The financial statements required by Item 8 are presented in the
following order:
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2022 and 2021
Note
1. Organization, Nature of Business and Basis of Presentation
Organization
Creek
Road Miners, Inc. (formerly known as Wizard Brands, Inc., Wizard Entertainment, Inc., Wizard World, Inc., and GoEnergy, Inc.) was incorporated
in Delaware on May 2, 2001. Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual
pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the
Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy
operations”).
On
August 6, 2021, we entered into an Asset Purchase Agreement (the “Informa Agreement”) with Informa Pop Culture Events, Inc.,
a Delaware corporation (“Informa”). Pursuant to the Informa Agreement, Creek Road Miners Corp. (fka Kick the Can Corp.) sold,
transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing live pop
culture events. The Company released deferred revenue and other liabilities totaling $722,429 and
recognized other income of this amount.
On
September 15, 2021, we sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations for $1,500,000
and recognized a gain on the transaction of approximately $1,130,740.
We
implemented a 1-for-20 reverse stock split of our outstanding shares of common stock that was effective on January 23, 2020. Unless otherwise
noted, all share and related option, warrant, and convertible security information presented has been retroactively adjusted to reflect
the reduced number of shares, and the increase in the share price which resulted from this action.
Merger
Agreement
On
October 24, 2022, the Company, Creek Road Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company,
and Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”), pursuant to which Merger Sub will merge with and into Prairie (the “Merger”), with
Prairie surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company.
At
the effective time of the Merger (the “Effective Time”), the Company will (a) deliver the greater of (A) 2,000,000 shares
of its common stock, par value $0.0001 per share (“common stock”), and (B) the product of (x) the number of issued and outstanding
shares of common stock immediately following the consummation of the Restructuring Transactions (as defined below) by the Company multiplied
by (y) 33.33% to the members of Prairie (the “Prairie Members”) and (b) convert certain options to purchase membership interests
of Prairie into restricted performance-based options to purchase, in the aggregate, 8,000,000 shares of common stock for $0.25 per share
only exercisable if specific production hurdles are achieved.
In
connection with the Merger, the Company will cause the following restructuring transactions (the “Restructuring Transactions”):
(1) all holders of the Company’s outstanding shares of Series A preferred stock, Series B preferred stock, Series C preferred stock,
and 12% senior secured convertible debentures (the “Convertible Debentures”), and holders of certain warrants, certain convertible
promissory notes and certain other accrued liabilities, will convert their respective shares of Series A preferred stock, Series B preferred
stock, Series C preferred stock and Convertible Debentures, and respective warrants, convertible promissory notes and accrued liabilities
into shares of common stock and (2) thereafter, the Company shall effect a reverse stock split of the common stock at a ratio between
1-23 and 1-30 (the “Reverse Stock Split”).
Nature
of Business
Cryptocurrency
Mining
We
generate substantially all our revenue through cryptocurrency we earn through our mining activities. We have historically mined and held
Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. Our mining operations commenced on October 24,
2021. We use special cryptocurrency mining computers (known as “miners”) to solve complex cryptographic algorithms to support
the Bitcoin blockchain and, in return, receive Bitcoin as our reward. Miners measure their processing power, which is known as “hashing”
power, in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash
rate.” We participate in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according
to the “hashing” capacity each miner contributes to the mining pool. Since June 30,
2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
Mining
Equipment
All
of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized
to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency
rewards. As of December 31, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with
24.3 Ph/s of hashing capacity, none of which were in service.
On
December 17, 2021 the Company entered into a Non-Fixed Price Sales and Purchase Agreement (the “Bitmain Agreement”) with
Bitmain Technologies Limited (“Bitmain”) for 600 Bitmain S19XP miners with a reference price of approximately $11,250 per
miner. The miners have a total of 84 Ph/s of hashing capacity and an initial estimated purchase commitment of $6,762,000 (the “total
reference price”), subject to price adjustments and related offsets, including potential adjustments related to the market price
of miners. As of December 31, 2022, the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain
pursuant to the Bitmain Agreement, and the remaining amount due under the Bitmain Agreement is $47,600 and presented in the table below:
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 | | |
| 581,000 | |
| Estimated total amount due | |
| | | |
| 4,016,600 | |
| Less: Payments made | |
| | | |
| 3,969,000 | |
| Remaining amount due | |
| | | |
$ | 47,600 | |
As
of December 31, 2022, all 600 miners purchased from Bitmain have not been delivered to the Company, and will remain undelivered until
all fees are paid to ship the miners from the Bitmain facility to the Company.
