. Consequently, there can be no assurances as to whether:
| ● | any market for our shares will develop; | |
| ● | the prices at which our common stock will trade; or | |
| ● | the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. |
Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our Common Stock, developments affecting our business, including the impact of the factors referred to elsewhere in these risk factors, investor perception of our Company and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our Common Stock.
We cannot predict the extent to which an active public trading market for our common stock will develop or be sustained. If an active public trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our common stock.
We cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares of common stock until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that an active public trading market for our common stock will develop or be sustained. If such a market cannot be sustained, you may be unable to liquidate your investment in our common stock.
Other factors which could cause volatility in the market price of our common stock include, but are not limited to:
| ● | actual or anticipated fluctuations in our financial condition and operating results or those of companies perceived to be similar to us; | |
| ● | actual or anticipated changes in our growth rate relative to our competitors; | |
| ● | commercial success and market acceptance of blockchain, Bitcoin and other cryptocurrencies; | |
| ● | actions by our competitors, such as new business initiatives, acquisitions and divestitures; | |
| ● | strategic transactions undertaken by us; | |
| ● | integration of new businesses and opportunities into our existing business; | |
| ● | implementation of new technologies in the industry; | |
| ● | additions or departures of key personnel; | |
| ● | prevailing economic conditions; | |
| ● | sales of our common stock by our officers, directors or significant stockholders; | |
| ● | other actions taken by our stockholders; | |
| ● | future sales or issuances of equity or debt securities by us; | |
| ● | business disruptions caused by earthquakes, tornadoes or other natural disasters; | |
| ● | legal proceedings involving our company, our industry or both; | |
| ● | changes in market valuations of companies similar to ours; | |
| ● | the prospects of the industry in which we operate; | |
| ● | other risks, uncertainties and factors described in this Annual Report on Form 10-K. |
We are subject to the “penny stock rules” which will make our securities more difficult to sell.
We are subject to the SEC’s “penny stock” rules because our securities sell below $5.00 per share. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
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Furthermore, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for our securities. As long as our securities are subject to the penny stock rules, the holders of such securities will find it more difficult to sell their securities.
We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future. Any return on your investment may be limited to increases in the market price of our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment might only occur if the market price of our common stock appreciates.
Our board of directors has broad discretion to issue additional securities.
We are entitled under our certificate of incorporation to issue up to 100,000,000 shares of common stock and 5,000,000 shares of preferred stock, although these amounts may change in the future subject to stockholder approval. Shares of our preferred stock provide our board of directors’ broad authority to determine voting, dividend, conversion, and other rights. Any additional stock issuances could be made at a price that reflects a discount or premium to the then-current market price of our common stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for a significant amount of our common stock. Our board may generally issue those common and preferred shares, or convertible securities to purchase those shares, without further approval by our stockholders. Any preferred shares we may issue could have such rights, preferences, privileges and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions. We may also issue additional securities to our directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our stock incentive plans. The issuance of additional securities may cause substantial dilution to our stockholders.
The exercise of outstanding options and warrants to purchase our common stock could substantially dilute your investment.
Under the terms of our outstanding options and warrants to purchase our common stock issued to employees and others, the holders are given an opportunity to profit from a rise in the market price of our common stock that, upon the exercise of the options and/or warrants, could result in dilution in the interests of our other stockholders.
The market price of our common stock and the value of your investment could substantially decline if our warrants or options are exercised and our common stock is issued and resold into the market, or if a perception exists that a substantial number of shares will be issued upon exercise of our warrants and option and then resold into the market.
If the exercise prices of our warrants or options are lower than the price at which you made your investment, immediate dilution of the value of your investment will occur. In addition, sales of a substantial number of shares of common stock issued upon exercise of our warrants and options, or even the perception that such sales could occur, could adversely affect the market price of our common stock. You could, therefore, experience a substantial decline in the value of your investment as a result of both the actual and potential exercise of our warrants or options.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could result in a restatement of our financial statements, cause investors to lose confidence in our financial statements and our company and have a material adverse effect on our business and stock price.
We produce our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. Effective internal controls are necessary for us to provide reliable financial reports to help mitigate the risk of fraud and to operate successfully as a publicly traded company. As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. Further, Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting.
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Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal controls over financial reporting, investors could lose confidence in our reported financial information and our company, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise additional financing if needed in the future.
Risks Related to the Price of Bitcoin
The trading price of shares of our Common Stock has appeared at times to have a correlation with the trading price of Bitcoin, which may be subject to pricing risks, including “bubble” type risks, and has historically been subject to wide swings.
Recently, the trading price of our common stock has appeared to have a correlation with the trading price of Bitcoin. Specifically, we have experienced adverse effects on our stock price when the value of Bitcoin has fallen, and we may experience similar outcomes if our stock price tracks the general status of that cryptocurrency. Furthermore, if the market for Bitcoin company stocks or the stock market in general experiences a loss of investor confidence, the trading price of our stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock could be subject to arbitrary pricing factors that are not necessarily associated with traditional factors that influence stock prices or the value of non-cryptocurrency assets such as revenue, cash flows, profitability, growth prospects or business activity levels since the value and price, as determined by the investing public, may be influenced by future anticipated adoption or appreciation in value of cryptocurrencies or blockchains generally, factors over which we have little or no influence or control.
We may face risks of Internet disruptions, which could have an adverse effect on the price of cryptocurrencies.
A disruption of the Internet may affect the use of cryptocurrencies and subsequently the value of our securities. Generally, cryptocurrencies and our business of mining cryptocurrencies is dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency’s network operations until the disruption is resolved and have an adverse effect on the price of cryptocurrencies and our ability to mine cryptocurrencies.
The impact of geopolitical and economic events on the supply and demand for cryptocurrencies is uncertain.
Geopolitical crises may motivate large-scale purchases of Bitcoin and other cryptocurrencies, which could increase the price of Bitcoin and other cryptocurrencies rapidly. This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior dissipates, adversely affecting the value of our inventory following such downward adjustment. Such risks are similar to the risks of purchasing commodities in general uncertain times, such as the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in cryptocurrencies as investors focus their investment on less volatile asset classes as a means of hedging their investment risk.
Acceptance and/or widespread use of cryptocurrency is uncertain.
There is a relatively limited use of any cryptocurrency in the retail and commercial marketplace, thus contributing to price volatility that could adversely affect an investment in our securities. Banks and other established financial institutions may refuse to process funds for cryptocurrency transactions, process wire transfers to or from cryptocurrency exchanges, cryptocurrency-related companies or service providers, or maintain accounts for persons or entities transacting in cryptocurrency. The relative lack of acceptance of cryptocurrencies in the retail and commercial marketplace, or a reduction of such use, limits the ability of end users to use them to pay for goods and services. Such lack of acceptance or decline in acceptance could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of Bitcoin or any other cryptocurrencies we mine or otherwise acquire or hold for our own account.
The markets for Bitcoin may be under-regulated and, as a result, the market price of Bitcoin may be subject to significant volatility or manipulation, which could decrease consumer confidence in cryptocurrencies and have a materially adverse effect on our business and results of operations.
Cryptocurrencies that are represented and trade on a ledger-based platform and those who hold them may not enjoy the same benefits as traditional securities available on trading markets and their investors. Stock exchanges have listing requirements and vet issuers, requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such platform for fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The more lax a distributed ledger platform is about vetting issuers of cryptocurrency assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. We believe that Bitcoin is not a security under federal and state law.
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Bitcoin and other cryptocurrency market prices have historically been volatile, are impacted by a variety of factors, and are determined primarily using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be subject to factors such as those that impact commodities, more so than business activities, which could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of cryptocurrencies, or our share price, making their market prices more volatile or creating “bubble” type risks for both Bitcoin and shares of our Common Stock.
These factors may inhibit consumer trust in and market acceptance of cryptocurrencies as a means of exchange which could have a material adverse effect on our business, prospects, or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire.
It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoin, ether, or other cryptocurrencies, participate in blockchains or utilize similar cryptocurrency assets in one or more countries, the ruling of which would adversely affect us.
Although currently cryptocurrencies generally are not regulated or are lightly regulated in most countries, several countries continue taking regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use these cryptocurrency assets or to exchange for fiat currency. Such restrictions may adversely affect us as the large-scale use of cryptocurrencies as a means of exchange is presently confined to certain regions globally. Such circumstances could have a material adverse effect on us, which could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account, and thus harm investors.
Our cryptocurrencies may be subject to loss, theft or restriction on access.
There is a risk that some or all of our cryptocurrencies could be lost or stolen. Access to our cryptocurrency assets could also be restricted by cybercrime. Hackers or malicious actors may launch attacks to steal, compromise or secure cryptocurrencies, The loss or destruction of a private key required to access our digital wallets may be irreversible and we may be denied access for all time to our cryptocurrency holdings or the holdings of others held in those compromised wallets. Our loss of access to our private keys or our experience of a data loss relating to our digital wallets could adversely affect our investments and assets. Such events could have a material adverse effect on our business.
Bitcoin has forked multiple times and additional forks may occur in the future which may affect the value of Bitcoin we hold or mine.
To the extent that a significant majority of users and mining companies on a cryptocurrency network install software that changes the cryptocurrency network or properties of a cryptocurrency, including the irreversibility of transactions and limitations on the mining of new cryptocurrency, the cryptocurrency network would be subject to new protocols and software. However, if less than a significant majority of users and mining companies on the cryptocurrency network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the cryptocurrency running in parallel yet lacking interchangeability and necessitating exchange-type transaction to convert currencies between the two forks. Additionally, it may be unclear following a fork which fork represents the original cryptocurrency and which is the new cryptocurrency. Different metrics adopted by industry participants to determine which is the original asset include: referring to the wishes of the core developers of a cryptocurrency, blockchains with the greatest amount of hashing power contributed by miners or validators; or blockchains with the longest chain. A fork in the network of a particular cryptocurrency could adversely affect an investment in our securities or our ability to operate.
