Notes
to Condensed Consolidated Financial Statements
Nine
Months Ended September 30, 2022
(Unaudited)
Note
1. Organization, Nature of Business and Basis of Presentation
Organization
Creek
Road Miners, Inc. (formerly known as Wizard Brands, Inc., Wizard Entertainment, Inc., Wizard World, Inc., and GoEnergy, Inc.) was incorporated
in Delaware on May 2, 2001. Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual
pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the
Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy
operations”).
Merger
Agreement
On
October 24, 2022, the Company, Creek Road Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company,
and Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”), pursuant to which Merger Sub will merge with and into Prairie (the “Merger”), with
Prairie surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company.
At
the effective time of the Merger (the “Effective Time”), the Company will (a) deliver the greater of (A) 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. While we do not have the intention of mining any
other cryptocurrencies in the near future, we may expand our mining operations to include additional crypto assets if, after evaluation
of the financial merits of such crypto assets based on a number of factors, including the anticipated profitability and price stability
of such crypto assets and the ability and cost of our existing miners to mine for such digital assets, we determine that such additional
crypto assets are reasonably likely to result in better margin than Bitcoin. Our mining operations commenced on October 24, 2021. We
use special cryptocurrency mining computers (known as “miners”) to solve complex cryptographic algorithms to support the
Bitcoin blockchain and, in return, receive Bitcoin as our reward. Miners measure their processing power, which is known as “hashing”
power, in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash
rate.” We participate in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according
to the “hashing” capacity each miner contributes to the mining pool.
Our
Bitcoin mining operations require significant amounts of power. On May 30, 2022, the Company entered into a binding memorandum of
understanding with Highwire Energy Partners, Inc. (“Highwire”) to acquire certain energy assets, including natural gas
production opportunities in South Dakota, North Dakota and Wyoming as well as an opportunity for fixed-price electricity generation
in Wyoming. In mid-June 2022, the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a
facility operated by Highwire in Colorado. The Company’s miners have currently not been placed in operational service pending
resolution of gas supply start-up issues at the Highwire site and other operational issues. As a result, since June 30, 2022 the Company is neither receiving
meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
Mining
Equipment
All
of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized
to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency
rewards. As of September 30, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with
24.3 Ph/s of hashing capacity, none of which were in service.
On
December 17, 2021 the Company entered into a Non-Fixed Price Sales and Purchase Agreement (the “Bitmain Agreement”) with
Bitmain Technologies Limited (“Bitmain”) for 600 Bitmain S19XP miners with a reference price of approximately $11,250 per
miner. The miners have a total of 84 Ph/s of hashing capacity and an initial estimated purchase commitment of $6,762,000 (the “total
reference price”), subject to price adjustments and related offsets, including potential adjustments related to the market price
of miners. The Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain
Agreement.
The
remaining amount due under the Bitmain Agreement based on the initial total reference price is $2,793,000,
however, as of September 30, 2022, the market price of miners has dropped significantly from $11,250
to approximately $5,810
per miner. The estimated remaining amount due under the Bitmain Agreement based on the current market price of miners (assuming no
contract interpretation disputes are asserted by, and no liquidated damaged or penalties are assessed by, Bitmain) is presented
below:
Schedule
of Market Price of Miners
| |
Market
Price per
Miner | | |
Total
Amount | |
July
2022 batch (100 miners) | |
$ | 7,756 | | |
$ | 775,600 | |
August
2022 batch (100 miners) | |
| 7,140 | | |
| 714,000 | |
September
2022 batch (100 miners) | |
| 7,140 | | |
| 714,000 | |
October
2022 batch (100 miners) | |
| 6,510 | | |
| 651,000 | |
November
2022 batch (100 miners) | |
| 5,810 | | |
| 581,000 | |
December
2022 batch (100 miners) | |
| 5,810 | (1) | |
| 581,000 | |
Estimated
total amount due | |
| | | |
| 4,016,600 | |
Less:
Payments made | |
| | | |
| 3,969,000 | |
Estimated
remaining amount due (2) | |
| | | |
$ | 47,600 | |
| (1) | Estimate
based on the November 2022 market price. |
| (2) | Assuming
no contract interpretation disputes are asserted by, and no liquidated damages or penalties are assessed by, Bitmain. |
Mobile
Data Centers
We historically utilize mobile data centers to house our miners. Our mobile data centers are located close to natural gas wellheads. We use natural gas
to power a mobile turbine that produces electricity that, in turn, is used to power our miners.
Mining
Results
The
Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency
mining activities. The following table presents additional information regarding our cryptocurrency mining operations:
Schedule of
Cryptocurrency Mining Operations
| |
Quantity
of Bitcoin | | |
US$
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 | |
Balance | |
| 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 | |
Balance | |
| 0.6 | | |
$ | 7,350 | |
| (1) | Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency
mining. |
Factors
Affecting Profitability
Our
business is heavily dependent on the market price of Bitcoin. The prices of cryptocurrencies, specifically Bitcoin, have experienced
substantial volatility. Further affecting the industry, and particularly for the Bitcoin blockchain, the cryptocurrency reward for solving
a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of
inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half,
hence the term “halving”. For Bitcoin the reward was initially set at 50 Bitcoin currency rewards per block. The Bitcoin
blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block 210,000; (2) on July 9,
2016 at block 420,000; and (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 Bitcoin per
block. The next halving for the Bitcoin blockchain is anticipated to occur in March 2024 at block 840,000, when the reward will be reduced
to 3.125 Bitcoin per block. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million and
the theoretical supply of new Bitcoin is exhausted. Many factors influence the price of Bitcoin, and potential increases or decreases
in prices in advance of, or following, a future halving is unknown.
We
have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. Since
June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from
cryptocurrency mining.
Our
business is heavily dependent on the market price of Bitcoin, which has experienced substantial volatility and has recently dropped to
its lowest price since December 2020. As of September 30, 2022 the market price of Bitcoin was $19,432, which reflects a decrease of
approximately 60% since the beginning of 2022, and of approximately 70% from its all-time high of approximately $67,000. In addition,
the cost of natural gas that we use to produce electricity to power our miners has increased substantially. The cost of natural gas in
the United States has increased by as much as approximately 260% since the beginning of 2022. These price movements result in decreased
cryptocurrency mining revenue and increased cryptocurrency mining costs, both of which have a material adverse effect on our business
and financial results.
Government
Regulation
Cryptocurrency
is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may
apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest
in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies.
While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory
measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or
entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of
reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining
and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to
our business, see the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December
31, 2021.
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable
rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information
and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant
to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2021 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived
from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by
GAAP.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to
fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all
adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not
necessarily indicative of fiscal year-end results.
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 $6,913,539,
and $6,977,481,
for the nine months ended September 30, 2022 and 2021, respectively. We cannot predict if we will be profitable. We may continue to
incur losses for an indeterminate period of time and may be unable to achieve profitability. An extended period of losses and
negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to achieve or sustain
profitability on a quarterly or annual basis. On September 30, 2022, we had cash and cash equivalents of $451,212,
a working capital deficit of approximately $4.8
million, and an accumulated deficit of approximately $54
million.
We
have evaluated the significance of the uncertainty regarding the Company’s financial condition in relation to our ability to
meet our obligations, which has raised substantial doubts about the Company’s ability to continue as a going concern. While it
is very difficult to estimate our future liquidity requirements the Company believes that if it is unable close the Merger, or
obtain debt and/or equity financing, existing cash resources will be depleted in early 2023 or late 2022. The Company can generate
cash through the sale of fixed assets, specifically cryptocurrency miners. However, the total cash generated would be significantly
less that the total of the Company’s liabilities. There are no assurances that the Merger will close, that debt
and/or equity financing can be obtained, or that the sale of fixed assets, specifically cryptocurrency miners can be
achieved.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets, or the amounts and classification of liabilities that may result from the matters discussed herein.
The
Company’s ability to continue as a going concern is dependent upon the Company’s ability to close the merger with Prairie,
or obtain debt and/or equity financing, and there are no assurances that either can occur.
Note
3. Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
These
estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities, assumptions made
in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.
Reclassification
Certain
prior period amounts may have been reclassified to conform to current period presentation.
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company
places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company does
not anticipate incurring any losses related to these credit risks.
Cryptocurrency
Cryptocurrency
(Bitcoin) is included in current assets in the accompanying consolidated balance sheets. The classification of cryptocurrencies as a
current asset has been made after the Company’s consideration of the significant consistent daily trading volume on readily available
cryptocurrency exchanges and the absence of limitations or restrictions on Company’s ability to sell Bitcoin. Cryptocurrencies
awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy
disclosed below. Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with
an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances
occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount
exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured.