Mining
Results
The
Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency
mining activities. The following table presents additional information regarding our cryptocurrency mining operations:
Schedule
of Cryptocurrency Mining Operations
| | |
Quantity of Bitcoin | | |
US$ 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 | |
| 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 beginning | |
| 0.6 | | |
$ | 7,350 | |
| Revenue recognized from cryptocurrency mined | |
| — | | |
| — | |
| Mining pool operating fees | |
| — | | |
| — | |
| Proceeds from the sale of cryptocurrency | |
| (0.6 | ) | |
| (11,203 | ) |
| Realized gain on the sale of cryptocurrency | |
| — | | |
| 3,853 | |
| Realized gain (loss) on the sale of cryptocurrency | |
| — | | |
| 3,853 | |
| Balance December 31, 2022 (1) | |
| — | | |
$ | — | |
| Balance ending | |
| — | | |
$ | — | |
| (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 December 31, 2022 the market price of Bitcoin was $16,547, which reflects a decrease of approximately
60% since the beginning of 2022, and of approximately 75% from its all-time high of approximately $67,000. In addition, the cost of natural
gas that we use to produce electricity to power our miners has increased substantially. The cost of natural gas in the United States
during 2022 has increased by as much as approximately 260% since the beginning of 2022. These price movements result in decreased cryptocurrency
mining revenue and increased cryptocurrency mining costs, both of which have a material adverse effect on our business and financial
results.
Government
Regulation
Cryptocurrency
is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may
apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest
in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies.
While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory
measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or
entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of
reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining
and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to
our business, see the Section entitled “Risk Factors”.
Basis
of Presentation
The
Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
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 $13,401,076, and $19,202,114,
for the years ended December 2022 and 2021, respectively. We cannot predict if we will be profitable. We may continue to incur losses
for an indeterminate period of time and may be unable to achieve profitability. An extended period of losses and negative cash flow may
prevent us from successfully operating and expanding our business. We may be unable to achieve or sustain profitability on a quarterly
or annual basis. On December 31, 2022, we had cash and cash equivalents of $246,358, a working capital deficit of approximately $8.1
million, and an accumulated deficit of approximately $61 million.
We
have evaluated the significance of the uncertainty regarding the Company’s financial condition in relation to our ability to meet
our obligations, which has raised substantial doubts about the Company’s ability to continue as a going concern. While it is very
difficult to estimate our future liquidity requirements the Company believes that if it is unable close the Merger, or obtain debt and/or
equity financing, existing cash resources will be depleted in early 2023. The Company may be able to generate cash through the sale of
fixed assets, specifically cryptocurrency miners. However, the total cash generated would be significantly less than the total of the
Company’s liabilities. There are no assurances that the Merger will close, that debt and/or equity financing can be obtained, or
that the sale of fixed assets, specifically cryptocurrency miners can be achieved.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets, or the amounts and classification of liabilities that may result from the matters discussed herein.
The
Company’s ability to continue as a going concern is dependent upon the Company’s ability to close the merger with Prairie,
or obtain debt and/or equity financing, and there are no assurances that either can occur.
Note
3. Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in consolidation. The following table lists the Company’s wholly-owned subsidiaries
as of December 31, 2022:
Schedule
of Company’s Wholly-owned Subsidiaries
| Name of consolidated subsidiary or entity | |
State or other jurisdiction
of incorporation or organization | |
Date of incorporation or formation (date of acquisition,
if applicable) | |
Attributable
interest | |
| Creek Road Miners Corp. (fka Kick the Can Corp.) | |
Nevada, U.S.A. | |
September 20, 2010 | |
| 100 | % |
| Wizard Special Events, LLC | |
California, U.S.A. | |
June 5, 2018 | |
| 100 | % |
| Creek Road Merger Sub, LLC | |
Delaware, U.S.A. | |
October 4, 2022 | |
| 100 | % |
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
These
estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities, assumptions made
in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.
Reclassification
Certain
prior period amounts have been reclassified to conform to current period presentation.
Cash
and cash equivalents
For
purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with an
original maturity of three months or less. In all periods presented, cash equivalents consist primarily of money market funds.