Since August 1, 2017, Bitcoin’s blockchain was forked multiple times creating alternative versions of the cryptocurrency such as Bitcoin Cash, Bitcoin Gold and Bitcoin SV. The forks resulted in a new blockchain being created with a shared history, and a new path forward. The value of the newly created versions including Bitcoin Cash, Bitcoin Gold and Bitcoin SV may or may not have value in the long run and may affect the price of Bitcoin if interest is shifted away from Bitcoin to the newly created cryptocurrencies. The value of Bitcoin after the creation of a fork is subject to many factors including the value of the fork product, market reaction to the creation of the fork product, and the occurrence of forks in the future. As such, the value of Bitcoin could be materially reduced if existing and future forks have a negative effect on Bitcoin’s value.
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Incorrect or fraudulent cryptocurrency transactions may be irreversible.
Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly executed or fraudulent cryptocurrency transactions could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations of and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.
Cryptocurrencies, including those maintained by or for us, may be exposed to cybersecurity threats and hacks.
Flaws in cryptocurrency codes may be exposed by malicious actors. Several errors and defects have been found previously, including those that disabled some functionality for users and exposed users’ information. Exploitations of flaws in the source code that allow malicious actors to take or create money have previously occurred. Our devices, as well as our miners, computer systems and those of third parties that we use in our operations, are vulnerable to cyber security risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our miners and computer systems or those of third parties that we use in our operations. Such events could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
None
Item 3. Legal Proceedings
We are involved in legal proceedings in the ordinary course of our business. Although our management cannot predict the ultimate outcome of these legal proceedings with certainty, it believes that the ultimate resolution of our legal proceedings, including any amounts we may be required to pay, will not have a material effect on our consolidated financial statements.
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 “Barlock Convertible Debenture”) and a demand for payment of $5,004,978.76 (the “Notice”) to the Company. The Notice alleged that (i) the Company’s agreement on August 24, 2022 to issue a convertible promissory note in the principal amount of $900,000 (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 Barlock Convertible Debenture.
The Company strongly disagrees with the assertion that an event of default has occurred under the Barlock Convertible Debenture and notified Mr. Kaufman and Barlock that they had previously delegated the exclusive authority to exercise remedies under the Barlock Convertible 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. 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 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 Barlock Convertible Debenture and that Barlock lacks the authority under the Barlock Convertible Debenture and the related transaction documents to declare events of default.
If it is ultimately determined that an event of default exists under the Barlock Convertible Debenture and that the Notice was properly provided on behalf of Barlock, the outstanding principal amount of the Barlock Convertible 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 Barlock Convertible 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 Barlock Convertible Debenture, plus 100% of accrued and unpaid interest thereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of the Barlock Convertible Debenture. Commencing five days after the occurrence of any event of default that results in the eventual acceleration of the Barlock Convertible Debenture, the interest rate on the Barlock Convertible Debenture accrues at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Approximate Number of Holders of Common Stock
Our common stock is quoted on the OTCQB under the symbol “CRKR.” The following table sets forth, for the periods indicated, the reported high and low bid quotations for our common stock as reported on the OTCQB. The bid prices reflect inter-dealer quotations, do not include retail markups, markdowns, or commissions, and do not necessarily reflect actual transactions.
| High Bid | Low Bid | |||||||
| Year Ended December 31, 2022: | ||||||||
| First Quarter (January 1 – March 31) | $ | 2.95 | $ | 1.45 | ||||
| Second Quarter (April 1 – June 30) | $ | 1.80 | $ | 0.29 | ||||
| Third Quarter (July 1 – September 30) | $ | 0.52 | $ | 0.19 | ||||
| Fourth Quarter (October 1 – December 31) | $ | 0.22 | $ | 0.05 | ||||
| Year Ended December 31, 2021: | ||||||||
| First Quarter (January 1 – March 31) | $ | 5.00 | $ | 0.61 | ||||
| Second Quarter (April 1 – June 30) | $ | 4.33 | $ | 2.05 | ||||
| Third Quarter (July 1 – September 30) | $ | 2.81 | $ | 1.45 | ||||
| Fourth Quarter (October 1 – December 31) | $ | 3.90 | $ | 1.04 | ||||
As of December 31, 2022, according to the records of our transfer agent, we had 71 record holders of our common stock. Because brokers and other institutions hold shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividends
We have never declared or paid dividends on our common stock and intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future, if at all. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
Recent Sales of Unregistered Securities
We sold the securities described below within the past year which were not registered under the Securities Act.
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.
On March 24, 2021, the Company granted warrants to purchase shares the Company’s common stock to a consultant as follows: a warrant to purchase 300,000 shares with an exercise price of $1.00 per share, and a term of 5 years; and, in connection with the issuance of Series B preferred stock, a warrant to purchase 180,000 shares with an exercise price of $1.5278 per share, and term of 5 years.
On June 30, 2021, we issued 6,249 shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement of $62,490 of compensation payable to Mr. Kaufman under his employment agreement from April 1, 2021 through June 30, 2021. Each share of our Series A preferred stock is convertible into a number of shares of our Common Stock determined by dividing the aggregate stated value for the Series A preferred stock being converted (initially $10.00 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation) by the then-applicable conversion price (initially $0.25 per share, and $0.175 as of December 31, 2021, subject to adjustment as set forth in the currently effective Series A Certificate of Designation). We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.
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On September 30, 2021, we issued 6,249 shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement of $62,490 of compensation payable to Mr. Kaufman under his employment agreement from July 1, 2021 through September 30, 2021. Each share of our Series A preferred stock is convertible into a number of shares of our Common Stock determined by dividing the aggregate stated value for the Series A preferred stock being converted (initially $10.00 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation) by the then-applicable conversion price (initially $0.25 per share, and $0.175 as of December 31, 2021, subject to adjustment as set forth in the currently effective Series A Certificate of Designation). We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.
On October 12, 2021, the Company granted certain directors warrants to purchase a total of 30,000 shares of the Company’s common stock with an exercise price of $1.50 per share, and a term of 3 years.
On October 20, 2021, the Company granted a director warrants to purchase 400,000 shares of the Company’s common stock with an exercise price of $1.50 per share, a term of 3 years, and vesting as follows: 20% upon execution of the Services Agreement; 20% on January 20, 2022; 20% on April 20, 2022; 20% on July 20, 2022; and 20% on October 20, 2022.
On October 31, 2021, the Company granted a consultant warrants to purchase 750,000 shares of the Company’s common stock with an exercise price of $1.50 per share, a term of 3 years, and vesting as follows: 40% upon execution of the Services Agreement; 20% on April 1, 2022; 20% on August 1, 2022; and 20% on December 1, 2022.
On December 1, 2021, the Company granted certain of its Directors and employees options to purchase a total of 7,000,000 of the Company’s common stock with an exercise price of $2.65 per share, a term of 5 years, and a shall vest upon a volume weighted average price (“VWAP”) of the Company’s common stock reaching the following targets: at such time as there is a VWAP equal to $2.50 of the Company’s common stock when computed over 30 consecutive trading days, 25% of each Executive’s Options shall vest; at such time as there is a VWAP equal to $3.00 of the Company’s common stock when computed over 30 consecutive trading days, 25% of each Executive’s Options shall vest; at such time as there is a VWAP equal to $3.50 of the Company’s common stock when computed over 30 consecutive trading days, 25% of each Executive’s Options shall vest; and at such time as there is a VWAP equal to $4.00 of the Company’s common stock when computed over 30 consecutive trading days, 25% of each Executive’s Options shall vest.
On December 31, 2021, we issued 6,250 shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement of $62,500 of compensation payable to Mr. Kaufman under his employment agreement from October 1, 2021 through December 31, 2021. In addition, on December 31, 2021 we issued 673 shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement of $6,730 of compensation payable to Mr. Kessler under his employment agreement from December 23, 2021 through December 31, 2021. Each share of our Series A preferred stock is convertible into a number of shares of our Common Stock determined by dividing the aggregate stated value for the Series A preferred stock being converted (initially $10.00 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation) by the then-applicable conversion price (initially $0.25 per share, and $0.175 as of December 31, 2021, subject to adjustment as set forth in the currently effective Series A Certificate of Designation). We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.
On January 1, 2022, the Company granted warrants to purchase shares the Company’s common stock to a consultant in connection with the issuance of Series C preferred stock as follows: a warrant to purchase 400,000 shares with an exercise price of $1.50 per share, and a term of 5 years; a warrant to purchase 250,000 shares with an exercise price of $2.50 per share, and term of 5 years; and a warrant to purchase 250,000 shares with an exercise price of $2.75 per share, and term of 5 years.
On January 1, 2022, the Company granted an officer 7,722 shares Series A preferred stock for settlement of $77,216 in compensation under his employment agreement for services provided through March 31, 2022.
On January 25, 2022, the Company granted an officer 30,000 shares of common stock as compensation under his employment agreement for services provided through December 31, 2021. On December 31, 2022 the shares were rescinded and returned to the Company.
On May 31, 2022, the Company issued 169,205 shares of common stock to Highwire Energy Partners, Inc. (“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 December 31, 2022 Alpha had returned 600,000 shares of common stock in connection with the Settlement.
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On March 31, 2022, we issued 3,409 shares of our Series A preferred stock to Scott D. Kaufman, our former co-Chief Executive Officer, for settlement of $34,090 of compensation payable to Mr. Kaufman under his employment agreement from January 1, 2022 through March 31, 2022. In addition, on March 31, 2022 we issued 4,941 shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement of $49,410 of compensation payable to Mr. Kessler under his employment agreement from January 1, 2022 through March 31, 2022.
On June 30, 2022, we issued 5,361 shares of our Series A preferred stock to Scott D. Kaufman, our former co-Chief Executive Officer, for settlement of $53,610 of compensation payable to Mr. Kaufman under his employment agreement from April 1, 2022 through June 30, 2022. In addition, on June 30, 2022 we issued 4,941 shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement of $49,410 of compensation payable to Mr. Kessler under his employment agreement from April 1, 2022 through June 30, 2022.
On September 30, 2022, we issued: 902 shares of our Series A preferred stock to Scott D. Kaufman, our former co-Chief Executive Officer, for settlement of $9,020 of compensation payable to Mr. Kaufman under his employment agreement from July 1, 2022 through July 8, 2022; 2,958 shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement of $29,580 of compensation payable to Mr. Kessler under his employment agreement from July 1, 2022 through September 30, 2022; 8,333 shares of our Series A preferred stock to John D. Maatta, our Chief Executive Officer, for settlement of $83,333 of compensation payable to Mr. Maatta under his employment agreement from May 1, 2022 through September 30, 2022; and 3,426 shares of our Series A preferred stock to Scott Sheikh, our Chief Operating Officer and General Counsel, for settlement of $34,260 of compensation payable to Mr. Sheikh under his employment agreement from July 16, 2022 through September 30, 2022.