In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely
than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative
impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the
extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses
is not permitted. Cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the
accompanying consolidated statements of cash flows.
Impairment
of Long-Lived Assets
Long-lived
assets are comprised of intangible assets and property and equipment. Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash
flows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment
exists, pursuant to the provisions of FASB ASC 360-10 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of”. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets,
if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including
a discounted value of estimated future cash flows and fundamental analysis. The Company reports an asset to be disposed of at the lower
of its carrying value or its estimated net realizable value.
Property
and equipment
Property
and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 3 to 9 years.
No depreciation is recorded until the property or equipment is placed into service. Leasehold improvements are amortized over the shorter
of the useful lives of the related assets, or the lease term. Expenditures for maintenance and repairs are charged to operations as incurred
while renewals and betterments are capitalized. Gains and losses on disposals are included in the consolidated statements of operations.
Management
assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from
the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment
loss is recognized to write down the asset to its estimated fair value.
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.
Providing
computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision
of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The
transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date
received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from
the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur,
the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm)
and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant
financing component in these transactions.
Fair
value of the cryptocurrency award received is determined using the market rate of the related cryptocurrency at the time of receipt.
There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies
recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment.
In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect
on the Company’s consolidated financial position and results from operations.
Cryptocurrency
Mining Costs
The
Company’s cryptocurrency mining costs consist primarily of direct costs of earning Bitcoin related to mining operations, including
mining pool fees, natural gas costs, turbine rental costs, and mobile data center rental costs, but exclude depreciation and amortization,
which are separately stated in the Company’s consolidated statements of operations.
Reverse
Stock Split
We
implemented a 1-for-20 reverse stock split of our outstanding shares of common stock that was effective on January 23, 2020. Unless otherwise
noted, all share and related option, warrant, and convertible security information presented has been retroactively adjusted to reflect
the reduced number of shares, and the increase in the share price which resulted from this action.
Stock-Based
Compensation
The
Company periodically issues stock options, warrants and restricted stock to employees and non-employees for services, in capital raising
transactions, and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based
Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on
estimated fair values. The Company estimates the fair value of stock option and warrant awards to employees and directors on the date
of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as
expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees
and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately
expected to vest is recognized as expense over the required service period in our Statements of Operations.
Discontinued
Operations
On
August 6, 2021, the Company entered into an Asset Purchase Agreement (the “Informa Agreement”) with Informa. Pursuant to
the Informa Agreement, Creek Road Miners Corp. (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties,
and rights to Informa related to the business of operating and producing live pop culture events. The
Company released deferred revenue and other liabilities totaling $722,429
and recognized other income of this amount.
On
September 15, 2021, the Company 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
June 30, 2022, the Company discontinued operations of an eCommerce site selling pop culture memorabilia.
The
related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending
September 30, 2022, and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated
with discontinued operations in our consolidated statement of operations for the periods ending September 30, 2022 and 2021, are classified
as discontinued operations.
Earnings
(Loss) Per Common Share
Basic
earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share is computed by dividing earnings (loss) attributable to common
stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have
been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. The dilutive effect of potentially
dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value
of common shares during the reporting period. Potential common shares are excluded from the computation when their effect is antidilutive.
Basic and diluted earnings (loss) attributable to common stockholders is the same for the three and nine months ended September 30, 2022
and 2021, because the Company has only incurred losses and all potentially dilutive securities are anti-dilutive. Potentially dilutive
securities that were not included in the computation of diluted earnings (loss) attributable to common stockholders at September 30,
2022 because their inclusion would be anti-dilutive are as follows:
Schedule of
Anti-dilutive Securities excluded from Earnings Per Share
Potentially
Dilutive Security | |
Quantity | | |
Stated
Value Per Share (1) | | |
Total
Value or Stated Value | | |
Assumed Conversion
Price (1) | | |
Resulting
Common Shares | |
Common
stock options | |
| 259,250 | | |
$ | — | | |
$ | — | | |
| — | | |
| 259,250 | |
Common
stock warrants | |
| 21,984,266 | | |
| — | | |
| — | | |
| — | | |
| 21,984,266 | |
Series
A preferred stock | |
| 242,534 | | |
| 10 | | |
| 2,425,340 | | |
| 0.175 | | |
| 13,859,086 | |
Series
B preferred stock | |
| 1,420 | | |
| 1,080 | | |
| 1,533,060 | | |
| 0.500 | | |
| 3,066,120 | |
Series
C preferred stock | |
| 7,630 | | |
| 1,111 | | |
| 8,476,930 | | |
| 0.500 | | |
| 16,953,860 | |
Series
B preferred stock warrants | |
| 10,000 | | |
| 1,080 | | |
| 10,800,000 | | |
| 0.500 | | |
| 21,600,000 | |
Secured
convertible debentures – related parties | |
| — | | |
| — | | |
| 4,993,700 | | |
| 0.175 | | |
| 28,535,429 | |
Convertible
notes payable | |
| — | | |
| — | | |
| 1,400,000 | | |
| 0.500 | | |
| 2,800,000 | |
Total | |
| | | |
| | | |
| | | |
| | | |
| 109,058,011 | |
|
(1) |
As
of September 30, 2022 |
Related
Parties
The
Company follows ASC 850-10, Related Parties, for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect
to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by
or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities
for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value
Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit
of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners
of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from
fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies
of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other
to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Recently
Issued Accounting Pronouncements
Recent
accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
Note
4. Deposits on Mining Equipment
Deposits
on mining equipment, consisted of the following:
Schedule of Mining Equipment
| |
Cryptocurrency
Miners | | |
Mobile
Data Centers | | |
Total | |
Balance
December 31, 2020 | |
$ | — | | |
$ | — | | |
$ | — | |
Deposits
on equipment during the period | |
| 7,089,000 | | |
| 524,230 | | |
| 7,613,230 | |
Equipment
delivered during the period | |
| — | | |
| — | | |
| — | |
Balance
December 31, 2021 | |
$ | 7,089,000 | | |
$ | 524,230 | | |
$ | 7,613,230 | |
Deposits
on equipment during the period | |
| 1,220,100 | | |
| 178,090 | | |
| 1,398,190 | |
Equipment
delivered during the period | |
| (2,106,000 | ) | |
| — | | |
| (2,106,000 | ) |
Balance
March 31, 2022 | |
$ | 6,203,100 | | |
$ | 702,320 | | |
$ | 6,905,420 | |
Deposits
on equipment during the period | |
| 382,200 | | |
| 352,340 | | |
| 734,540 | |
Equipment
delivered during the period | |
| (2,616,300 | ) | |
| (349,980 | ) | |
| (2,966,280 | ) |
Balance
June 30, 2022 | |
$ | 3,969,000 | | |
$ | 704,680 | | |
$ | 4,673,680 | |
Deposits
on mining equipment, Balance | |
$ | 3,969,000 | | |
$ | 704,680 | | |
$ | 4,673,680 | |
Deposits
on equipment during the period | |
| — | | |
| — | | |
| — | |
Equipment
delivered during the period | |
| — | | |
| — | | |
| — | |
Balance
September 30, 2022 | |
$ | 3,969,000 | | |
$ | 704,680 | | |
$ | 4,673,680 | |
Deposits
on mining equipment, Balance | |
$ | 3,969,000 | | |
$ | 704,680 | | |
$ | 4,673,680 | |
All
of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized
to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency
rewards. As of September 30, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with
24.3 Ph/s of hashing capacity, none of which were in service.
On
December 17, 2021 the Company entered into the Bitmain Agreement with Bitmain for 600 Bitmain S19XP miners with a reference price of
approximately $11,250
per miner. The miners have a total of 84 Ph/s of hashing capacity and an initial estimated purchase commitment of $6,762,000
(the “total reference price”), subject to price adjustments and related offsets, including potential adjustments related
to the market price of miners. The Company has made payments of $3,969,000
(classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement.