Fair
value of financial instruments
Under
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value
Measurements and Disclosures, fair value is defined as the price at which an asset could be exchanged or a liability transferred
in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where
available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable
prices or parameters are not available, valuation models are applied. A fair value hierarchy prioritizes the inputs used in measuring
fair value into three broad levels as follows:
Level
1 – Quoted prices in active markets for identical assets or liabilities.
Level
2 – Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.
Level
3 – Unobservable inputs based on the Company’s assumptions.
The
Company is required to use observable market data if such data is available without undue cost and effort. The Company has no fair value
items required to be disclosed as of December 31, 2022 or 2021 under these requirements. The carrying amounts of financial assets and
liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the
short maturity of these instruments.
Transactions
involving related parties typically cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions
of competitive, free market dealings may not exist. However, in the case of the secured convertible debentures due to related parties,
the Company obtained a fairness opinion from an independent third party which supports that the transaction was carried out at an arm’s
length basis.
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company
places its cash with high quality financial institutions and at times may exceed the FDIC $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.
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, fuel and natural gas costs, turbine rental costs, and mobile data center rental costs, but exclude
depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.
Reverse
Stock Split
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.
Income
taxes
The
Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Discontinued
Operations
On
August 6, 2021, the Company entered into the Informa Agreement with Informa. Pursuant to the Informa Agreement, Creek Road Miners Corp.
(fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of
operating and producing live pop culture events. The Company released deferred revenue and other
liabilities totaling $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.
In
addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022.
The
related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the years ending December
31, 2022 and 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations
in our consolidated statement of operations for the years ending December 31, 2022 and 2021, are classified as discontinued operations.
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 years ended December 31, 2022 and 2021, because
the Company has only incurred losses and all potentially dilutive securities are anti-dilutive. Potentially dilutive securities that
were not included in the computation of diluted earnings (loss) attributable to common stockholders at December 31, 2022 because their
inclusion would be anti-dilutive are as follows:
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 | |
| 256,117 | | |
| 10 | | |
| 2,561,170 | | |
| 0.175 | | |
| 14,635,257 | |
| Series B preferred stock | |
| 1,439 | | |
| 1,080 | | |
| 1,554,120 | | |
| 0.500 | | |
| 3,108,240 | |
| 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 | |
| | | |
| | | |
| | | |
| | | |
| 109,876,302 | |
| (2) |
As of December 31, 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 | |
| Balance beginning | |
$ | 7,089,000 | | |
$ | 524,230 | | |
$ | 7,613,230 | |
| Deposits on equipment during the period | |
| 1,602,300 | | |
| 530,430 | | |
| 2,132,730 | |
| Equipment delivered during the period | |
| (4,722,300 | ) | |
| (349,980 | ) | |
| (5,072,280 | ) |
| Balance December 31, 2022 | |
$ | 3,969,000 | | |
$ | 704,680 | | |
$ | 4,673,680 | |
| Balance ending | |
$ | 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 December 31, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with
24.3 Ph/s of hashing capacity, none of which were in service.
On
December 17, 2021 the Company entered into a Non-Fixed Price Sales and Purchase Agreement (the “Bitmain Agreement”) with
Bitmain Technologies Limited (“Bitmain”) for 600 Bitmain S19XP miners with a reference price of approximately $11,250 per
miner. The miners have a total of 84 Ph/s of hashing capacity and an initial estimated purchase commitment of $6,762,000 (the “total
reference price”), subject to price adjustments and related offsets, including potential adjustments related to the market price
of miners. As of December 31, 2022, the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain
pursuant to the Bitmain Agreement, and the remaining amount due under the Bitmain Agreement is $47,600 and presented in the table below:
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 | | |
| 581,000 | |
| Estimated total amount due | |
| | | |
| 4,016,600 | |
| Less: Payments made | |
| | | |
| 3,969,000 | |
| Remaining amount due | |
| | | |
$ | 47,600 | |
As
of December 31, 2022, all 600 miners purchased from Bitmain have not been delivered to the Company, and will remain undelivered until
all fees are paid to ship the miners from the Bitmain facility to the Company.