On December 31, 2022, we issued: 3,792 shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement of $37,920 of compensation payable to Mr. Kessler under his employment agreement from October 1, 2022 through December 31, 2022; 5,000 shares of our Series A preferred stock to John D. Maatta, our Chief Executive Officer, for settlement of $50,000 of compensation payable to Mr. Maatta under his employment agreement from October 1, 2022 through December 31, 2022; 4,110 shares of our Series A preferred stock to Scott Sheikh, our Chief Operating Officer and General Counsel, for settlement of $41,110 of compensation payable to Mr. Sheikh under his employment agreement from October 1, 2022 through December 31, 2022, and 685 shares of our Series A preferred stock to Alan Urban, our former Chief Financial Officer, for settlement of $6,850 of compensation payable to Mr. Urban under his employment agreement from October 1, 2022 through December 31, 2022.
Item 6. [Reserved]
Not required.
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Item 7. 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 years ended December 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” and elsewhere in this report.
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 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 $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 the Merger Agreement with Creek Road Merger Sub, LLC, a Delaware limited liability company and our wholly-owned subsidiary (“Merger Sub”), and Prairie, 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 our wholly-owned subsidiary.
Cryptocurrency Mining
We currently generate substantially all our revenue through cryptocurrency we earn through our mining activities, which we may strategically hold or sell at beneficial prices and times. 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 (“mining pool(s)”) 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. 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 December 31, 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.
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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. As of December 31, 2022, the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement, and the remaining amount due under the Bitmain Agreement is $47,600 and presented in the table 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 | 581,000 | ||||||
| Estimated total amount due | 4,016,600 | |||||||
| Less: Payments made | 3,969,000 | |||||||
| Remaining amount due | $ | 47,600 | ||||||
As of December 31, 2022, all 600 miners purchased from Bitmain have not been delivered to the Company, and will remain undelivered until all fees are paid to ship the miners from the Bitmain facility to the Company.
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 | |||||
| Revenue recognized from cryptocurrency mined | — | — | ||||||
| Mining pool operating fees | — | — | ||||||
| Proceeds from the sale of cryptocurrency | (0.6 | ) | (11,203 | ) | ||||
| Realized gain on the sale of cryptocurrency | — | 3,853 | ||||||
| Balance December 31, 2022 (1) | 0.6 | $ | 0 | |||||
| (1) | Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining. |
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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.
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” herein.
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.
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.
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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, 2022 or 2021 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.
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.
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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. 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.
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.
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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
On August 6, 2021, we entered into 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 $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.
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”).
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the years ending December 31, 2022 and 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the years ending December 31, 2022 and 2021, are classified as discontinued operations.
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Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
| Years Ended December 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 517,602 | $ | 369,804 | $ | 147,798 | 40 | % | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | 1,071,458 | 281,790 | 789,668 | 280 | % | |||||||||||
| Depreciation and amortization | 658,080 | 112,512 | 545,568 | 485 | % | |||||||||||
| Stock based compensation | 2,681,201 | 12,338,424 | (9,657,223 | ) | (78 | )% | ||||||||||
| General and administrative | 3,606,522 | 5,782,687 | (2,181,267 | ) | (38 | )% | ||||||||||
| Impairment of mined cryptocurrency | 107,174 | 59,752 | 47,422 | 79 | % | |||||||||||
| Total operating expenses | 8,124,435 | 18,575,165 | (10,455,832 | ) | (56 | )% | ||||||||||
| Loss from operations | (7,606,833 | ) | (18,210,464 | ) | 10,603,630 | 58 | % | |||||||||
| Other income (expense): | ||||||||||||||||
| Realized loss on sale of cryptocurrency | (127,222 | ) | — | (127,222 | ) | — | % | |||||||||
| Impairment of fixed assets | (5,231,752 | ) | — | (5,231,752 | ) | — | % | |||||||||
| Loss on sale of investment | (19,104 | ) | — | (19,104 | ) | — | % | |||||||||
| PPP loan forgiveness | 197,662 | 183,567 | 14,095 | 8 | % | |||||||||||
| Interest expense | (613,827 | ) | (1,175,217 | ) | 561,391 | 48 | % | |||||||||
| Total other income (expense) | (5,794,243 | ) | (991,650 | ) | (4,802,592 | ) | (484 | )% | ||||||||
| Net loss from continuing operations | (13,401,076 | ) | (19,202,114 | ) | 5,801,038 | 30 | % | |||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations | (17,738 | ) | 78,242 | (95,978 | ) | (123 | )% | |||||||||
| Gain from sale of discontinued operations | — | 1,853,169 | (1,853,169 | ) | (100 | )% | ||||||||||
| Net income (loss) from discontinued operations | (17,738 | ) | 1,931,411 | (1,949,146 | ) | (101 | )% | |||||||||
| Net loss | $ | (13,418,814 | ) | $ | (17,270,703 | ) | $ | 3,851,892 | 22 | % | ||||||
Revenue
| Years Ended December 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 517,602 | $ | 369,804 | $ | 147,798 | 40 | % | ||||||||
Total revenue increased $147,798, or 40%, for the year ended December 31, 2022 compared to the prior year, primarily because cryptocurrency mining operations did not begin until October 2021.
Operating Costs and Expenses
| Years Ended December 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Operating Costs and Expenses: | ||||||||||||||||
| Cryptocurrency mining costs | 1,071,458 | 281,790 | 789,668 | 280 | % | |||||||||||
| Depreciation and amortization | 658,080 | 112,512 | 545,568 | 485 | % | |||||||||||
| Stock based compensation | 2,681,201 | 12,338,424 | (9,657,223 | ) | (78 | )% | ||||||||||
| General and administrative | 3,606,522 | 5,782,687 | (2,181,267 | ) | (38 | )% | ||||||||||
| Impairment of mined cryptocurrency | 107,174 | 59,752 | 47,422 | 79 | % | |||||||||||
| Total operating expenses | 8,124,435 | 18,575,165 | (10,455,832 | ) | (56 | )% | ||||||||||
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Our operating costs and expenses decreased $10,455,832 or 56%, for the year ended December 31, 2022 compared to the prior year, due to the following:
| Category | Change | Key Drivers | |||||
| Cryptocurrency mining costs | ↑ | $ | 789,668 | Cryptocurrency mining operations did not begin until October 2021 | |||
| Depreciation and amortization | ↑ | $ | 545,568 | Addition of cryptocurrency mining equipment | |||
| Stock based compensation | ↓ | $ | (9,657,223 | ) | Decreased issuances of stock options and warrants | ||
| General and administrative | ↓ | $ | (2,181,267 | ) | Primarily lesser marketing and consulting expenses. | ||
| Impairment of cryptocurrency | ↑ | $ | 47,422 | Driven by the drop in the price of Bitcoin during the year 2022 | |||
Net Income (Loss)
| Year Ended December 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Net Income (Loss): | ||||||||||||||||
| Net loss from continuing operations | $ | (13,401,076 | ) | (19,202,114 | ) | 5,801,038 | 30 | % | ||||||||
| Net income (loss) from discontinued operations | (17,738 | ) | 1,931,411 | (1,949,146 | ) | (101 | )% | |||||||||
| Total net loss | $ | (13,418,814 | ) | $ | (17,270,703 | ) | $ | 3,851,892 | 22 | % | ||||||
Net loss from continuing operations decreased $5,801,038 or 30%, for the year ended December 31, 2022 compared to the prior year, primarily due to decreased stock based compensation and general and administrative expenses as described above, partially offset by an impairment of fixed assets of approximated $5.2 million.
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 $13,401,076, and $19,202,114, for the years ended December 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 December 31, 2022, we had cash and cash equivalents of $246,358, a working capital deficit of approximately $8.1 million, and an accumulated deficit of approximately $61 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. The Company may be able to 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.
Liquidity and Capital Resources
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Consolidated Statements of Cash Flow Data: | ||||||||
| Net cash used in operating activities | $ | (2,192,607 | ) | $ | (6,969,723 | ) | ||
| Net cash used in investing activities | (1,815,520 | ) | (9,928,726 | ) | ||||
| Net cash provided by financing activities | 1,469,297 | 17,785,933 | ||||||
| Net increase (decrease) in cash and cash equivalents | (2,538,830 | ) | 887,484 | |||||
| Cash and cash equivalents, beginning of period | 2,785,187 | 1,897,703 | ||||||
| Cash and cash equivalents, end of period | $ | 246,358 | $ | 2,785,187 | ||||
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Liquidity
As of December 31, 2022, we had cash and cash equivalents of $246,358, compared to $2,785,187 as of December 31, 2021, a decrease of $2,538,830. This decrease was primarily due to cash used in operating and investing activities, partially offset by cash generated by financing activities.
Operating Activities
Net cash used in operating activities was $2,192,607 for the year ended December 31, 2022 and resulted primarily from a net loss of $13,418,814, partially offset by the impairment of fixed assets of $5,231,752, an increase in accounts payable and accrued expenses of $3,371,432, and stock based compensation of $2,870,665.
Net cash used in operating activities was $6,969,723 for the year ended December 31, 2021 and resulted primarily from a net loss of $17,270,703, an adjustment for the gain on sale of discontinued operations of $1,853,169, a decrease in liabilities associated with discontinued operations of $1,228,911, and partially offset by stock based compensation of $12,585,009.
Investing Activities
Net cash used in investing activities was $1,815,520 for the year ended December 31, 2022 and resulted primarily the purchase of property and equipment of $5,295,478, partially offset by deposits on mining equipment, net of $2,939,550.
Net cash used in investing activities was $9,928,726 for the year ended December 31, 2021 and resulted primarily from deposits on mining equipment of $7,613,230, and the purchase of property and equipment, specifically mining equipment, of $2,315,496.
Financing Activities
Net cash provided by financing activities was $1,469,297 for the year ended December 31, 2022 and resulted primarily from proceeds from the exercise of warrants of $983,330 and the issuance of a note payable for $500,000.