The
remaining amount due under the Bitmain Agreement based on the initial total reference price is $2,793,000,
however, as of September 30, 2022, the market price of miners has dropped significantly from $11,250
to approximately $5,810
per miner. The estimated remaining amount due under the Bitmain Agreement based on the current market price of miners (assuming no
contract interpretation disputes are asserted by, and no liquidated damaged or penalties are assessed by, Bitmain) is presented
below:
Schedule
of Estimated Market Price of Miners
| |
Market
Price per
Miner | | |
Total
Amount | |
July
2022 batch (100 miners) | |
$ | 7,756 | | |
$ | 775,600 | |
August
2022 batch (100 miners) | |
| 7,140 | | |
| 714,000 | |
September
2022 batch (100 miners) | |
| 7,140 | | |
| 714,000 | |
October
2022 batch (100 miners) | |
| 6,510 | | |
| 651,000 | |
November
2022 batch (100 miners) | |
| 5,810 | | |
| 581,000 | |
December
2022 batch (100 miners) | |
| 5,810 | (1) | |
| 581,000 | |
Estimated
total amount due | |
| | | |
| 4,016,600 | |
Less:
Payments made | |
| | | |
| 3,969,000 | |
Estimated
remaining amount due (2) | |
| | | |
$ | 47,600 | |
| (1) | Estimate
based on the November 2022 market price. |
| (2) | Assuming
no contract interpretation disputes are asserted by, and no liquidated damaged or penalties are assessed by, Bitmain. |
Note
5. Cryptocurrency
The
Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency
mining activities. The Company recognized an impairment, or write down, of cryptocurrency (Bitcoin) rewards to the lowest fair market
value of Bitcoin from the time the reward was earned through September 30, 2022. The impairment amounted to $1,035 and $107,174 for the
three and nine months ended September 30, 2022, respectively.
On
May 10, 2022 and June 25, 2022, the Company liquidated all of its then-current Bitcoin holdings. Approximately 19 Bitcoin were
liquidated resulting in cash proceeds of $564,205,
and a realized loss of $131,075.
The
following table presents additional information regarding our cryptocurrency mining operations:
Schedule
of Additional Information of Cryptocurrency Mining Operations
| |
Quantity
of Bitcoin | | |
US$
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 (1) | |
| — | | |
| (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 (1) | |
| — | | |
| (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 (1) | |
| — | | |
| (34 | ) |
Balance
June 30, 2022 (2) | |
| 0.3 | | |
$ | 586 | |
Balance | |
| 0.3 | | |
$ | 586 | |
Revenue
recognized from cryptocurrency mined (2) | |
| 0.3 | | |
| 7,955 | |
Mining
pool operating fees | |
| — | | |
| (156 | ) |
Impairment
of cryptocurrencies (1) | |
| — | | |
| (1,035 | ) |
Balance
September 30, 2022 (2) | |
| 0.6 | | |
$ | 7,350 | |
Balance | |
| 0.6 | | |
$ | 7,350 | |
| (1) | 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 the end of
the reporting period. If the subsequent market price of Bitcoin increases, the asset balance
will not be adjusted for the increase. |
| (2) | Since
June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue
from cryptocurrency mining. |
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
| |
September
30, 2022 | | |
December
31, 2021 | |
Cryptocurrency
miners | |
$ | 6,723,152 | | |
$ | 1,784,062 | |
Mobile
data center | |
| 875,052 | | |
| 518,663 | |
Computer
equipment | |
| 12,771 | | |
| 12,771 | |
Software | |
| — | | |
| — | |
Equipment | |
| — | | |
| — | |
Total | |
| 7,610,975 | | |
| 2,315,496 | |
Less
accumulated depreciation | |
| (582,696 | ) | |
| (89,136 | ) |
Net,
Property and equipment | |
$ | 7,028,279 | | |
$ | 2,226,360 | |
Depreciation
expense, excluding that associated with discontinued operations, for the nine months ended September 30, 2022 and 2021 amounted to $329,040
and $12,349, respectively. No depreciation is recorded until the property or equipment is placed into service.
All
of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized
to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency
rewards. As of September 30, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with
24.3 Ph/s of hashing capacity, none of which were in service.
Note
7. Investment
On
May 28, 2022, the Company entered into a Binding Memorandum of Understanding for a Proposed Transaction with Highwire to acquire
certain energy assets including natural gas production opportunities in South Dakota, North Dakota, and Wyoming as well as an
opportunity for fixed-price electricity generation in Wyoming. Under
the terms of the agreement and subject to certain conditions, the Company has the following obligations to Highwire (i) $125,000
upon execution, (ii) $100,000
in common stock, (iii) $125,000
within 72 hours after Bitcoin mining operations commence, (iv) $110,000
to release Highwire from its bonding obligations, (v) an amount not to exceed $450,000
for the construction of a road on the South Dakota location, (vi) $20,000
for the installation of a mobile data center on the North Dakota property, (vii) the operating costs of each property, (viii) 15% of
Bitcoin mining gross profit on the properties, and up to $400,000 if the Company elects to proceed with operations in
Wyoming.
As
of September 30, 2022 the Company paid Highwire $125,000 upon execution and issued $100,000 worth of common stock, which amounted to
169,205 shares of common stock, both of which were classified as an investment asset. In addition, the Company paid Highwire $110,000
to release its bonding obligations, which is classified as a non-current asset.
In
mid-June 2022, the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility
operated by Highwire in Colorado. The Company’s miners have currently not been placed in operational service pending
resolution of gas supply start-up issues at the Highwire site and other operational issues. As a result, since June 30, 2022 the Company is neither receiving
meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
Note
8. Amounts Due to Related Parties
Amounts
due to related parties as of September 30, 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 | |
$ | 262,500 | | |
$ | 1,748,780 | | |
$ | 835,629 | | |
$ | 2,846,909 | |
Current
secured convertible debenture | |
| — | | |
| 2,496,850 | | |
| — | | |
| 2,496,850 | |
Non-current
secured convertible debenture | |
| — | | |
| — | | |
| 2,496,850 | | |
| 2,496,850 | |
Total | |
$ | 262,500 | | |
$ | 4,245,630 | | |
$ | 3,32,479 | | |
$ | 7,840,609 | |
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 | |
$ | 93,750 | | |
$ | 1,525,479 | | |
$ | 612,329 | | |
$ | 2,231,558 | |
Current
secured convertible debenture | |
| — | | |
| 2,500,000 | | |
| — | | |
| 2,500,000 | |
Non-current
secured convertible debenture | |
| — | | |
| — | | |
| 2,500,000 | | |
| 2,500,000 | |
Total | |
$ | 93,750 | | |
$ | 4,025,479 | | |
$ | 3,112,329 | | |
$ | 7,231,558 | |
As
of September 30, 2022, the Convertible Debentures with an aggregate principal amount of $4,993,700,
comprised of a Convertible Debenture with a principal amount of $2,496,850
held by Bristol Investment Fund (the “Bristol Convertible Debenture”) and a Convertible Debenture with a principal
amount of $2,496,850
held by Barlock 2019 Fund, LP (the “Barlock Convertible Debenture”), were convertible into an aggregate of 28,535,429
shares of common stock (exclusive of any accrued and unpaid interest), using a conversion price of $0.175.
Note
9. Related Party Transactions
The
Company has entered into transactions with the following related parties:
Related
Party: Bristol Capital, LLC
Bristol
Capital, LLC (“Bristol Capital”) is managed by Paul L. Kessler. Mr. Kessler served as Executive Chairman of the Company from
December 29, 2016, through November 24, 2020, when Mr. Kessler resigned his position, but continued
to serve as member of the Board of Directors. On December 1, 2021, Mr. Kessler was again appointed Executive Chairman of the Company.
Consulting
Agreement
On
December 29, 2016, the Company entered into a Consulting Services Agreement with Bristol Capital (the “Consulting
Agreement”). Pursuant to the Consulting Agreement, Mr. Kessler agreed to serve as Executive Chairman of the Company. The
initial term of the Consulting Agreement was from December 29, 2016 through March 28, 2017. The term of the Consulting Agreement
will be automatically extended for additional terms of 90-day periods, unless either the Company or Bristol Capital gives prior
written notice of non-renewal to the other party no later than thirty (30) days prior to the expiration of the then current term.
Upon the execution of the agreement the Company granted Bristol Capital options to purchase up to an aggregate of 30,000
shares of the Company’s common stock at an exercise price of $0.25
per share, as amended.
During
the term, the Company will pay Bristol Capital, as amended, a monthly fee $18,750
payable in cash or preferred stock, at the Company’s election. In addition, Bristol Capital may receive an annual bonus in an
amount and under terms determined by the Compensation Committee of the Board of Directors of the Company (the “Board”)
and approved by the Board in its sole and absolute discretion. The Company shall also, in association with the uplisting of the
Company’s common stock to a national exchange, issue to Bristol Capital (i) shares of common stock equal to 5%
of the fully diluted shares of common stock of the Company, calculated with the inclusion of Bristol Capital’s equity stock
holdings and shares issuable upon conversion of convertible instruments, preferred stock, options, and warrants; and (ii) a one-time
non-accountable expense reimbursement of $200,000.