Note
5. Cryptocurrency
The
Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency
mining activities. The Company recognized an impairment, or write down, of cryptocurrency (Bitcoin) rewards to the lowest fair market
value of Bitcoin from the time the reward was earned through December 31, 2022. The impairment amounted to $107,174 and $59,752 for the
years ended December 31, 2022 and 2021, respectively. The following table presents additional information regarding our cryptocurrency
mining operations:
Schedule
of Additional Information of Cryptocurrency Mining Operations
| | |
Quantity of Bitcoin | | |
US$ Amounts | |
| Balance December 31, 2020 | |
| — | | |
$ | — | |
| 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 | |
| Balance beginning | |
| 6.6 | | |
$ | 302,654 | |
| Revenue recognized from cryptocurrency mined | |
| 13.2 | | |
| 517,602 | |
| Mining pool operating fees | |
| (0.3 | ) | |
| (10,452 | ) |
| Proceeds from the sale of cryptocurrency | |
| (19.5 | ) | |
| (575,408 | ) |
| Realized loss on the sale of cryptocurrency | |
| — | | |
| (127,222 | ) |
| Impairment of cryptocurrencies | |
| — | | |
| (107,174 | ) |
| Balance December 31, 2022 (1) | |
| — | | |
$ | — | |
| Balance ending | |
| — | | |
$ | — | |
| | (1) | 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
| | |
2022 | | |
2021 | |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Cryptocurrency miners | |
$ | 2,152,970 | | |
$ | 1,784,062 | |
| Mobile data centers | |
| 219,372 | | |
| 518,663 | |
| Computer equipment | |
| 6,881 | | |
| 12,771 | |
| Total | |
| 2,379,223 | | |
| 2,315,496 | |
| Less accumulated depreciation | |
| (747,216 | ) | |
| (89,136 | ) |
| Net, Property and equipment | |
$ | 1,632,007 | | |
$ | 2,226,360 | |
Depreciation
expense, excluding that associated with discontinued operations, for the years ended December 31, 2022 and 2021 amounted to $658,080
and $112,512, respectively. On December 31, 2022 the Company recorded an impairment on fixed assets, specifically cryptocurrency miners
and mobile data centers, of $5,231,752 due to their significant drop in value.
All
of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized
to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency
rewards. As of December 31, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with
24.3 Ph/s of hashing capacity, none of which were in service.
Note
7. Investment
On
May 28, 2022, the Company entered into a Binding Memorandum of Understanding for a Proposed Transaction with Highwire to acquire certain
energy assets including natural gas production opportunities in South Dakota, North Dakota, and Wyoming as well as an opportunity for
fixed-price electricity generation in Wyoming. 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.
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.
On
December 30, 2022 the Company sold its investment in Highwire and recorded the transaction as follows:
Schedule
of Sale of Investment
| Description | |
Amount | |
| Basis of Investment | |
$ | 225,000 | |
| Less: | |
| | |
| Cash receivable at closing | |
| 90,000 | |
| Offset of account payable to seller | |
| 115,896 | |
| Total | |
| 205,896 | |
| Loss from sale | |
$ | 19,104 | |
Note
8. Amounts Due to Related Parties
Amounts
due to related parties as of December 31, 2022 consisted of the following:
Schedule
of Due to Related Parties
| | |
Bristol Capital, LLC | | |
Bristol Investment Fund, Ltd. | | |
Barlock 2019 Fund, LP | | |
Total | |
| Accrued Interest and expenses | |
$ | 318,750 | | |
$ | 1,825,195 | | |
$ | 912,044 | | |
$ | 3,055,989 | |
| Current secured convertible debentures | |
| — | | |
| 2,496,850 | | |
| 2,496,850 | | |
| 4,993,700 | |
| Total | |
$ | 318,750 | | |
$ | 4,322,045 | | |
$ | 3,408,894 | | |
$ | 8,049,689 | |
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 December 31, 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 the Barlock
Convertible Debenture with a principal amount of $2,496,850, 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 is from December 29, 2016 through March 28, 2017. The term of the Consulting Agreement will be automatically extended for additional
terms of 90-day periods, unless either the Company or Bristol Capital gives prior written notice of non-renewal to the other party no
later than thirty (30) days prior to the expiration of the then current term. Upon the execution of the agreement the Company granted
Bristol Capital options to purchase up to an aggregate of 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 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 onetime 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 years ended December 31, 2022 and 2021, the Company incurred expenses of approximately $225,000, for each period for consulting services
provided by Bristol Capital. As of December 31, 2022, and 2021, the amount accrued to Bristol Capital for consulting services was $318,750
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 “Sublease”).