Net cash provided by financing activities was $17,785,933 for the year ended December 31, 2021 and resulted primarily from proceeds from the issuance of common and preferred stock and warrants, net of approximately $16 million, and from proceeds from of the sale of discontinued operations of $1.5 million.
Working Capital (Deficit)
The following table summarizes total current assets, liabilities, and working capital for the years ended December 31, 2022 and 2021:
| Years Ended December 31, | Increase/ | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Current assets | $ | 5,050,740 | $ | 10,827,973 | $ | (5,777,233 | ) | |||||
| Current liabilities | $ | 13,168,256 | $ | 6,039,311 | $ | 7,128,945 | ||||||
| Working capital (deficit) | $ | (8,117,516 | ) | $ | 4,788,662 | $ | (12,906,178 | ) | ||||
As of December 31, 2022, we had a working capital deficit of $8,117,516, compared to a working capital of $4,788,662 as of December 31, 2021, a decrease of 12,906,178. The decrease was primarily due to decreases in cash and deposits on mining equipment, and increases in accounts payable and accrued expenses, accrued interest, convertible notes payable, and secured convertible debenture – related party moving from a non-current to a current liability.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
For information about recently issued accounting standards, refer to Note 3 to our Consolidated Financial Statements appearing elsewhere in this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required.
| 31 |
Item 8. Financial Statements and Supplementary Data
The financial statements required by Item 8 are presented in the following order:
TABLE OF CONTENTS
| 32 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Creek Road Miners, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Creek Road Miners, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, of stockholders’ equity, and of cash flows for each of the two years in period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses from operations and has an accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the Accounting for and Disclosure of Cryptocurrency Mining Revenue Recognized
We identified the accounting for and disclosure of cryptocurrency mining revenue recognized as a critical audit matter due to the complexities involved in auditing completeness and occurrence of the revenue recognized by the Company. During the year ended December 31, 2022, the Company recognized revenue from mining Bitcoin of approximately $518,000. The Company’s management has exercised significant judgment in their determination of how existing GAAP should be applied to the accounting for and disclosure of cryptocurrency mining revenue recognized.
We performed the following procedures (not all inclusive) to address this critical audit matter:
| ● | Evaluated management’s disclosures of its cryptocurrency activity in the financial footnotes; | |
| ● | Compared the Company’s digital cold storage wallet records to available blockchain records publicly available; | |
| ● | Evaluated management’s decision to apply ASC 606 to account for and record its cryptocurrency awards earned in the mining pool, which included evaluating provisions of the agreement with the Mining Pool operator; | |
| ● | Tested supporting documentation for the valuation of cryptocurrency awards earned; | |
| ● | Performed substantive procedures to determine completeness and occurrence of cryptocurrency assets earned from the Company’s mining activities. |
Evaluation of the Fair Value of Computer Equipment Related to Cryptocurrency Mining Activities
We identified the accounting for and disclosure of the fair value of the miners or computer equipment used in mining bitcoin as a critical audit matter due to the Company’s exercise of significant judgment in their determination of how the existing accounting principles generally accepted in the United States should be applied to the valuation of the mining equipment.
The primary procedures we performed to address this critical audit matter included the following:
| ● | Evaluated the Company’s processes for valuing its mining equipment; | |
| ● | Obtained independent quotations for similar equipment used by the Company; | |
| ● | Evaluated and tested management’s rationale and supporting documentation associated with the valuation of its mining equipment. |
/s/
We have served as the Company’s auditor since 2017.
March 31, 2023
| F-1 |
Creek Road Miners, Inc. and Subsidiaries
Consolidated Balance Sheets
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, ( | ||||||||
| Receivable from sale of investment | ||||||||
| Prepaid expenses | ||||||||
| Deposits on mining equipment | ||||||||
| Inventory | ||||||||
| Cryptocurrency | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Right of use asset, net of accumulated amortization of $ | ||||||||
| Deposits and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest and expenses – related parties | ||||||||
| Convertible notes payable | ||||||||
| Lease liability, current portion | ||||||||
| Secured convertible debenture(s) – related party(ies) | ||||||||
| Current liabilities associated with discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Lease liability, long term portion | ||||||||
| Secured convertible debenture – related party, net of unamortized debt discount of $ | ||||||||
| SBA/PPP loans payable | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| 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; and shares issued and outstanding, respectively | ||||||||
| Preferred stock value | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See notes to consolidated financial statements.
| F-2 |
Creek Road Miners, Inc. and Subsidiaries
Consolidated Statements of Operations
| 2022 | 2021 | |||||||
| Years Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue: | ||||||||
| Cryptocurrency mining | $ | $ | ||||||
| Operating costs and expenses: | ||||||||
| Cryptocurrency mining costs | ||||||||
| 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 | ( | ) | ||||||
| Impairment of fixed assets | ( | ) | ||||||
| Loss on sale of investment | ( | ) | ||||||
| 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 from discontinued operations | ( | ) | ||||||
| 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 consolidated financial statements.
| F-3 |
Creek Road Miners, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2022 and 2021
Series
A Par value $0.0001 | Series
B Par value $0.0001 | Series
C Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (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 | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Recission of common stock issued for services | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for investment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock to settle liabilities | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| 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 debentures to common | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Settlement to exchange warrant shares for convertible note | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Dividend on Series A preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividend on Series B preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| F-4 |
Creek Road Miners, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
For the Years Ended December 31, 2022 and 2021 (Continued)
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Equity (Deficit) | |||||||||||||||||||||||||||||||||||||
Series
A Par value $0.0001 | Series
B Par value $0.0001 | Series
C Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| 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 common stock and warrants, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock and warrants, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series C preferred stock and warrants, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Dividend on Series A preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividend on Series B preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Write-off of non-controlling interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
| F-5 |
Creek Road Miners, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| 2022 | 2020 | |||||||
| Years Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flow from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Gain from sale of discontinued operations | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Accretion of debt discount | ||||||||
| Amortization of lease right | ( | ) | ||||||
| Stock based compensation | ||||||||
| Impairment of cryptocurrency | ||||||||
| Impairment of fixed assets | ||||||||
| Realized loss on sale of cryptocurrency | ||||||||
| Loss on sale of investment | ||||||||
| PPP loan forgiveness | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Receivable from sale of investment | ( | ) | ||||||
| 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 sale of cryptocurrency | ||||||||
| Purchase of investment | ( | ) | ||||||
| Proceeds from sale 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 common stock and warrants, net | ||||||||
| Proceeds from the issuance of series B preferred stock and warrants, net | ||||||||
| Proceeds from the issuance of series C preferred stock and warrants, net | ||||||||
| Proceeds from the exercise of stock options | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from (payments to) SBA/PPP loans payable | ( | ) | ||||||
| Proceeds from note payable | ||||||||
| Proceeds from the sale of discontinued operations | ||||||||
| 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 consolidated financial statements.
| F-6 |
Creek Road Miners, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
| Years Ended | ||||||||
| December 31, | ||||||||
| 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 | $ | $ | ||||||
| Dividends on preferred stock | $ | $ | ||||||
| Issuance of common stock for investment | $ | $ | ||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||
| Conversion of secured convertible debentures to common stock | $ | $ | ||||||
| Settlement to exchange warrant shares for convertible note | $ | $ | ||||||
See notes to consolidated financial statements.
| F-7 |
CREEK ROAD MINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
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”).
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 $
On
September 15, 2021, we sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations for $
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.
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. 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. Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
| F-8 |
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 December 31, 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 $
Schedule of Market Price of Miners
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) | ||||||||
| Estimated total amount due | ||||||||
| Less: Payments made | ||||||||
| Remaining amount due | $ | |||||||
As of December 31, 2022, all 600 miners purchased from Bitmain have not been delivered to the Company, and will remain undelivered until all fees are paid to ship the miners from the Bitmain facility to the Company.
Mining Results
The Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency mining activities. The following table presents additional information regarding our cryptocurrency mining operations:
Schedule of Cryptocurrency Mining Operations
| Quantity of Bitcoin | US$ 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) | $ | |||||||
| Balance beginning | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ||||||||
| Proceeds from the sale of cryptocurrency | ( | ) | ( | ) | ||||
| Realized gain on the sale of cryptocurrency | ||||||||
| Realized gain (loss) on the sale of cryptocurrency | ||||||||
| Balance December 31, 2022 (1) | $ | |||||||
| Balance ending | $ | |||||||
| (1) |
| F-9 |
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 December 31, 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”.
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
| F-10 |
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. The Company may be able to 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.
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. The following table lists the Company’s wholly-owned subsidiaries as of December 31, 2022:
Schedule of Company’s Wholly-owned Subsidiaries
| Name of consolidated subsidiary or entity | State or other jurisdiction of incorporation or organization | Date of incorporation or formation (date of acquisition, if applicable) | Attributable interest | |||||
| Creek Road Miners Corp. (fka Kick the Can Corp.) | Nevada, U.S.A. | September 20, 2010 | % | |||||
| Wizard Special Events, LLC | California, U.S.A. | June 5, 2018 | % | |||||
| Creek Road Merger Sub, LLC | Delaware, U.S.A. | October 4, 2022 | % | |||||
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 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.
| F-11 |
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, 2022 or 2021 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.
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 $
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.
| F-12 |
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.
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.
| F-13 |
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, fuel and 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
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.
Income taxes
The Company accounts 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
On
August 6, 2021, the Company entered into 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 $
| F-14 |
On
September 15, 2021, the Company sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations
for $
In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022.
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the years ending December 31, 2022 and 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the years ending December 31, 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 years ended December 31, 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 December 31, 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 | ||||||||||||||||||||
| (2) |
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.
| F-15 |
Note 4. Deposits on Mining Equipment
Deposits on mining equipment, consisted of the following:
Schedule of Mining Equipment
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 | $ | $ | $ | |||||||||
| Balance beginning | $ | $ | $ | |||||||||
| Deposits on equipment during the period | ||||||||||||
| Equipment delivered during the period | ( | ) | ( | ) | ( | ) | ||||||
| Balance December 31, 2022 | $ | $ | $ | |||||||||
| Balance ending | $ | $ | $ | |||||||||
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 December 31, 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 $
Schedule of Estimated Market Price of Miners
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) | ||||||||
| Estimated total amount due | ||||||||
| Less: Payments made | ||||||||
| Remaining amount due | $ | |||||||
As of December 31, 2022, all 600 miners purchased from Bitmain have not been delivered to the Company, and will remain undelivered until all fees are paid to ship the miners from the Bitmain facility to the Company.