On
November 22, 2018, the Company agreed to issue 202,022 shares of preferred stock for settlement of $496,875 due under the consulting
agreement as of October 31, 2018.
On
August 3, 2020, the Company cancelled the 202,022 shares of preferred stock previously determined to be issued, and issued 49,688 shares
of Series A preferred stock for the settlement of the previous outstanding amount due. In addition, on August 3, 2020, the Company issued
38,438 shares of Series A preferred stock for the settlement of $384,375 due under the consulting agreement as of July 31, 2020.
On
March 1, 2021, the Company issued 22,500 shares of Series A preferred stock to Bristol Capital for the settlement of $225,000 due under
the consulting agreement as of July 31, 2021.
During
the nine months ended September 30, 2022 and 2021, the Company incurred expenses of approximately $168,750, for each period for consulting
services provided by Bristol Capital. As of September 30, 2022 and December 31, 2021, the amount accrued to Bristol Capital for consulting
services was $262,500 and $93,750, respectively.
Non-Accountable
Expense Reimbursement
On
September 7, 2021, Bristol Capital received a one-time non-accountable expense reimbursement of $200,000 in consideration for significant
efforts and diligence in negotiating and structuring investment transactions.
Reimbursement
of Legal Fees
In
January 2022, Bristol Capital was reimbursed for $12,040 in legal fees.
Related
Party: Bristol Capital Advisors, LLC
Bristol
Capital Advisors, LLC (“Bristol Capital Advisors”) is managed by Paul L. Kessler.
Operating
Sublease
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease with Bristol Capital Advisors. The leased premises are owned
by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. The term of the Sublease is for
5 years and 3 months beginning on July 1, 2016, with monthly payments of approximately $8,000. During the year ended December 31, 2021
and 2020, the Company paid lease obligations of $83,054 and $108,046, respectively, under the Sublease. On September 30, 2021, the lease
term ended, and the Company vacated the premises.
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 $2,500,000,
securities comprising of: (i) the Bristol Convertible Debenture, (ii) Series A common stock purchase warrants, and (iii) Series B
common stock purchase warrants. Pursuant to the Purchase Agreement, the Company paid $25,000
to Bristol Investment Fund and issued 25,000
shares of common stock with a grant date fair value of $85,000
to Bristol Investment Fund to cover legal fees. The Company recorded as a debt discount of $25,791
related to the cash paid and the relative fair value of the shares issued for legal fees.
i)
Secured Convertible Debenture
On
December 1, 2016, the Company issued the Bristol Convertible Debenture with an initial principal balance of $2,500,000,
and a maturity date of December
30, 2018. The Bristol Convertible Debenture will accrue interest on the aggregate unconverted and then outstanding principal
amount at the rate of 12%
per annum. Interest
is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2017, (ii) on each date the purchaser
converts, in whole or in part, the Bristol Convertible Debenture into common stock (as to that principal amount then being
converted), and (iii) on the day that is 20 days following the Company’s notice to redeem some or all of the of the
outstanding principal of the secured convertible debenture (only as to that principal amount then being redeemed) and on the
maturity date. Interest may be paid in cash, common stock, or a combination thereof at the sole discretion of the
Company.
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 $3.00 (as
converted) per share, subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the
initial conversion price of $3.00
and (ii) 50%
of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the applicable conversion
date.
The
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 December
30, 2021.
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 $0.25
decreased the conversion price to $0.25.
As of December 31, 2020, the Bristol Convertible Debenture held by Bristol Investment Fund was convertible into 10,000,000
shares of common stock.
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 $0.175.
During
March 2022, Bristol Convertible Debenture principal in the amount of $3,150
was converted into 18,000
shares of common stock using a conversion price of $0.175.
As
of September 30, 2022, the Bristol Convertible Debenture with a principal amount of $2,496,850
held by Bristol Investment Fund was convertible into 14,267,714
shares of common stock using a conversion price of $0.175.
As
of September 30, 2022 and December 31, 2021, the amount of accrued interest payable to Bristol Investment Fund under the Bristol
Convertible Debenture was $1,748,780,
and $1,525,479,
respectively.
(ii)
Series A Common Stock Purchase Warrants
On
December 1, 2016, the Company issued series A common stock purchase warrants to acquire up to 833,333 shares of common stock at exercise
price of $3.00, and expiring on December 1, 2021. The warrants contain anti-dilution provisions where, if the Company, at any time while
the warrant 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 than the exercise price then in effect, the exercise price shall be
reduced, and the number of warrant shares shall be increased such that the aggregate exercise price payable hereunder, shall be equal
to the aggregate exercise price prior to such adjustment.
On
December 19, 2019, as a result of the anti-dilution provisions, the issuance of the Barlock Convertible Debenture with a conversion
price of $2.50
increased the number of shares of common stock issuable upon exercise of the series A common stock purchase warrants to 1,000,000,
and decreased the exercise price to $2.50.
On
December 19, 2019, Bristol Investment Fund assigned 300,000 series A common stock purchase warrants to Barlock Capital Management, LLC,
and the expiration date of the warrants was extended to December 1, 2024. After the assignment, Bristol Investment Fund held series A
common stock purchase warrants to acquire 700,000 shares of common stock at an exercise price to $2.50.
On
August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to
$0.25 increased the number of shares of common stock issuable upon exercise of the series A common stock purchase warrants to 7,000,000,
and decreased the exercise price to $0.25. As of December 31, 2020, Bristol Investment Fund held series A common stock purchase warrants
to acquire 7,000,000 shares of common stock at an exercise price to $0.25.
On
October 31, 2021, as a result of the anti-dilution provisions, the effect of reducing the conversion price of the Convertible
Debentures to $0.175 increased the common stock issuable upon the exercise of the series A common stock purchase warrants to 10,000,000,
and decreased the exercise price to $0.175.
On
September 9, 2022, Bristol Investment Fund assigned 20% of its series A common stock purchase warrants shares to Leviston Resources,
LLC.
As
of September 30, 2022, Bristol Investment Fund held series A common stock purchase warrants to acquire 10,000,000 shares of common stock
at an exercise price of $0.175.
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 833,333 shares of common stock at an initial
exercise price of $0.002, and expiring on December 1, 2021. The series B common stock purchase warrants were exercised immediately on
the issuance date, and the Company received gross proceeds of $1,667.
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 $1,448,293
as debt discount on the consolidated balance sheet. Debt discount is amortized over the earlier of (i) the term of the debt or (ii)
conversion of the debt, using the effective interest method which approximates the interest method. The amortization of debt
discount is included as a component of interest expense on the consolidated statement of operations. There was unamortized debt
discount of $0
as of September 30, 2022 and December 31, 2021.
Related
Party: Barlock 2019 Fund, LP
Barlock
2019 Fund, LP (“Barlock”), is managed by Scott D. Kaufman, who has served as Chief Executive Officer of the Company from November 24, 2020, through May 11, 2022, and as co-Chief Executive Officer from May 12, 2022 through August 8, 2022, and a
former Director from November 4, 2019, through August 8, 2022, and former Chairman of the Board of Directors from November 24, 2020,
through December 1, 2021.
Securities
Purchase Agreement – December 2019
On
December 19, 2019, the Company entered into the purchase agreement with Barlock, pursuant to which the Company sold to Barlock, for a
cash purchase price of $2,500,000, securities comprising of: (i) the Barlock Convertible Debenture, and (ii) Series A common stock purchase
warrants assigned from Bristol Investment Fund. Pursuant to the purchase agreement, the Company paid $25,400 to Barlock for legal fees
which was recorded as a debt discount.
(i)
Secured Convertible Debenture
On
December 19, 2019, the Company entered issued a Barlock Convertible Debenture with an initial principal balance of $2,500,000,
and a maturity date of December
30, 2021. The Barlock Convertible Debenture will accrue interest on the aggregate unconverted and then outstanding principal
amount at the rate of 12%
per annum. Interest
is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2020, (ii) on each date the purchaser
converts, in whole or in part, the Barlock Convertible Debenture into common stock (as to that principal amount then being
converted), and (iii) on the day that is 20 days following the Company’s notice to redeem some or all of the of the
outstanding principal of the Barlock Convertible Debenture (only as to that principal amount then being redeemed) and on the
maturity date. Interest may be paid in cash, common stock, or a combination thereof at the sole discretion of the
Company.