The leased premises are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. The
term of the Sublease is for 5 years and 3 months beginning on July 1, 2016, with monthly payments of approximately $8,000. During the
year ended December 31, 2022 and 2021, the Company paid lease obligations of $0 and $83,054, 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.
On
December 31, 2022 the maturity date of the Bristol Convertible Debenture was amended to May 31, 2023.
As
of December 31, 2022 and 2021, the Bristol Convertible Debenture with a principal amount of $2,496,850 and $2,500,000, respectively,
held by Bristol Investment Fund was convertible into 14,267,714 and 14,285,714 shares of common stock, respectively, using a conversion
price of $0.175.
As
of December 31, 2022 and 2021, the amount of accrued interest payable to Bristol Investment Fund under the Bristol Convertible Debenture
was $1,825,195, 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 December 31, 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 December 31, 2022 and 2021.
Related
Party: Barlock 2019 Fund, LP
Barlock
is managed by Scott D. Kaufman, who has served as Chief Executive Officer of the Company from November 24, 2020, through May 11, 2022,
and as co-Chief Executive Officer from May 12, 2022 through August 8, 2022, and a former Director from November 4, 2019, through August
8, 2022, and former Chairman of the Board of Directors from November 24, 2020, through December 1, 2021.
Securities
Purchase Agreement – December 2019
On
December 19, 2019, the Company entered into the purchase agreement with Barlock, pursuant to which the Company sold to Barlock, for a
cash purchase price of $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.
(ii) 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 December 31, 2022 and 2021, the Barlock Convertible Debenture with a principal amount of $2,496,850 and $2,500,000, respectively,
held by Barlock was convertible into 14,267,714 and 14,285,714 shares of common stock, respectively, at a conversion price of $0.175.
As
of December 31, 2022 and 2021, the amount of accrued interest payable to Barlock under the Barlock Convertible Debenture was $912,044,
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 December 31, 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 December 31, 2022 and 2021.
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 years ended December 31, 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 years ended December
31, 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 year ended December 31, 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 year ended December 31, 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 years ended December 31, 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, 2022 and 2021, 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 December 31, 2022 and 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 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. The due date of the note was extended to the earlier of May 31, 2023 or the closing of the Merger. 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 25, 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 December 31, 2022 Alpha had returned 600,000 shares
of common stock in connection with the Settlement.
The
Alpha Note is convertible at Alpha’s option at the conversion price of the Company’s Series C preferred stock then in effect
(the “Alpha Note Conversion Price”). Upon notice that the Merger is imminent, Alpha will convert the Alpha Note at a 10%
discount of the amounts owed thereunder into shares of common stock at the lower of: (i) the Alpha Note Conversion Price; or (ii) the
lowest per share valuation attributed to the common stock in the Merger and any capital raise completed by the Company in connection
with the Merger.
Note
11. Lease Obligations
Office
Lease Obligation
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease with Bristol Capital Advisors, a related party. The leased premises
are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. The term of the Sublease
is for 5 years and 3 months beginning on July 1, 2016, with monthly payments of approximately $8,000.
The
Company classified the lease as an operating lease and determined that the value of the lease assets and liability on January 1, 2019,
the date the Company adopted ASC 842 using the modified retrospective approach, was $252,980 using a discount rate of 12%. During the
years ended December 31, 2022 and 2021, the Company made payments towards the lease liability of $0 and $83,054, respectively. As of
December 31, 2022 and 2021, the ROU assets amounted to $0, for both years. As of December 31, 2022 and 2021, lease liability amounted
to $0, for both years. During the years ended December 31, 2022 and 2021, the Company reflected amortization of right of use asset related
to this lease of $0 and $85,035, respectively. The lease termed ended in September 2021.
Warehouse
Lease Obligation
On
April 18, 2020 the Company entered into a commercial lease for 3,200 square feet warehouse space at 16142 Wyandotte Street, Van Nuys,
California 91405. The monthly lease payment is approximately $3,900, with an approximate 2% escalation in rent per year. The term of
the lease is for five years, expiring on May 1, 2025. On April 8, 2022, the Company paid approximately $20,000 for the right to advance
the termination of the lease to April 30, 2022.