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 December 31, 2022. The impairment amounted to $
Schedule of Additional Information of Cryptocurrency Mining Operations
| Quantity of Bitcoin | US$ Amounts | |||||||
| Balance December 31, 2020 | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of cryptocurrencies | ( | ) | ||||||
| Balance December 31, 2021 | $ | |||||||
| Balance beginning | $ | |||||||
| 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 December 31, 2022 (1) | $ | |||||||
| Balance ending | $ | |||||||
| (1) |
| F-16 |
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:
Schedule of Property and Equipment
| 2022 | 2021 | |||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cryptocurrency miners | $ | $ | ||||||
| Mobile data centers | ||||||||
| Computer equipment | ||||||||
| Total | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net, Property and equipment | $ | $ | ||||||
Depreciation
expense, excluding that associated with discontinued operations, for the years ended December 31, 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 December 31, 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.
The
Company paid Highwire $
On December 30, 2022 the Company sold its investment in Highwire and recorded the transaction as follows:
Schedule of Sale of Investment
| Description | Amount | |||
| Basis of Investment | $ | |||
| Less: | ||||
| Cash receivable at closing | ||||
| Offset of account payable to seller | ||||
| Total | ||||
| Loss from sale | $ | |||
| F-17 |
Note 8. Amounts Due to Related Parties
Amounts due to related parties as of December 31, 2022 consisted of the following:
Schedule of Due to Related Parties
Bristol Capital, LLC | Bristol Investment Fund, Ltd. |
Barlock 2019 Fund, LP | Total | |||||||||||||
| Accrued Interest and expenses | $ | $ | $ | $ | ||||||||||||
| Current secured convertible debentures | ||||||||||||||||
| 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 December 31, 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 is 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 $
| F-18 |
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 years ended December 31, 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 “Sublease”).
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 $
| F-19 |
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 $
On December 31, 2022 the maturity date of the Bristol Convertible Debenture was amended to May 31, 2023.
As
of December 31, 2022 and 2021, the Bristol Convertible Debenture with a principal amount of $
As
of December 31, 2022 and 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
$
| F-20 |
On
October 31, 2021, as a result of the anti-dilution provisions, the effect of reducing the conversion price of the Convertible Debentures
to $
On
September 9, 2022, Bristol Investment Fund assigned
As
of December 31, 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 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 $
(ii) 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 $
| F-21 |
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.
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 December 31, 2022 and 2021, the Barlock Convertible Debenture with a principal amount of $
As
of December 31, 2022 and 2021, the amount of accrued interest payable to Barlock under the Barlock Convertible Debenture was $
(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 December 31, 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.
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 $
| F-22 |
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 $
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 $
| F-23 |
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.
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. Lease Obligations
Office Lease Obligation
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease with Bristol Capital Advisors, a related party. The leased premises
are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company.
The
Company classified the lease as an operating lease and determined that the value of the lease assets and liability on January 1, 2019,
the date the Company adopted ASC 842 using the modified retrospective approach, was $
| F-24 |
Warehouse Lease Obligation
On
April 18, 2020 the Company entered into a commercial lease for
The
Company classified the lease as an operating lease and determined that the value of the lease assets and liability at the inception of
the lease was $
The following table presents lease expense for the following years:
Schedule of Components of Lease Expenses
| 2022 | 2021 | |||||||
| For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease | $ | $ | ||||||
Note 12. 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 $
The following table summarizes PPP/SBA loans payable:
Schedule of Loans Payable
December 31, 2022 | December 31, 2021 | |||||||
| As of | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
| SBA Guaranteed PPP Loan | $ | $ | ||||||
| SBA Loan | ||||||||
| Second Draw SBA Guaranteed PPP Loan | ||||||||
| Total | $ | $ | ||||||
| F-25 |
Note 13. Contingencies and Commitments
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 December 31, 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.
Schedule of Stock Option Activity
| Weighted | ||||||||
| Average | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| Outstanding at December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited/Cancelled | ( | ) | ||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited/Cancelled | ( | ) | ||||||
| Outstanding at December 31, 2022 | $ | |||||||
| Exercisable at December 31, 2020 | $ | |||||||
| Exercisable at December 31, 2021 | $ | |||||||
| Exercisable at December 31, 2022 | $ | |||||||
| F-26 |
Schedule of Assumptions Used to Estimate Fair Value of Options
| Assumptions | ||||
| Expected dividend yield | % | |||
| Risk-free interest rate | - | % | ||
| Expected life (in years) | – | |||
| Expected volatility | - | % | ||
The weighted average remaining contractual life of all options outstanding, vested and exercisable as of December 31, 2022 was years. Furthermore, the aggregate intrinsic value of options outstanding as of December 31, 2022 and 2021, was $ and $, respectively, and in each case based on the fair value of the Company’s common stock on December 31, 2022 and 2021, respectively.
During the year ended December 31, 2022, the Company issued net shares of common stock upon the cashless exercise of options underlying shares of common stock, and option holders cancelled options to purchase shares of common stock.
During
the year ended December 31, 2021, the Company granted to Directors and employees options to purchase a total of shares of the
Company’s common stock with a fair value of $, which will be amortized over the vesting period. The total fair value
of options that vested during the year ended December 31, 2021 was $ and was included in stock based compensation expense in
the accompanying statement of operations. As of December 31, 2021, the amount of unvested compensation related to the unvested options
was $ which will be recorded as an expense in future periods as the options vest. During the year ended December 31, 2021, the
Company issued net shares of common stock upon the exercise of options underlying shares of common stock, resulting in
net cash proceeds of $
On December 1, 2021, the Company granted certain of its Directors and employees options to purchase a total of shares of the Company’s common stock with an exercise price of $ per share, a term of years, and a shall vest upon a VWAP of the Company’s common stock reaching the following targets: at
Schedule of Stock Option Outstanding and Exercisable
| Option | Remaining | |||||||||||||
| Exercise | Options | Contractual | Options | |||||||||||
| Price | Outstanding | Life (in years) | Exercisable | |||||||||||
| $ | ||||||||||||||
Note 15. Common Stock Warrants
During
the year ended December 31, 2022, the Company granted warrants to purchase a total of shares of the Company’s common stock
to a consultant. In addition, the Company granted fully vested warrants to purchase
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
| F-27 |
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
During the three months ended December 31, 2022, warrants to purchase shares of the Company’s common stock were cancelled by the warrant holders.
On
March 1, 2021, the Company granted warrants to purchase shares the Company’s common stock to certain consultants as follows: two
warrants to purchase
On
March 24, 2021, the Company granted warrants to purchase shares the Company’s common stock to a consultant as follows: a warrant
to purchase
From
August 2021 through October 2021, in connection with the issuance of common stock, the Company issued warrants to acquire
On
October 12, 2021, the Company granted certain directors warrants to purchase a total of shares of the Company’s common stock
with an exercise price of $
On
October 20, 2021, the Company granted a director a warrant to purchase shares of the Company’s common stock with an exercise
price of $
On
October 31, 2021, the Company granted a consultant warrants to purchase
| F-28 |
During
December 2021, in connection with the issuance of Series C preferred stock, the Company issued (i) warrants to acquire
The following table summarizes common stock warrant activity during the years ended December 31, 2022 and 2021:
Schedule of Stock Warrants Activity
Common Stock Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2020 | $ | |||||||
| Results of anti-dilution provisions (1) | (1) | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited/Cancelled | ( | ) | ||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Results of anti-dilution provisions | ||||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited/Cancelled | ( | ) | ||||||
| Outstanding at December 31, 2022 | $ | (2) | ||||||
| Exercisable at December 31, 2020 | $ | |||||||
| Exercisable at December 31, 2021 | $ | |||||||
| Exercisable at December 31, 2022 | $ | (2) |
| (1) |
| (2) |
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 year ended December 31, 2021 and 2022:
Schedule of Assumptions Used to Estimate Fair Value of Warrants
| 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 December 31, 2022 was years. Furthermore, the aggregate intrinsic value of common stock warrants outstanding as of December 31, 2022 was $, based on the fair value of the Company’s common stock on December 31, 2022.
| F-29 |
Schedule of Stock Warrants Outstanding and Exercisable
| Warrant | Remaining | |||||||||||||
| Exercise | Warrants | Contractual | Warrants | |||||||||||
| Price | Outstanding | Life (in years) | Exercisable | |||||||||||
| $ | ||||||||||||||
| Total | ||||||||||||||
Note 16. 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
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
$
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.
| F-30 |
The following table summarizes Series B preferred stock warrant activity during the year ended December 31, 2022:
Schedule of Stock Warrants Activity
Series B Preferred Stock Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited/Cancelled | ||||||||
| Outstanding at December 31, 2022 | $ | |||||||
| Exercisable at December 31, 2022 | $ | |||||||
The weighted average remaining contractual life of all Series B preferred stock warrants outstanding as of December 31, 2022 was years.
Note 17. 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 December 31, 2022 the shares were rescinded and returned to the Company.
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 December 31, 2022 Alpha had returned shares of common stock in connection with the Settlement.
Note 18. 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.
| F-31 |
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 (
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 $
On
December 31, 2022, we issued: shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement
of $
| F-32 |
During the year ended December 31, 2022 and 2021, and shares of Series A preferred stock were converted into and shares of common stock, respectively.
As
of December 31, 2022, there were shares of Series A preferred stock outstanding resulting in Series A preferred stock with a
stated value of $
On
March 1, 2021, we issued shares of our Series A preferred stock as follows: shares to Mr. Maatta in satisfaction of an aggregate
of $
On
June 30, 2021, we issued shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement
of $
On
September 30, 2021, we issued shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement
of $
On
December 31, 2021, we issued shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement
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 (
| F-33 |
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 $
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 $
During the years ended December 31, 2022 and 2021, and shares of Series B preferred stock had been converted into and shares of common stock, respectively.
As
of December 31, 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.
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 $
| F-34 |
As
of December 31, 2022, there were shares of Series C preferred stock outstanding resulting in Series C preferred stock with a stated
value of $
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 $
Note 19. Discontinued Operations
On
August 6, 2021, the Company entered into 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 $
Schedule of Gain from Sale of Discontinue Operation
| 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
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”).