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 $2.50
(as converted) per share, subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the
initial conversion price of $2.50
and (ii) 50%
of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the applicable conversion
date.
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 $0.25
decreased the conversion price to $0.25.
As of December 31, 2020, the Barlock Convertible Debenture held by Barlock was convertible into 10,000,000
shares of common stock.
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 $0.175,
and the maturity date was amended to December 31, 2023.
During
March 2022, the principal amount of $3,150
under the Barlock Convertible Debenture was converted into 18,000
shares of common stock at a conversion price of $0.175.
As
of September 30, 2022, the Barlock Convertible Debenture with a principal amount of $2,496,850
held by Barlock was convertible into 14,267,714
shares of common stock at a conversion price of $0.175.
As
of September 30, 2022 and December 31, 2021, the amount of accrued interest payable to Barlock under the Barlock Convertible Debenture
was $835,629,
and $612,239,
respectively.
(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 300,000 shares of common stock at exercise price of $2.50, and expiring on December 1, 2024. The warrants contain anti-dilution
provisions where, if the Company, at any time while the warrant 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 than the exercise
price then in effect, the exercise price shall be reduced, and the number of warrant shares shall be increased such that the aggregate
exercise price payable hereunder, shall be equal to the aggregate exercise price prior to such adjustment.
On
August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to
$0.25 increased the number of shares of common stock issuable upon exercise of the series A common stock purchase warrants to 3,000,000,
and decreased the exercise price to $0.25. As of December 31, 2020, Barlock Capital Management, LLC held series A common stock purchase
warrants to acquire 3,000,000 shares of common stock at an exercise price to $0.25.
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 $0.175 increased the number of shares of common stock issuable upon exercise of the series A common stock purchase warrants
to 4,285,714, and decreased the exercise price to $0.175.
As
of September 30, 2022, Barlock Capital Management, LLC held series A common stock purchase warrants to acquire 4,285,714 shares of common
stock at an exercise price to $0.175.
In
addition, the warrants may be exercised, in whole or in part, at any time until they expire. If at any time after the six-month anniversary
of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares,
then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire. Shares of common stock issuable
upon exercise of warrants are subject to a 4.99% beneficial ownership limitation, which may increase to 9.99% upon notice to the Company.
Upon
issuance of the secured convertible debenture, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted
for it using the relative fair value of $545,336 as debt discount on the consolidated balance sheet. Debt discount is amortized over
the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates the interest
method. The amortization of debt discount is included as a component of interest expense on the consolidated statement of operations.
There was unamortized debt discount of $0, as of September 30, 2022 and December 31, 2021, respectively.
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
$3,000
per month from Barlock Capital Management, LLC. The amount of rent paid to Barlock Capital Management, LLC for the nine months ended
September 30, 2022 and 2021, amounted to $0
and $9,410,
respectively.
In
addition, the Company paid management fees to Barlock Capital Management, LLC in the amount of $0 and $81,000, for the nine months ended
September 30, 2022 and 2021, respectively.
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 $1,500
during the initial 90-day term, and $2,000
thereafter, for the use of their operations site to moor the barge. The agreement terminated on May 24, 2022. The total amount paid
to ANEC under the agreement for the nine months ended September 30, 2022 amounted to approximately $400,000.
In
addition, in January 2022, the Company began renting executive office space located at 2700 Homestead Road, Park City, UT 84098, for
approximately $3,000 per month from ANEC. The amount of rent paid to ANEC for the nine months ended September 30, 2022 amounted to approximately
$19,000.
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 $200,000 in consideration for significant efforts and diligence in negotiating and structuring investment transactions.
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 $7,850 and $24,500, for the nine months ended September 30, 2022 and 2021, respectively.
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 86,466 shares of preferred stock for settlement of the outstanding compensation due to Mr. Maatta of $212,707,
for the period June 17, 2017 through November 15, 2018.
On
August 3, 2020, the Company cancelled the 86,466 shares of preferred stock previously determined to be issued, and issued 21,271 shares
of Series A preferred stock for the settlement of the previous outstanding amount due. In addition, on August 3, 2020, the Company issued
29,496 shares of Series A preferred stock for the settlement of $294,965 in additional outstanding compensation due to Mr. Maatta, and
35,100 shares of Series A preferred stock for the settlement of $351,000 in loans to the Company made by Mr. Matta. The non-interest-bearing
loans were made as follows: during the year ended December 31, 2019, Mr. Maatta loaned $100,000 to the Company, during the year ended
December 31, 2020, Mr. Matta loaned an additional $125,000 to the Company, and paid for other amounts on behalf of the Company amounting
to $126,000. The outstanding balance of the loan payable to Mr. Maatta as of December 31, 2021 and 2020, was $0, for both periods.
On
March 1, 2021, 8,500 shares of Series A preferred stock were issued to Mr. Maatta in satisfaction of an aggregate of $85,546 due to Mr.
Maatta under his separation agreement.
Related
Party: CONtv
CONtv
is a joint venture with third parties and Bristol Capital, LLC. The Company holds a limited and passive interest of 10% in CONtv. As
of September 30, 2022 and December 31, 2021, the investment in CONtv and the amount due to CONtv was $0, for both periods.
Note
10. Convertible Notes Payable
Creecal
Holdings LLC (Assigned from Leviston Resources LLC)
In
connection with a loan in the principal amount of $500,000
received on May 18, 2022 pursuant to an oral agreement between the Company’s then-CEO and Leviston Resources LLC (“Leviston”) on
September 9, 2022 the Company documented such loan with the issuance of a convertible note assigned to Creecal Holdings LLC, dated
as of September 8, 2022 in the principal amount of $500,000 (the “Creecal Note”). The
Creecal Note is due on March 8, 2023 and shall accrue interest at 4%
per annum. Any principal or interest which is not paid when due shall bear interest at the rate of 22%
per annum from the due date thereof until the same is paid.
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 600,000 shares of the Company’s common stock, par value $0.0001 (the “Warrant Shares”),
at an aggregate conversion price of $900,000.
Pursuant
to the Settlement, Alpha agreed to exchange the 600,000 Warrant
Shares for a convertible promissory note in the principal amount of $900,000 due August
31, 2023 (the “Alpha Note”). Upon
the occurrence and during the continuation of any event of default under the Alpha Note, interest shall accrue at a default interest
rate of 22% per
annum. As of September 30, 2022 Alpha had returned 579,301 shares
of common stock in connection with the Settlement, and the remaining 20,699 shares were returned on October 25, 2022.
The
Alpha Note is convertible at Alpha’s option at the conversion price of the Company’s Series C preferred stock then in
effect (the “Alpha Note Conversion Price”). Upon notice that the Merger is imminent, Alpha will convert the Alpha Note
at a 10% discount of the amounts owed thereunder into shares of common stock at the lower of: (i) the Alpha Note Conversion
Price; or (ii) the lowest per share valuation attributed to the common stock in the Merger and any capital raise
completed by the Company in connection with the Merger.
Note
11. SBA/PPP Notes Payable
Small
Business Administration Paycheck Protection Program Loans
On
March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and included a provision
for the Small Business Administration (“SBA”) to implement its Paycheck Protection Program (“PPP”). The PPP provides
small businesses with funds to pay payroll costs, including some benefits over a covered period of up to 24 weeks. Funds received under
the PPP may also be used to pay interest on mortgages, rent, and utilities. Subject to certain criteria being met, all or a portion of
the loan may be forgiven. The loans bear interest at an annual rate of one percent (1%), are due two (2) years from the date of issuance,
and all payments are deferred for the first six (6) months of the loan. Any unforgiven balance of loan principal and accrued interest
at the end of the six (6) month loan deferral period is amortized in equal monthly installments over the remaining 18-months of the loan
term.
SBA
Guaranteed PPP Loan
On
April 30, 2020, the Company entered into an SBA guaranteed PPP loan. The Company received aggregate proceeds of $197,600 under the loan.
The loan accrues interest at a rate of 1.00%. On December 11, 2021, the SBA forgave $183,567 of loan principal. As of September 30, 2022
and December 31, 2021, the outstanding balance under the loan was $0 and $14,033, respectively.
SBA
Loan
On
May 31, 2020, the Company entered into a loan agreement with the SBA. The Company received aggregate proceeds of $149,900 under the loan.
The loan accrues interest at a rate of 3.75%, and will mature in June 2050. As of September 30, 2022 and December 31, 2021, the outstanding
balance under the loan was $149,900, for both periods.
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 $197,662
under the loan. The loan accrues interest at a rate of 1.00%, and will mature in February 2026. On March 10, 2022, the SBA forgave $197,662
of loan principal. As of September 30, 2022 and December 31, 2021, the outstanding balance under the loan was $0 and $197,662, respectively.