The
Company classified the lease as an operating lease and determined that the value of the lease assets and liability at the inception of
the lease was $173,938 using a discount rate of 12%. During the years ended December 31, 2022 and 2021, the Company made payments towards
the lease liability of $31,920, and $47,424, respectively. As of December 31, 2022 and 2021, the ROU assets amounted to $0 and $127,335,
respectively. As of December 31, 2022 and 2021, lease liability amounted to $0 and $135,094, respectively. During the years ended December
31, 2022 and 2021, the Company reflected amortization of right of use asset related to this lease of $7,759 and $72,331, respectively.
The
following table presents lease expense for the following years:
Schedule of Components of Lease Expenses
| | |
2022 | | |
2021 | |
| | |
For the Years Ended December 31, | |
| | |
2022 | | |
2021 | |
| Operating lease | |
$ | 32,604 | | |
$ | 89,956 | |
Note
12. SBA/PPP Notes Payable
Small
Business Administration Paycheck Protection Program Loans
On
March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and included a provision
for the Small Business Administration (“SBA”) to implement its Paycheck Protection Program (“PPP”). The PPP provides
small businesses with funds to pay payroll costs, including some benefits over a covered period of up to 24 weeks. Funds received under
the PPP may also be used to pay interest on mortgages, rent, and utilities. Subject to certain criteria being met, all or a portion of
the loan may be forgiven. 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 December 31, 2022
and 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 December 31, 2022 and 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 December 31, 2022 and 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
| | |
December 31, 2022 | | |
December 31, 2021 | |
| | |
As of | |
| | |
December 31, 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 13. Contingencies and Commitments
Russia
– Ukraine Conflict
The
Russia – Ukraine conflict is a global concern. The Company does not have any direct exposure to Russia or Ukraine through its operations,
employee base, investments or sanctions. The Company does not receive goods or services sourced from those countries, does not anticipate
any disruption in its supply chain and has no business relationships, connections to or assets in Russia, Belarus or Ukraine. No impairments
to assets have been made due to the conflict. We are unable at this time to know the full ramifications of the Russia – Ukraine
conflict and its effects on our business.
Note
14. 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 December 31, 2022, there were 10,000,000
shares available for grant under the 2021 Plan, and no shares were available for grant under the 2020 Plan, 2016 Plan, or 2011 Plan.
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 years ended December 31, 2022 and 2021:
Schedule
of Stock Option Activity
| | |
| | |
Weighted | |
| | |
| | |
Average | |
| | |
| | |
Exercise | |
| | |
Options | | |
Price | |
| Outstanding at December 31, 2020 | |
| 789,250 | | |
$ | 0.32 | |
| Granted | |
| 7,300,000 | | |
| 2.55 | |
| Exercised | |
| (317,500 | ) | |
| 0.29 | |
| Forfeited/Cancelled | |
| (120,000 | ) | |
| 0.30 | |
| 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 December 31, 2022 | |
| 259,250 | | |
$ | 0.25 | |
| | |
| | | |
| | |
| Exercisable at December 31, 2020 | |
| 451,448 | | |
$ | 0.32 | |
| Exercisable at December 31, 2021 | |
| 4,151,750 | | |
$ | 2.28 | |
| Exercisable at December 31, 2022 | |
| 259,250 | | |
$ | 0.25 | |
The
following table presents the assumptions used to estimate the fair values based upon a Black-Scholes option pricing model of the stock
options granted during the years ended December 31, 2022 and 2021:
Schedule
of Assumptions Used to Estimate Fair Value of Options
| | |
Assumptions | |
| Expected dividend yield | |
| 0 | % |
| Risk-free interest rate | |
| 0.12 - 0.82 | % |
| Expected life (in years) | |
| 2.5 – 3.0 | |
| Expected volatility | |
| 297 - 545 | % |
The
weighted average remaining contractual life of all options outstanding, vested and exercisable as of December 31, 2022 was 2.1 years.
Furthermore, the aggregate intrinsic value of options outstanding as of December 31, 2022 and 2021, was $0 and $3,641,063, respectively,
and in each case based on the fair value of the Company’s common stock on December 31, 2022 and 2021, respectively.
During
the year ended December 31, 2022, the Company issued 185,216 net shares of common stock upon the cashless exercise of options underlying
217,500 shares of common stock, and option holders cancelled options to purchase 7,175,000 shares of common stock.