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the years ending December 31, 2022 and 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the years ending December 31, 2022 and 2021, are classified as discontinued operations.
| F-35 |
The assets and liabilities related to discontinued operations consists of the following:
Schedule of Discontinued Operation of Balance Sheet and Operation Statement
| December 31, | 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 | $ | $ | ||||||
In addition, revenue and expenses from discontinued operations were as follows:
| 2022 | 2021 | |||||||
| Years Ended | ||||||||
| December 31, | ||||||||
| 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 | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Total other income (expense) | ( | ) | ||||||
| Income (loss) from discontinued operations | $ | ( | ) | $ | ||||
Note 20. 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 December 31, 2022
On
March 2, 2023, we entered into a Master Services Agreement and Order Form (the “Master Services Agreement”) with Atlas Power
Hosting, LLC (“Atlas”). Atlas will provide us with cryptocurrency mining services for our miners at its facility in North
Dakota. The Master Services Agreement has a term of
| F-36 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements with our accountants on accounting and financial disclosure during the last two fiscal years.
Item 9A. 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 Annual Report on Form 10-K. 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 December 31, 2022, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| (i) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; | |
| (ii) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and | |
| (iii) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022, using the framework set forth in the report of the Treadway Commission’s Committee of Sponsoring Organizations (“COSO”), “2013 Internal Control - Integrated Framework.” Based upon that evaluation, management believes our internal control over financial reporting was effective as of December 31, 2022.
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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 Controls Over Financial Reporting
Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.
Item 9B. Other Information
On March 30, 2023, the Company and the holder of the Company’s convertible promissory note in the principal amount of $500,000 entered into an amendment pursuant to which the maturity date of the note was extended to the earlier of May 31, 2023, or the closing of the Merger.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth the name, age, position, and date of appointment of each of our directors and executive officers as of March 31, 2023:
| Name | Age | Position | Date of Appointment | |||
| Paul L. Kessler | 62 | Executive Chairman | March 17, 2013 (1) | |||
| John D. Maatta | 71 | Director and Chief Executive Officer | May 25, 2011 (2) | |||
| Scott Sheikh | 41 | Chief Operating Officer and General Counsel | December 23, 2021 | |||
| Michael Breen (3) | 60 | Director | March 29, 2017 |
| (1) | 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. | |
| (2) | Mr. Maatta has served as a member of the Board since May 25, 2011, serving as Chairman of the Board from February 5, 2016 through April 22, 2016. In addition, Mr. Maatta served as the Company’s President and Chief Executive Officer from May 3, 2016 through 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. | |
| (3) | Chairman of Audit Committee and Compensation Committee |
Paul L. Kessler – Executive Chairman
Mr. Kessler combines over 30 years of experience as an investor, financier and venture capitalist. In 2000, Mr. Kessler founded Bristol Capital Advisors, LLC, a Los Angeles based investment advisor, where he has served as the Principal and Portfolio Manager from 2000 through the present. Mr. Kessler has broad experience in operating, financing, capital formation, negotiating, structuring and re-structuring investment transactions. He is involved in all aspects of the investment process including identification and engagement of portfolio companies. His investment experience encompasses both public and private companies. Mr. Kessler has actively worked with executives and boards of companies on corporate governance and oversight, strategic repositioning and alignment of interests with shareholders. The Board believes Mr. Kessler’s extensive experience make him uniquely qualified to serve as a director, and his extensive experience in matters including capital formation, corporate finance, investment banking, operations, corporate governance, as well as his understanding of capital markets, will provide a significant contribution to the growth of the Company.
John D. Maatta – Director and Chief Executive Officer
Mr. Maatta served as EVP of The CW Television Network, prior to which he was the Chief Operating Officer of The CW Network. From September 2005 through September 2006, Mr. Maatta served as the Chief Operating Officer of The WB, a Warner Bros. television network. While Chief Operating Officer at The WB, Mr. Maatta also served as The WB’s General Counsel. Mr. Maatta is currently a director of Trader Vic’s, Inc., a Polynesian-style restaurant chain, a position he has held since 1998. Formerly, Mr. Maatta was engaged in the practice of law, and received a Bachelor of Arts in Government from the University of San Francisco in 1974, and a Juris Doctorate from the University of California, Hastings College of the Law, in 1977. Between 2013 and 2016 Mr. Maatta served as the President of UNICEF for the Southern California region, and is a current member of the UNICEF Southern California Board and the Chairman of the UNICEF Chinese Children’s Initiative. Mr. Maatta is also a member of the Southern California Board of the Asia Society. The Board believes that Mr. Maatta’s experience extensive experience make him uniquely qualified to serve as a director.
Scott Sheikh – Chief Operating Officer and General Counsel
Mr. Sheikh has a background in logistics, emerging technologies (such as blockchain), crypto mining and cutting-edge law. His expertise ranges from the business and legal aspects of blockchain-based businesses and. cryptocurrency mining operations. He was admitted to the State Bar of California on July 3, 2007 and received his Juris Doctorate from the University of California, Hastings College of the Law in 2007. Prior, he studied Chemistry and History at the University of California, Los Angeles.
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Michael Breen - Director
Mr. Breen is an English qualified solicitor and was the Managing Director of the Sports and Entertainment Division of Bank Insinger de Beaufort N.V., a wealth management organization and part of the BNP Paribas Group, one of the world’s largest banks. In addition, Mr. Breen was an equity partner with the law firm Clyde & Co, where he specialized in all aspects of sports and entertainment law. Mr. Breen also has extensive experience in event-based entertainment, having been responsible for the legal documentation relating to the world-famous UK music awards known as the Brit Awards. Mr. Breen holds an Honours LLB degree in law from the University College of Wales, Aberystwyth. The Board believes Mr. Breen’s extensive experience make him uniquely qualified to serve as a director.
Term of Office
The term of office for directors is one year, or until his or her successor is duly elected and qualified.
Family Relationships
There are no family relationships between any of our officers and directors.
Corporate Governance
Director Independence
Our board of directors consists of three persons, one of whom, Mr. Breen, is “independent” as defined under the applicable NASDAQ rules. Mr. Kessler is a significant shareholder of the Company, and Mr. Maatta is an executive officer of the Company, neither is independent.
Audit Committee
The Audit Committee was created on March 17, 2013. Currently, the Audit Committee is comprised of Mr. Breen who is the Chairman and an independent Director. The Audit Committee’s functions include: selecting our independent registered public accountants; reviewing the results and scope of the audit and other services provided by our independent registered public accountants; reviewing our financial statements for each interim period and for our year end and our internal financial and accounting controls; and recommending, establishing and monitoring the Company’s disclosure controls and procedures. The Company does not have an audit committee financial expert serving on its audit committee in light of its size and the need to control administrative costs.
Compensation Committee
The Compensation Committee was created on March 17, 2013. Currently, the Compensation Committee is comprised of Mr. Breen who is the Chairman and an independent Director. The Compensation Committee is responsible for establishing and administering our policies involving the compensation of all of our executive officers and establishing and recommending to our Board the terms and conditions of all employee and consultant compensation and benefit plans.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee was created on March 13, 2014. The Nominating and Corporate Governance Committee reviews and provides oversight with regard to the Company’s corporate governance related policies and procedures and also recommends nominees to the Board and committees of the Board, develops and recommends to the Board corporate governance principles, and oversees the evaluation of the Board and management.
Code of Ethics
Our board of directors has adopted a Code of Ethical Conduct that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The code is available on our website, www.creekroadminers.com.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our officers, directors, and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC and to furnish the Company with copies of all Section 16(a) forms they file. Our review of copies of the Section 16(a) reports filed to report transactions occurring during the fiscal year ended December 31, 2022 indicates that all filing requirements applicable to our officers, directors, and greater than ten percent beneficial owners were complied with except as follows: Mr. Maatta did not file a Form 4 for the purpose of reporting one transaction.
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Legal Proceedings
There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is averse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
Item 11. Executive Compensation
Compensation of Executive Officers
The following table summarizes all compensation for the last two fiscal years awarded to, earned by, or paid to our Chief Executive Officer (principal executive officer) and our two most highly compensated executive officers other than our CEO who were serving as executive officers at the end of our last completed fiscal year, whose total compensation exceeded $100,000 during such fiscal year ends.