The
following table summarizes PPP/SBA loans payable:
Schedule
of Loans Payable
| |
| | | |
| | |
| |
As
of | |
| |
September
30, 2022 | | |
December
31, 2021 | |
SBA
Guaranteed PPP Loan | |
$ | — | | |
$ | 14,033 | |
SBA
Loan | |
| 149,900 | | |
| 149,900 | |
Second
Draw SBA Guaranteed PPP Loan | |
| — | | |
| 197,662 | |
Total | |
$ | 149,900 | | |
$ | 361,595 | |
Note
12. Contingencies and Commitments
COVID-19
The
Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic
on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and
governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by
the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe
have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness
of these actions remain uncertain.
The
severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not
limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service
providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial
statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity
or results of operations is uncertain.
Russia
– Ukraine Conflict
The
Russia – Ukraine conflict is a global concern. The Company does not have any direct exposure to Russia or Ukraine through its operations,
employee base, investments or sanctions. The Company does not receive goods or services sourced from those countries, does not anticipate
any disruption in its supply chain and has no business relationships, connections to or assets in Russia, Belarus or Ukraine. No impairments
to assets have been made due to the conflict. We are unable at this time to know the full ramifications of the Russia – Ukraine
conflict and its effects on our business.
Note
13. Common Stock Options
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 September 30, 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.
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 $0.25 per share.
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.
The
following table summarizes stock option activity during the three months ended September 30, 2022:
Schedule
of Stock Option Activity
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
| | |
Exercise | |
| |
Options | | |
Price | |
Outstanding
at December 31, 2021 | |
| 7,651,750 | | |
$ | 2.45 | |
Granted | |
| — | | |
| — | |
Exercised | |
| (217,500 | ) | |
| 0.42 | |
Forfeited/Cancelled | |
| (7,175,000 | ) | |
| 2.59 | |
Outstanding
at September 30, 2022 | |
| 259,250 | | |
$ | 0.25 | |
Exercisable
at December 31, 2021 | |
| 4,151,750 | | |
$ | 2.28 | |
Exercisable
at September 30, 2022 | |
| 259,250 | | |
$ | 0.25 | |
The
weighted average remaining contractual life of all options outstanding as of September 30, 2022 was 2.6 years. The weighted average remaining
contractual life for options vested and exercisable at September 30, 2022 was 2.6 years. Furthermore, the aggregate intrinsic value of
options outstanding as of September 30, 2022 was $0, based on the fair value of the Company’s common stock on September 30, 2022.
During
the three months ended March 31, 2022, the Company issued 185,216 net shares of common stock upon the cashless exercise of options underlying
217,500 shares of common stock.
During
the three months ended September 30, 2022, option holders cancelled options to purchase 7,175,000 shares of common stock.
Additional
information regarding stock options outstanding and exercisable as of September 30, 2022 is as follows:
Schedule
of Stock Option Outstanding and Exercisable
Option | | |
| | |
Remaining | | |
| |
Exercise | | |
Options | | |
Contractual | | |
Options | |
Price | | |
Outstanding | | |
Life
(in years) | | |
Exercisable | |
$ | 0.25 | | |
| 259,250 | | |
| 2.6 | | |
| 259,250 | |
Note
14. Common Stock Warrants
On
January 1, 2022, the Company granted warrants to purchase shares of the Company’s common stock to a consultant in connection with
the issuance of Series C preferred stock as follows: a warrant to purchase 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
March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $1.50 per common share, in exchange
for any warrants exercised at this time at the exercise price of $1.50 per common share. The issuance of replacement warrants has the
effect of resetting the conversion price of all outstanding shares of Series C preferred stock to $1.50 per common share and resetting
the exercise price of all outstanding warrants to $1.50 per common share in instances where those conversion and exercise prices are
above $1.50.
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
$0.50
per common share.
On
March 30, 2022, warrants to purchase 600,000 shares of the Company’s common stock were exercised by one warrant holder resulting
in $900,000 in cash proceeds being received by the Company. The Company issued replacement warrants to purchase 600,000 shares of the
Company’s common stock to such warrant holder.
During
the three months ended September 30, 2022, warrants to purchase 166,660 shares of the Company’s common stock were exercised by
two warrant holders resulting in $83,330 in cash proceeds being received by the Company, in addition, warrants holders cancelled warrants
to purchase 1,210,000 shares of common stock.
The
following table summarizes common stock warrant activity during the nine months ended September 30, 2022:
Schedule of Stock Warrants Activity
| |
Common Stock Warrants | | |
Weighted
Average
Exercise Price | |
Outstanding
at December 31, 2021 | |
| 22,460,926 | | |
$ | 0.82 | |
Granted | |
| 1,500,000 | | |
| 1.88 | |
Exercised | |
| (766,660 | ) | |
| 1.28 | |
Forfeited/Cancelled | |
| (1,210,000 | ) | |
| 1.50 | |
Outstanding
at September 30, 2022 | |
| 21,984,266 | | |
$ | 0.37 | (1) |
Exercisable
at December 31, 2021 | |
| 21,690,926 | | |
$ | 0.80 | |
Exercisable
at September 30, 2022 | |
| 21,984,266 | | |
$ | 0.37 | |
(1) |
On March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $1.50 per common share, in exchange for any warrants exercised at this time at the exercise price of $1.50 per common share. The issuance of replacement warrants has the effect of resetting the conversion price of all outstanding shares of Series C preferred stock to $1.50 per common share and resetting the exercise price of all outstanding warrants to $1.50 per common share in instances where those conversion and exercise prices are above $1.50. Additionally, 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 $0.50 per common share. |
The following table presents the assumptions used to estimate the fair values based upon a Black-Scholes calculation for the common stock
warrants granted during the nine months ended September 30, 2022:
Schedule
of Assumptions Used to Estimate Fair Value of Warrants
| |
Assumptions | |
Expected
dividend yield | |
| 0 | % |
Risk-free
interest rate | |
| 2.09 | % |
Expected
life (in years) | |
| 3 | |
Expected
volatility | |
| 297 | % |
The
weighted average remaining contractual life of all common stock warrants outstanding as of September 30, 2022 was 2.8 years. Furthermore,
the aggregate intrinsic value of common stock warrants outstanding as of September 30, 2022 was $500,000 based on the fair value of the
Company’s common stock on September 30, 2022.
Additional
information regarding common stock warrants outstanding and exercisable as of September 30, 2022 is as follows:
Schedule
of Stock Warrants Outstanding and Exercisable
Warrant | | |
| | |
Remaining | | |
| |
Exercise | | |
Warrants | | |
Contractual | | |
Warrants | |
Price | | |
Outstanding | | |
Life
(in years) | | |
Exercisable | |
$ | 0.175 | | |
| 14,285,714 | | |
| 2.2 | | |
| 14,285,714 | |
| 0.50 | | |
| 6,318,552 | | |
| 4.1 | | |
| 6,318,552 | |
| 1.00 | | |
| 300,000 | | |
| 1.5 | | |
| 300,000 | |
| 1.50 | | |
| 400,000 | | |
| 4.3 | | |
| 400,000 | |
| 1.53 | | |
| 180,000 | | |
| 2.0 | | |
| 180,000 | |
| 2.50 | | |
| 250,000 | | |
| 4.3 | | |
| 250,000 | |
| 2.75 | | |
| 250,000 | | |
| 4.3 | | |
| 250,000 | |
| Total | | |
| 21,948,266 | | |
| | | |
| 21,948,266 | |
Note
15. Series B Preferred Stock Warrants
From
March 2021 through December 2021, in connection with the issuance of Series B preferred stock, the Company issued (i) a warrant to acquire
5,000 shares of the Series B preferred stock at an exercise price of $1,000 per share of Series B preferred stock, which became exercisable
immediately upon issuance and which expires on March 26, 2023; and (ii) a warrant to acquire 5,000 shares of the Series B preferred stock
at an exercise price of $1,000 per share of Series B preferred stock, which became exercisable immediately upon issuance and which expires
on March 26, 2024. If at any time after the 60-day 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. The Company can force the exercise of the warrants if the VWAP exceeds $3.75 per share per share
for 20 consecutive trading days and the daily average trading volume of the common stock exceeds $100,000 in aggregate value for such
period. The warrant holder may not be forced to exercise the warrant if such exercise would cause the holder’s beneficial ownership
to exceed 4.9%.