During
the year ended December 31, 2021, the Company granted to Directors and employees options to purchase a total of 7,300,000 shares of the
Company’s common stock with a fair value of $17,850,000, which will be amortized over the vesting period. The total fair value
of options that vested during the year ended December 31, 2021 was $9,726,950 and was included in stock based compensation expense in
the accompanying statement of operations. As of December 31, 2021, the amount of unvested compensation related to the unvested options
was $8,925,000 which will be recorded as an expense in future periods as the options vest. During the year ended December 31, 2021, the
Company issued 302,644 net shares of common stock upon the exercise of options underlying 317,500 shares of common stock, resulting in
net cash proceeds of $50,625.
On
December 1, 2021, the Company granted certain of its Directors and employees options to purchase a total of 7,000,000 shares of the Company’s
common stock with an exercise price of $2.65 per share, a term of 5 years, and a shall vest upon a VWAP of the Company’s common
stock reaching the following targets: at such time as there is a VWAP equal to $2.50 of the Company’s common stock when computed
over 30 consecutive trading days, 25% of each Executive’s Options shall vest; at such time as there is a VWAP equal to $3.00 of
the Company’s common stock when computed over 30 consecutive trading days, 25% of each Executive’s Options shall vest; at
such time as there is a VWAP equal to $3.50 of the Company’s common stock when computed over 30 consecutive trading days, 25% of
each Executive’s Options shall vest; and at such time as there is a VWAP equal to $4.00 of the Company’s common stock when
computed over 30 consecutive trading days, 25% of each Executive’s Options shall vest.
Additional
information regarding stock options outstanding and exercisable as of December 31, 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 | | |
| 2.1 | | |
| 259,250 | |
Note 15. Common Stock Warrants
During
the year ended December 31, 2022, the Company granted warrants to purchase a total of 900,000 shares of the Company’s common stock
to a consultant. In addition, the Company granted fully vested warrants to purchase 600,000 shares of the Company’s common stock
to shareholder as replacement for warrants. Using the Black-Scholes model the warrants to purchase 600,000 shares of the Company’s
common stock had a grant date fair value of $1,608,000 which was expensed on the grant date. The total fair value of options that vested
during the year ended December 31, 2022, was $2,080,501 and is included in stock based compensation expense in the accompanying statement
of operations. As of December 31, 2022, the amount of unvested compensation related to the unvested options was $0.
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.
During
the three months ended December 31, 2022, warrants to purchase 1,120,000 shares of the Company’s common stock were cancelled by
the warrant holders.
On
March 1, 2021, the Company granted warrants to purchase shares the Company’s common stock to certain consultants as follows: two
warrants to purchase 100,000 shares with an exercise price of $0.50 per share, a term of 5 years, and a vesting period of 2 years; and
two warrants to purchase 100,000 shares with an exercise price of $1.00 per share, a term of 5 years, and a vesting period of 2 years.
Prior to December 31, 2021, warrants to purchase 350,000 shares of the Company’s common stock were forfeited or cancelled leaving
outstanding warrants to purchase 50,000 shares of the Company’s common stock at $0.50 per share.
On
March 24, 2021, the Company granted warrants to purchase shares the Company’s common stock to a consultant as follows: a warrant
to purchase 300,000 shares with an exercise price of $1.00 per share, and a term of 5 years; and, in connection with the issuance of
Series B preferred stock, a warrant to purchase 180,000 shares with an exercise price of $1.5278 per share, and term of 5 years.
From
August 2021 through October 2021, in connection with the issuance of common stock, the Company issued 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 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.
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. 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.
On
October 12, 2021, the Company granted certain directors warrants to purchase a total of 60,000 shares of the Company’s common stock
with an exercise price of $1.50 per share, and a term of 3 years.
On
October 20, 2021, the Company granted a director a warrant to purchase 400,000 shares of the Company’s common stock with an exercise
price of $1.50 per share, a term of 3 years, and vesting as follows: 20% upon execution of the Services Agreement; 20% on January 20,
2022; 20% on April 20, 2022; 20% on July 20, 2022; and 20% on October 20, 2022.
On
October 31, 2021, the Company granted a consultant warrants to purchase 750,000 shares of the Company’s common stock with an exercise
price of $1.50 per share, a term of 3 years, and vesting as follows: 40% upon execution of the Services Agreement; 20% on April 1, 2022;
20% on August 1, 2022; and 20% on December 1, 2022.