Compensation of Executive Officers for Fiscal Years Ended December 31, 2022 and 2021
| Name and Principal Position | Fiscal Year | Salary ($) | Stock Awards ($) | All other Compensation ($) | Total ($) | |||||||||||||||
| Paul L. Kessler, Executive Chairman | 2022 | 48,342 | 166,320 | (8) | 14,355 | 229,017 | ||||||||||||||
| 2021 | 48,219 | 6,700,480 | (1)(2) | 12,015 | 6,760,714 | |||||||||||||||
| John D. Maatta, President and Chief | 2022 | — | 133,330 | (9) | — | 133,330 | ||||||||||||||
| Executive Officer, and Director | 2021 | — | 85,564 | (5) | 60,000 | (6) | 145,564 | |||||||||||||
| Scott Sheikh, Chief Operating Officer and | 2022 | 84,142 | 152,580 | (10) | 3,008 | 239,730 | ||||||||||||||
| General Counsel | 2021 | 99,362 | 2,231,250 | (7) | 536 | 2,331,148 | ||||||||||||||
| Scott D. Kaufman, Former President and Chief | 2022 | 22,104 | 69,720 | (11) | 811 | 92,635 | ||||||||||||||
| Executive Officer, and Director | 2021 | 19,518 | 6,964,563 | (1)(3) | 200,111 | (4) | 7,184,192 | |||||||||||||
| Alan L. Urban, Former Chief Financial Officer | 2022 | 196,610 | 6,850 | (12) | 49,495 | 252,955 | ||||||||||||||
| 2021 | — | 2,231,250 | (7) | — | 2,331,250 | |||||||||||||||
| Heidi Bowman, Former Chief Financial | 2022 | — | — | — | — | |||||||||||||||
| Officer | 2021 | 140,192 | — | 116 | 140,308 | |||||||||||||||
| (1) | Represents the grant date fair value of options granted on December 1, 2021, to purchase 2,625,000 shares of the Company’s common stock with an exercise price of $2.65 per share, a term of 5 years, and a shall vest upon a volume weighted average price (“VWAP”) of the Company’s common stock reaching the following targets: at such time as there is a VWAP equal to $2.50 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.00 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.50 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest; and at such time as there is a VWAP equal to $4.00 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest. These options were cancelled by the option holder during the year ended December 31, 2022. |
| (2) | Represents 673 shares of Series A preferred stock for settlement of $6,730 of compensation payable to Mr. Kessler under his employment agreement from December 23, 2021 through December 31, 2021. |
| (3) | Represents 27,048 shares of Series A preferred stock for settlement of $270,812 of compensation payable to Mr. Kaufman under his employment agreement from November 24, 2020 through December 31, 2021, and the grant date fair value of 37,500 options granted on August 3, 2020, to purchase the Company’s common stock with an exercise price of $0.25 per share, as amended, and a term of 5 years. |
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| (4) | Represents a one-time non-accountable expense reimbursement of $200,000 in consideration for significant efforts and diligence in negotiating and structuring investment transactions paid on September 7, 2021. |
| (5) | Represents 50,767 shares of Series A preferred stock issued for the settlement of $507,672 in outstanding compensation. |
| (6) | Consulting fees. |
| (7) | Represents the grant date fair value of options granted on December 1, 2021, to purchase 875,000 shares of the Company’s common stock with an exercise price of $2.65 per share, a term of 5 years, and a shall vest upon a volume weighted average price (“VWAP”) of the Company’s common stock reaching the following targets: at such time as there is a VWAP equal to $2.50 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.00 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.50 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest; and at such time as there is a VWAP equal to $4.00 of the Company’s common stock when computed over 30 consecutive trading days, 25% shall vest. These options were cancelled by the option holder during the year ended December 31, 2022. |
| (8) | Represents 16,632 shares of Series A preferred stock for settlement of $166,320 of compensation payable to Mr. Kessler under his employment agreement for the year ended December 31, 2022. |
| (9) | Represents 13,333 shares of Series A preferred stock for settlement of $133,330 of compensation payable to Mr. Maatta under his employment agreement for the year ended December 31, 2022. |
| (10) | Represents 15,258 shares of Series A preferred stock for settlement of $152,580 of compensation payable to Mr. Sheikh under his employment agreement for the year ended December 31, 2022. |
| (11) | Represents 6,972 shares of Series A preferred stock for settlement of $69,720 of compensation payable to Mr. Kaufman under his employment agreement for the year ended December 31, 2022. |
| (12) | Represents 685 shares of Series A preferred stock for settlement of $6,850 of compensation payable to Mr. Urban under his employment agreement for the year ended December 31, 2022. |
Outstanding Equity at Fiscal Year Ended December 31, 2022
The following table sets forth information regarding stock options, warrants and other stock awards for each named executive officer as of December 31, 2022.
Outstanding Equity Awards at Fiscal Year Ended December 31, 2022
| Number of | Number of | |||||||||||||||
| securities | Securities | |||||||||||||||
| underlying | Underlying | Option/ | Option/ | |||||||||||||
| unexercised | Unexercised | Warrant | Warrant | |||||||||||||
| options/warrants | options/warrants | exercise | expiration | |||||||||||||
| Name | exercisable (#) | unexercisable (#) | price ($) | date | ||||||||||||
| Paul L. Kessler | 15,000 | 15,000 | $ | 0.25 | 1/22/2024 | |||||||||||
| John D. Maatta | 100,000 | 100,000 | $ | 0.25 | 8/3/2025 | |||||||||||
| John D. Maatta | 20,000 | 20,000 | $ | 0.25 | 1/22/2024 | |||||||||||
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Compensation of Directors
The following table sets forth compensation awarded or paid to our directors for the last two fiscal years for the services rendered by them to the Company in all capacities.
Director Compensation for the Fiscal Years Ended December 31, 2022 and 2021
| Fees | ||||||||||||||||||||
| earned | ||||||||||||||||||||
| or paid | Stock | Officer | ||||||||||||||||||
| Fiscal | in cash (7) | Awards | Compensation | Total | ||||||||||||||||
| Name | Year | ($) | ($) | ($) | ($) | |||||||||||||||
| Paul L. Kessler (8) | 2022 | — | — | 229,017 | (1) | 229,017 | ||||||||||||||
| 2021 | — | — | 6,760,714 | (1) | 6,760,714 | |||||||||||||||
| John D. Maatta (2) | 2022 | — | — | 133,330 | (1) | 133,330 | ||||||||||||||
| 2021 | — | 30,096 | (3) | 145,564 | (1) | 175,660 | ||||||||||||||
| Michael Breen (4) | 2022 | — | — | — | — | |||||||||||||||
| 2021 | — | 30,096 | (3) | — | 30,096 | |||||||||||||||
| Scott D. Kaufman (5) | 2022 | — | — | 92,635 | (1) | 92,635 | ||||||||||||||
| (former Director) | 2021 | — | — | 7,184,192 | (1) | 7,184,192 | ||||||||||||||
| Richard G. Boyce | 2022 | — | — | — | — | |||||||||||||||
| (former Director) | 2021 | — | 546,924 | (6) | — | 546,924 | ||||||||||||||
| Greg Suess | 2022 | — | — | — | — | |||||||||||||||
| (former Director) | 2021 | — | 30,096 | (3) | — | 30,096 | ||||||||||||||
| (1) | For details see Item 11. Executive Compensation. |
| (2) | Outstanding equity awards as of December 31, 2022 consists of options to purchase 120,000 shares of common stock at an exercise price of $0.25 per share. |
| (3) | Represents the grant date fair value of warrants granted on October 12, 2021, to purchase 20,000 shares of the Company’s common stock with an exercise price of $1.50 per share, and a term of 5 years. |
| (4) | Outstanding equity awards as of December 31, 2022, consists of options to purchase 67,500 shares of common stock at an exercise price of $0.25 per share. |
| (5) | Outstanding equity awards as of December 31, 2022, consists of options to purchase 37,500 shares of common stock at an exercise price of $0.25 per share. |
| (6) | Represents the grant date fair value of warrants granted on October 12, 2021, to purchase 400,000 shares of the Company’s common stock with an exercise price of $1.50 per share, a term of 5 years, and vesting as follows: 20% upon execution of the Services Agreement; 20% on January 20, 2022; 20% on April 20, 2022; 20% on July 20, 2022; and 20% on October 20, 2022. |
| (7) | Non-employee Directors are compensated for their participation in meetings of the Board of Directors and its committees, in the amount of (i) $1,000 for in person meeting, and $250 - $500 per telephonic meeting, depending on the length of the telephonic meeting, and (ii) are provided a monthly retainer of $750 per month. During the years ended December 2021 and 2020, no cash compensation was paid to non-employee Directors; rather such compensation remained accrued and unpaid. The Company may issue stock to non-employee Directors in place and stead of cash compensation with regard to the amounts that have been accrued, and on a going-forward basis. |
| (8) | Outstanding equity awards as of December 31, 2022, consists of options to purchase 15,000 shares of common stock at an exercise price of $0.25 per share. |
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information, as of March 31, 2023, with respect to the holdings of (1) each person who is the beneficial owner of more than five percent of our common stock, (2) each of our directors, (3) each named executive officer, and (4) all of our directors and executive officers as a group.
Beneficial ownership of the common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any shares of common stock over which a person exercises sole or shared voting or investment powers, or of which a person has a right to acquire ownership at any time within 60 days of March 31, 2023. Except as otherwise indicated, and subject to applicable community property laws, the persons named in this table have sole voting and investment power with respect to all shares of common stock held by them. The address of each director and officer is c/o Creek Road Miners, Inc., 35 E Horizon Ridge Pkwy, Suite 110-502, Henderson, Nevada 89002. Applicable percentage ownership in the following table is based on 12,246,036 shares of common stock outstanding as of March 31, 2023 plus, for each person, any securities that person has the right to acquire within 60 days of March 31, 2023.
| Shares | ||||||||
| Beneficially | Percentage | |||||||
| Name and Address of Beneficial Owner | Owned | of Shares | ||||||
| Greater than 5% Shareholder: | ||||||||
Bristol Investment Fund, Ltd. (1) Thousand Oaks, CA 91360 | 33,750,725 | 77.9 | % | |||||
Barlock 2019 Fund LP (2) Park City, UT 84098 | 19,500,757 | 61.4 | % | |||||
| Leviston Resources, LLC (3) 708 Third Avenue, Suite 600 New York, NY 10017 | 25,237,808 | 68.3 | % | |||||
| Directors and Executive Officers: | ||||||||
| Paul L. Kessler (1) | 34,130,821 | 81.4 | % | |||||
| John D. Maatta (4) | 6,334,343 | 32.4 | % | |||||
| Scott Sheikh (5) | 721,866 | 5.6 | % | |||||
| Michael Breen (6) | 77,500 | 0.6 | % | |||||
| All Directors and Executive Officers as a group (4 persons) | 40,884,454 | 92.4 | % | |||||
| (1) | Paul L. Kessler exercises voting and investment power over the shares held by Bristol Investment Fund, Ltd., Bristol Capital, LLC, Bristol Capital Advisors Profit Sharing Plan, as well as the shares owned my Mr. Kessler himself. Includes 2,589,986 shares of common stock as indicated on the most recent 13D filing, and 14,267,714 shares of common stock issuable upon the conversion of the $2,496,850 secured convertible debenture held by Bristol Investment Fund, Ltd., at a conversion price to $0.175; warrants held by Bristol Investment Fund, Ltd. to acquire 10,000,000 shares of Common Stock at an exercise price of $0.175 per share; 24,450 shares of common stock held by Bristol Capital, LLC; 3,935 shares of common stock held by Mr. Kessler’s IRA; 39,350 shares of common stock held by Bristol Capital Advisors Profit Sharing Plan; options held by Mr. Kessler to acquire 15,000 shares of Common Stock at an exercise price of $0.25 per share; and 6,810,290 shares of common stock issuable upon the conversion of 119,180 shares of Series A preferred stock held by Mr. Kessler, convertible by dividing the stated value per share, currently $10 per share, by the Series A Conversion Price, currently $0.175. |
| (2) | Scott D. Kaufman exercises voting and investment power over the shares held by Barlock 2019 Fund LP, and Barlock Capital Management, LLC, as well as the shares owned my Mr. Kaufman himself. Includes 14,267,714 shares of common stock issuable upon the conversion of the $2,496,850 secured convertible debenture held by Barlock 2019 Fund LP, at a conversion price to $0.175; warrants held by Barlock Capital Management, LLC to acquire 4,285,517 shares of Common Stock at an exercise price of $0.175 per share; options held by Mr. Kaufman to acquire 37,500 shares of Common Stock at an exercise price of $0.25 per share; and 909,829 shares of common stock issuable upon the conversion of 15,922 shares of Series A preferred stock held by Mr. Kaufman, convertible by dividing the stated value per share, currently $10 per share, by the Series A Conversion Price, currently $0.175. |
| (3) | Includes 530,00 shares of common stock as indicated on the most recent 13G filing, and 3,107,808 shares of common stock issuable upon the conversion of Series B preferred stock, convertible by dividing the stated value per share, currently $1080 per share, by the Series B Conversion Price, currently $0.50; and warrants to acquire 10,000 shares of Series B preferred stock at an exercise price of $1,000 per share, resulting in 21,600,000 shares of common stock issuable upon the conversion of 1,000 shares of Series B preferred stock, convertible by dividing the stated value per share, currently $1,080, by the Series B Conversion Price, currently $0.50. |
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| (4) | Includes 60,000 shares of common stock; 6,154,343 shares of common stock issuable upon the conversion of 107,107 shares of Series A preferred stock, convertible by dividing the stated value per share, currently $10 per share, by the Series A Conversion Price, currently $0.175; and options to acquire 120,000 shares of common stock at an exercise price of $0.25 per share. |
| (5) | Includes 721,866 shares of common stock issuable upon the conversion of 12,633 shares of Series A preferred stock, convertible by dividing the stated value per share, currently $10 per share, by the Series A Conversion Price, currently $0.175 |
| (6) | Includes 10,000 shares of common stock, and options to acquire 67,500 shares of common stock at an exercise price of $0.25 per share. |
Equity Compensation Plan Information
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 500,000. 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 10,000,000. 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 December 31, 2022, there were 10,000,000 shares available for grant under the 2021 Plan, and no shares were available for grant under the 2020 Plan, 2016 Plan, or 2011 Plan.