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. Each share of our Series B preferred stock is convertible into a number of shares of our
common stock determined by dividing the aggregate stated value for the Series B preferred stock being converted ($1,080 per share, as
amended, subject to adjustment as set forth in the currently effective Series B Certificate of Designation) by the then-applicable conversion
price (initially $1.50 per share), subject to adjustment as set forth in the currently effective Series B Certificate of Designation.
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
$0.50
per common share.
As
of September 30, 2022, in connection with the issuance of Series B preferred stock, there were outstanding warrants to acquire 10,000
shares of Series B preferred stock at an exercise price of $1,000, resulting in Series B preferred stock with a stated value of $10,800,000,
and convertible into 21,600,000 shares of common stock, using a conversion price of $0.50.
The
following table summarizes Series B preferred stock warrant activity during the nine months ended September 30, 2022:
Schedule of Stock Warrants Activity
| |
Series
B Preferred
Stock Warrants | | |
Weighted Average Exercise Price | |
Outstanding
at December 31, 2021 | |
| 10,000 | | |
$ | 1,000 | |
Granted | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | |
Forfeited/Cancelled | |
| — | | |
| — | |
Outstanding
at September 30, 2022 | |
| 10,000 | | |
$ | 1,000 | |
Exercisable
at September 30, 2022 | |
| 10,000 | | |
$ | 1,000 | |
The
weighted average remaining contractual life of all Series B preferred stock warrants outstanding as of September 30, 2022 was 1 year.
Note
16. Common Stock
Holders
of our common stock are entitled to one vote per share. Our Certificate of Incorporation does not provide for cumulative voting. Holders
of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our Board out of legally available
funds. However, the current policy of our Board is to retain earnings, if any, for our operations and expansion. Upon liquidation, dissolution
or winding-up, the holders of our common stock are entitled to share ratably in all of our assets which are legally available for distribution,
after payment of or provision for all liabilities. The holders of our common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of our common stock are subject to and may be adversely affected by the rights
of the holders of shares of any series of preferred stock that we may designate and issue.
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.
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 $3,925,050, and issued in a private placement: (i) 2,933,340 shares
of common stock for $1.50 per share and (ii) warrants to acquire 2,933,340 shares of common stock at an exercise price of $1.50 per share,
which became exercisable immediately upon issuance and with a term of 5 years. The issuance generated net cash proceeds of approximately
$3.9 million.
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
May 31, 2022, the Company issued 169,205 shares of common stock to Highwire under the terms of the Binding Memorandum of Understanding
for a Proposed Transaction.
On
August 24, 2022, the Company entered into the Settlement with Alpha. The Settlement relates to a dispute with the Company’s
then-CEO in connection with Alpha’s partial exercise on March 20, 2022 of the Warrant Shares. Pursuant to the Settlement,
Alpha agreed to exchange the Warrant Shares for the Alpha Note. As of September 30, 2022 Alpha had returned 579,301 shares
of common stock in connection with the Settlement, and the remaining 20,699 shares were returned on October 25, 2022.
Note
17. Preferred Stock
Under
the terms of the Certificate of Incorporation, our Board is expressly granted authority to authorize the issuance from time to time of
shares of preferred stock in one or more series, for such consideration and for such corporate purposes as our Board may from time to
time determines, and by filing a certificate pursuant to applicable law of the State of Delaware to establish from time to time for each
such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the
shares of each such series, and the qualifications, limitations and restrictions thereof to the fullest extent permitted by the Certificate
of Incorporation and the laws of the State of Delaware, including, without limitation, voting rights (if any), dividend rights, dissolution
rights, conversion rights, exchange rights and redemption rights thereof.
Series
A Preferred Stock
Holders
of our Series A preferred stock are entitled to the number of votes per share equal to 2,000 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 (12%) per annum on the Aggregate Stated Value (as defined in the Certificate of Designation and Restatement of
Rights, Preferences and restrictions of Series A preferred stock, the “Series A Certificate of Designation”) then in effect,
payable quarterly on January 1, April 1, July 1 and October 1. Such dividend is payable in cash but may be paid in shares of common stock
in our sole discretion if the shares of common stock are listed on a national securities exchange. In the event of any liquidation, dissolution
or winding up of our company, whether voluntary or involuntary, holders of our Series A preferred stock are entitled to receive, prior
and in preference to any distribution of any of our assets to the holders of common stock by reason of their ownership thereof, for each
share held, an amount equal to the Stated Value (as defined in the Series A Certificate of Designation), plus unpaid dividends, if any.
The Series A preferred stock is convertible, at the option of the holder thereof, into such number of fully paid and nonassessable shares
of common stock as is determined by dividing the Aggregate Stated Value (initially $10.00 per share, subject to adjustment as set forth
in the currently effective Series A Certificate of Designation) by the Conversion Price (as defined in the Series A Certificate of Designation),
in effect on the date the certificate is surrendered for conversion, initially set at $0.25. Each share of Series A preferred stock is
redeemable at the option of the holder for the payment of cash by us to the holder equal to the Aggregate Stated Value of the shares
that the holder elects to redeem. The Series A preferred stock is entitled to certain protective provisions and we may not take certain
actions without the written consent of at least a majority of the Series A preferred stock, including, without limitation, amend, alter
or repeal any provision of the Series A Certificate of Designation to change the rights of the Series A preferred stock, create or authorize
additional class or series of stock senior to the Series A preferred stock or create, authorize the creation of, issue or authorize the
issuance of, any debt security which is convertible into or exchangeable for any equity security, if such equity security ranks senior
to the Series A preferred stock as to dividends or liquidation rights.
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
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.
During
the nine months ended September 30, 2022, 23,423 shares of Series A preferred stock were converted into 1,338,456 shares of common stock.
As
of September 30, 2022, there were 242,534 shares of Series A preferred stock outstanding resulting in Series A preferred stock with a
stated value of $2,425,340 and convertible into 13,859,086 shares of common stock, using a conversion price of $0.175.
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 (5%) per annum, in cash or at the holder’s
option, in fully paid and non-assessable shares of Series B preferred stock, at the Dividend Conversion Rate (as defined in the Series
B Certificate of Designation). Such dividends are payable quarterly on January 1, April 1, July 1 and October 1. In the event of any
liquidation, dissolution or winding up of our company, whether voluntary or involuntary, holders of our Series B 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 Series B Certificate of Designation, and which includes the Series A preferred stock and the Series C
preferred stock) by reason of their ownership thereof, for each share held an amount equal to the Stated Value (as defined in the Series
B Certificate of Designation), plus unpaid dividends or liquidated damages, if any. The Series B preferred stock is convertible, at the
option of the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the
Stated Value, currently $1,080 as amended, by the Series B Conversion Price, subject to a minimum of $1.00, but not to exceed $1.50,
subject to further adjustment in the event that the Company, subject to certain exemptions, disposes of or issues any Common Stock or
securities convertible into, exercisable, or exchangeable for Common Stock for no consideration or for consideration less than the applicable
Series B Conversion Price in effect immediately prior to such issuance. We are entitled to redeem some or all of the outstanding shares
of Series B preferred stock for cash in an amount equal to the Optional Redemption Amount (as defined in the Series B Certificate of
Designation). The Series B preferred stock is entitled to certain protective provisions and we may not take certain actions without the
written consent of at least fifty one percent (51%) in Stated Value of the outstanding shares of the Series B preferred stock, including,
without limitation, amend, alter or repeal any provision of the Series B Certificate of Incorporation or the Bylaws that materially and
adversely affects the rights of the Series B preferred stock, pay cash dividends or distributions on Junior Securities (as defined in
the Series B Certificate of Designation), or repay, repurchase or offer to repay, or otherwise acquire more than a de minimis number
of shares of Common Stock, Common Stock Equivalents (as defined in the Series B Certificate of Designation) or Junior Securities. Shares
of common stock issuable upon the conversion of Series B preferred stock are subject to a 9.99% beneficial ownership limitation.
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 $4,378,995, and issued in a private placement: (i) 5,000 shares of Series B
preferred stock, convertible by dividing the stated value, currently $1,080, as amended, by the Series B conversion price; and (ii) a
warrant to acquire 5,000 shares of the Series B preferred stock at an exercise price of $1,000 per share of Series B preferred stock,
which became exercisable immediately upon issuance and which expires on March 26, 2023; and (iii) a warrant to acquire 5,000 shares of
the Series B preferred stock at an exercise price of $1,000 per share of Series B preferred stock, which became exercisable immediately
upon issuance and which expires on March 26, 2024. 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.