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||
| (a) | (b) | (c) | ||||||
| 2021 Incentive Stock Award Plan | 0 | $ | N/A | 10,000,000 | ||||
Item 13. Certain Relationships and Related Transactions, and Director Independence
See Note 8. Related Party Transactions, to the consolidated financial statements.
Director Independence
Our board of directors currently consists of three members: Messrs. Kessler (Executive Chairman), Maatta, and Breen. Our board of directors has determined that Mr. Breen is an independent director as that term is defined in the applicable NASDAQ rules as well as the SEC rules governing the independence of audit committee members. Mr. Breen is a member of the Audit Committee and Compensation Committee of our board of directors. The common stock of the Company is currently quoted on the OTCQB, which currently does not have director independence requirements.
On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director as that term is defined in the applicable NASDAQ rules.
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Item 14. Principal Accounting Fees and Services
Summary of Principal Accounting Fees for Professional Services Rendered
The following table presents the aggregate fees for professional audit services and other services rendered by Maughan Sullivan LLC, our independent registered public accountants in the fiscal years ended December 31, 2022 and 2021.
Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Audit Fees | $ | 37,756 | $ | 37,732 | ||||
| Audit-Related Fees | — | — | ||||||
| Tax Fees | 8,500 | 8,000 | ||||||
| All Other Fees | — | — | ||||||
| Total | $ | 45,732 | $ | 45,732 | ||||
Audit Fees consist of amounts billed for professional services rendered for the audit of our annual consolidated financial statements included in our Annual Reports on Form 10-K, and reviews of our interim consolidated financial statements included in our Quarterly Reports on Form 10-Q, including amendments thereto.
Audit-Related Fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.”
Tax Fees consist of fees for professional services for tax compliance activities, including the preparation of federal and state tax returns and related compliance matters.
All Other Fees consists of amounts billed for services other than those noted above.
The audit committee of our board of directors has considered whether the provision of the services described above for the fiscal years ended December 31, 2022 and 2021, is compatible with maintaining the auditor’s independence.
All audit and non-audit services that may be provided by our principal accountant to us shall require pre-approval by the audit committee of our board of directors. Further, our auditor shall not provide those services to us specifically prohibited by the SEC, including bookkeeping or other services related to the accounting records or financial statements of the audit client; financial information systems design and implementation; appraisal or valuation services, fairness opinion, or contribution-in-kind reports; actuarial services; internal audit outsourcing services; management functions; human resources; broker-dealer, investment adviser, or investment banking services; legal services and expert services unrelated to the audit; and any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements.
The financial statements of Creek Road Miners, Inc. and its subsidiaries and the independent registered public accounting firm’s report dated March 31, 2023, are incorporated by reference to Item 8 of this report.
(a)(2) and (c) Financial Statement Schedules
Not required.
(a)(3) and (b) Exhibits
Exhibit Index
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* Filed herewith
+ Indicates a management contract or compensatory plan 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
Item 16. Form 10-K Summary
The Company has elected not to include a summary of the Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CREEK ROAD MINERS, INC. | ||
| By: | /s/ John D. Maatta | |
| John D. Maatta | ||
| Date: March 31, 2023 | President and Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Scott D. Kaufman and Alan L. Urban, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ John D. Maatta | ||||
| John D. Maatta | Chief Executive Officer and Interim Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer), President and Director | March 31, 2023 | ||
| /s/ Paul L. Kessler | ||||
| Pail Kessler | Executive Chairman | March 31, 2023 | ||
| /s/ Michael Breen | ||||
| Michael Breen | Director | March 31, 2023 |
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EXHIBIT 4.1
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
The following is a brief description of the common stock, par value $0.0001 per share (“Common Stock”), of Creek Road Miners, Inc. (“we,” “our,” or “us”). This description of the terms of our Common Stock does not purport to be complete and is subject to and qualified in its entirety by reference to the applicable provisions of Delaware General Corporation Law (“DGCL”), and the full text of our amended and restated certificate of incorporation (“Certificate of Incorporation”) and our bylaws (“Bylaws”).
As of March 31, 2023, our authorized share capital consists of 100,000,000 shares of Common Stock, of which 12,246,036 were outstanding, 5,000,000 shares of preferred stock, including 500,000 shares of Series A Preferred Stock, of which 273,133 were outstanding, 20,000 shares of Series B Preferred Stock, of which 1,478 were outstanding, and 15,000 shares of Series C Preferred Stock, of which 7,630 were outstanding.
We implemented a 1-for-20 reverse stock split of our outstanding shares of Common Stock that was effective on January 23, 2020. All share and related option and warrant information presented in this report have been retroactively adjusted to reflect the reduced number of shares and the increase in the share price which resulted from this action.
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 of Directors (“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.
Anti-Takeover Effects of Certain Provisions of our Certificate of Incorporation, Bylaws and the DGCL
Certain provisions of our Certificate of Incorporation and our Bylaws, which are summarized in the following paragraphs, may have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our Certificate of Incorporation and our Bylaws and Delaware law, as applicable, among other things:
| ● | provide our Board with the ability to alter the Bylaws without stockholder approval (subject to rights of the holders of our preferred stock); | |
| ● | provide that special meetings of our stockholders may be called only by a majority of the directors, the Chairman of our Board or the Chief Executive Officer; | |
| ● | place limitations on the removal of directors; and | |
| ● | provide that vacancies on our Board may be filled by a majority of directors in office, although less than a quorum. |
These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with its board. These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our Common Stock to decline.
Advance Notice Bylaws. Our Bylaws contain an advance notice procedure for stockholder proposals to be brought before any meeting of stockholders, including proposed nominations of persons for election to our Board. Stockholders at any meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our Board or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our corporate secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although the Bylaws do not give our Board the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the Bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.
Interested Stockholder Transactions. We may become subject to Section 203 of the DGCL, which, subject to certain exceptions, prohibits “business combinations” between a publicly-held Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder became an interested stockholder.
Limitations on Liability, Indemnification of Officers and Directors and Insurance
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors and our Certificate of Incorporation includes such an exculpation provision. Our Certificate of Incorporation includes provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as our director or officer or for serving at our request as a director or officer or another position at another corporation or enterprise, as the case may be. Our Certificate of Incorporation also provides that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may be required under the DGCL. Our Certificate of Incorporation expressly authorizes us to carry directors’ and officers’ insurance to protect us, our directors, officers and certain employees from some liabilities. The limitation of liability and indemnification provisions in our Certificate of Incorporation may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s duty of care. The provisions will not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding against any of our directors, officers or employees for which indemnification is sought.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our Common Stock is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, New York 11598. The telephone number of VStock Transfer, LLC is (212) 828-8436.
Listing
Our Common Stock is listed on the OTC Markets under the symbol “CRKR.”
Exhibit 10.38
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Nos. 333-255445, 333-259729 and 333-262304) on Form S-1 of our report dated March 31, 2023, with respect to the consolidated financial statements of Creek Road Miners, Inc. appearing in this Annual Report (Form 10-K) for the year ended December 31, 2022.
/s/ MaughanSullivan LLC
Manchester, VT
March 31, 2023
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, John D. Maatta, certify that:
1. I have reviewed this annual report on Form 10-K of Creek Road Miners, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: March 31, 2023 | By: | /s/ John D. Maatta |
|
John D. Maatta Principal Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, John D. Maatta, certify that:
1. I have reviewed this annual report on Form 10-K of Creek Road Miners, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
e) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this annual report is being prepared;
f) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
g) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
h) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: March 31, 2023 | By: | /s/ John D. Maatta |
|
John D. Maatta Principal Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report of Creek Road Miners, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, John D. Maatta, Principal Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Annual Report on Form 10-K for the year ended December 31, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Annual Report on Form 10-K for the year ended December 31, 2022, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 31, 2023 | By: | /s/ John D. Maatta |
| John D. Maatta | ||
| Principal Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report of Creek Road Miners, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, John D. Maatta, Principal Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Annual Report on Form 10-K for the year ended December 31, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Annual Report on Form 10-K for the year ended December 31, 2022, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 31, 2023 | By: | /s/ John D. Maatta |
| John D. Maatta | ||
| Principal Financial Officer |