During
the nine months ended September 30, 2022, 2,472 shares of Series B preferred stock had been converted into 1,962,448 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 $0.50, amends
the exercise price of all outstanding warrants held by Series B and Series C preferred
stockholders to $0.50
per common share, and provides for the conversion of the Series B and Series C preferred stock
into shares of the Company’s common stock immediately prior to the closing of the Merger.
As
of September 30, 2022, there were 1,420 shares of Series B preferred stock outstanding resulting in Series B preferred stock with a stated
value of $1,533,060, and convertible into 3,066,120 shares of common stock, using a conversion price of $0.50.
Series
C Preferred Stock
Holders
of our Series C preferred stock have no voting rights. Holders of our Series C preferred stock are entitled to receive dividends on Series
C preferred stock equal (on an as-if-converted-to-Common-Stock basis) to any dividends paid on common stock. In the event of any liquidation,
dissolution or winding up of our company, whether voluntary or involuntary, holders of our Series C preferred stock are entitled to receive,
prior and in preference to any distribution of any of our assets to the holders of common stock and common stock Equivalents (as defined
in the Certificate of Designation) by reason of their ownership thereof, for each share held an amount equal to the Stated Value (as
defined in the Certificate of Designation), plus fees, if any. The Series C preferred stock is convertible, at the option of the holder
thereof, into such number of fully paid and nonassessable shares of common stock as is determined by dividing the Stated Value, currently
$1,111, by the Series C Conversion Price, subject to further adjustment in the event that the Company, subject to certain exemptions,
disposes of or issues any common stock or securities convertible into, exercisable, or exchangeable for Common Stock for no consideration
or for consideration less than the applicable Series C Conversion Price in effect immediately prior to such issuance. We are entitled
to redeem some or all of the outstanding shares of Series C preferred stock for cash in an amount equal to the Optional Redemption Amount
(as defined in the Certificate of Designation). The Series C preferred stock is entitled to certain protective provisions and, without
the written consent of at least 50.1% in Stated Value of the outstanding shares of the Series C preferred stock, we may not (or permit
any of our subsidiaries to) enter into, create, incur, assume, guarantee or suffer to exist any indebtedness, other than Permitted Indebtedness
(as defined in the Certificate of Designation). Shares of common stock issuable upon the conversion of Series C preferred stock are subject
to a 4.99% beneficial ownership limitation, which may increase to 9.99% upon notice to the Company.
During
December 2021, we consummated the transactions contemplated by the securities purchase agreement with the investors party thereto, pursuant
to which we generated net cash proceeds of $7,733,601, and issued in a private placement: (i) 7,880
shares of Series C preferred stock, convertible by dividing the stated value, currently $1,111, by the Series C Conversion Price;
and (ii) warrants to acquire 1,750,936 shares of Common Stock at an exercise price of $2.50 per share, which became exercisable immediately
upon issuance and with a term of 5 years; and (iii) warrants to acquire 1,750,936 shares of Common Stock at an exercise price of $2.75
per share, which became exercisable immediately upon issuance and with a term of 5 years.
On
March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $1.50 per common share, in exchange
for any warrants exercised at this time at the exercise price of $1.50 per common share. The issuance of replacement warrants has the
effect of resetting the conversion price of all outstanding shares of Series C preferred stock to $1.50 per common share and resetting
the exercise price of all outstanding warrants to $1.50 per common share in instances where those conversion and exercise prices are
above $1.50.
On
July 7, 2022, 250 shares of Series C preferred stock were converted into 185,167 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 $0.50, amends
the exercise price of all outstanding warrants held by Series B and Series C preferred
stockholders to $0.50
per common share, and provides for the conversion of the Series B and Series C preferred stock
into shares of the Company’s common stock immediately prior to the closing of the Merger.
As
of September 30, 2022, there were 7,630 shares of Series C preferred stock outstanding resulting in Series C preferred stock with a stated
value of $8,476,930, and convertible into 28,535,429 shares of common stock, using a conversion price of $0.50.
Note
18. Discontinued Operations
Prior
to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events
and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the Company operated an eCommerce site
selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy operations”).
On
August 6, 2021, the Company entered into the Informa Agreement. Pursuant to the Informa Agreement,
Creek Road Miners Corp. (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related
to the business of operating and producing live pop culture events. The Company released deferred
revenue and other liabilities totaling $722,429 and recorded a gain from sale of discontinued operations of
this amount.
On
September 15, 2021, the Company 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 from sale of discontinued operations on the transaction of approximately $1,130,740. The gain from
sale of discontinued operations consists of the following:
Schedule
of Gain from Sale of Discontinue Operation
Description | |
Amount | |
Net
cash paid on the closing date | |
$ | 1,500,000 | |
Less: | |
| | |
Current
assets | |
| 36,060 | |
Inventory | |
| 193,300 | |
Fixed
assets, net | |
| 16,700 | |
Intangible
assets, net | |
| 123,200 | |
Total | |
| 369,260 | |
Gain
from sale | |
$ | 1,130,740 | |
CONtv
is a joint venture with third parties and Bristol Capital, LLC. The Company holds a limited and passive interest of 10% in CONtv. As
of September 30, 2022 and December 31, 2021, the investment in CONtv was $0, for both periods. As of September 30, 2022 and December
31, 2021, the amount due to CONtv was $0, for both periods, and classified as a discontinued operation.
The
related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending
September 30, 2022 and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated with
discontinued operations in our consolidated statement of operations for the three and nine months ending September 30, 2022 and 2021,
are classified as discontinued operations.
The
assets and liabilities related to discontinued operations consists of the following:
Schedule
of Discontinued Operation of Balance Sheet and Operation Statement
| |
September
30, | | |
December
31, | |
| |
2022 | | |
2021 | |
Assets | |
| | | |
| | |
Current
assets: | |
| | | |
| | |
Prepaid
expenses | |
$ | — | | |
$ | — | |
Inventory | |
| — | | |
| 18,725 | |
Total
current assets | |
| — | | |
| 18,725 | |
| |
| | | |
| | |
Other
assets: | |
| | | |
| | |
Property
and equipment, net | |
| — | | |
| — | |
Intangible
assets, net | |
| — | | |
| — | |
Total
assets | |
$ | — | | |
$ | 18,725 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current
liabilities: | |
| | | |
| | |
Accounts
payable and accrued expenses | |
$ | 485,712 | | |
$ | 472,029 | |
Deferred
revenue | |
| — | | |
| — | |
Due
to CONtv | |
| — | | |
| — | |
Total
liabilities | |
$ | 485,712 | | |
$ | 472,029 | |
In
addition, revenue and expenses from discontinued operations were as follows:
| |
2022 | | |
2021 | |
| |
Nine
Months Ended | |
| |
September
30, | |
| |
2022 | | |
2021 | |
Revenue | |
$ | 43,580 | | |
$ | 754,297 | |
| |
| | | |
| | |
Operating
costs and expenses: | |
| | | |
| | |
Cost
of revenue | |
| 59,037 | | |
| 640,092 | |
General
and administrative | |
| — | | |
| 781,338 | |
Total
operating expenses | |
| 59,037 | | |
| 1,421,430 | |
Loss
from operations | |
| (15,457 | ) | |
| (667,133 | ) |
| |
| | | |
| | |
Other
income (expense): | |
| | | |
| | |
Other
income | |
| (2,281 | ) | |
| 867,288 | |
Interest
income | |
| — | | |
| — | |
Gain
(loss) on disposal of fixed assets | |
| — | | |
| 1,853,169 | |
Total
other income (expense) | |
| (2,281 | ) | |
| 2,720,457 | |
| |
| | | |
| | |
Income
(loss) from discontinued operations | |
$ | (17,738 | ) | |
$ | 2,053,324 | |
Note
19. Subsequent Events
Decrease
in Market Price of Bitcoin, and Increase in Cost of Natural Gas
Our
business is heavily dependent on the market price of Bitcoin, which has experienced substantial volatility and has recently dropped to
its lowest price since December 2020. As of September 30, 2022 the market price of Bitcoin was $19,432, which reflects a decrease of
approximately 60% since the beginning of 2022, and of approximately 70% from its all-time high of approximately $67,000. In addition,
the cost of natural gas that we use to produce electricity to power our miners has increased substantially. The cost of natural gas in
the United States has increased by as much as approximately 260% since the beginning of 2022. These price movements result in decreased
cryptocurrency mining revenue and increased cryptocurrency mining costs, both of which have a material adverse effect on our business
and financial results.
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, and (B) the product of (x)
the number of issued and outstanding shares of common stock immediately following the consummation of the Restructuring Transactions
multiplied by (y) 33.33% to 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.