During
December 2021, in connection with the issuance of Series C preferred stock, the Company issued (i) 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 (ii) 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. 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. 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. The warrants are callable by the Company if the VWAP as calculated over 20 consecutive
trading days exceeds 200% of the then exercise price, and the average daily dollar volume for such measurement period exceeds 100,000
shares per trading day. 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.
The
following table summarizes common stock warrant activity during the years ended December 31, 2022 and 2021:
Schedule of Stock Warrants Activity
| | |
Common Stock Warrants | | |
Weighted Average Exercise Price | |
| Outstanding at December 31, 2020 | |
| 10,300,000 | | |
$ | 0.26 | |
| Results of anti-dilution provisions (1) | |
| 4,285,714 | | |
| - | (1) |
| Granted | |
| 8,525,212 | | |
| 1.91 | |
| Exercised | |
| — | | |
| — | |
| Forfeited/Cancelled | |
| (650,000 | ) | |
| 1.81 | |
| Outstanding at December 31, 2021 | |
| 22,460,926 | | |
$ | 0.82 | |
| Results of anti-dilution provisions | |
| — | | |
| — | |
| Granted | |
| 1,500,000 | | |
| 1.48 | |
| Exercised | |
| (766,660 | ) | |
| 1.28 | |
| Forfeited/Cancelled | |
| (1,210,000 | ) | |
| 1.50 | |
| Outstanding at December 31, 2022 | |
| 21,984,266 | | |
$ | 0.37 | (2) |
| Exercisable at December 31, 2020 | |
| 10,300,000 | | |
$ | 0.26 | |
| Exercisable at December 31, 2021 | |
| 22,460,926 | | |
$ | 0.80 | |
| Exercisable at December 31, 2022 | |
| 21,984,266 | | |
$ | 0.37 | (2) |
| (1) |
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 common stock issuable upon the exercise of the series A common stock purchase warrants held cumulatively by related parties
Bristol Investment Fund and Barlock Capital Management, LLC, from 10,000,000 to 14,285,714, and decreased the exercise price to $0.175. |
| (2) | 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 year ended December 31, 2021 and 2022:
Schedule
of Assumptions Used to Estimate Fair Value of Warrants
| | |
Assumptions | |
| Expected dividend yield | |
| 0 | % |
| Risk-free interest rate | |
| 0.32 – 2.09 | % |
| Expected life (in years) | |
| 2 -3 | |
| Expected volatility | |
| 291 -297 | % |
The
weighted average remaining contractual life of all common stock warrants outstanding as of December 31, 2022 was 2.56 years. Furthermore,
the aggregate intrinsic value of common stock warrants outstanding as of December 31, 2022 was $0, based on the fair value of the Company’s
common stock on December 31, 2022.
Additional
information regarding common stock warrants outstanding and exercisable as of December 31, 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 | | |
| 1.9 | | |
| 14,285,714 | |
| | 0.50 | | |
| 6,318,552 | | |
| 3.9 | | |
| 6,318,552 | |
| | 1.00 | | |
| 300,000 | | |
| 1.2 | | |
| 300,000 | |
| | 1.50 | | |
| 400,000 | | |
| 4.0 | | |
| 400,000 | |
| | 1.53 | | |
| 180,000 | | |
| 1.7 | | |
| 180,000 | |
| | 2.50 | | |
| 250,000 | | |
| 4.0 | | |
| 250,000 | |
| | 2.75 | | |
| 250,000 | | |
| 4.0 | | |
| 250,000 | |
| | Total | | |
| 21,948,266 | | |
| | | |
| 21,948,266 | |
Note 16. Series B Preferred Stock Warrants
From
March 2021 through December 2021, in connection with the issuance of Series B preferred stock, the Company issued (i) a warrant to acquire
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%.
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
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.
As of December 31, 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 year ended December 31, 2022:
Schedule of Stock Warrants Activity
| | |
Series B Preferred Stock Warrants | | |
Weighted Average Exercise Price | |
| Outstanding at December 31, 2021 | |
| — | | |
$ | — | |
| Granted | |
| 10,000 | | |
| 1,000 | |
| Exercised | |
| — | | |
| — | |
| Forfeited/Cancelled | |
| — | | |
| — | |
| Outstanding at December 31, 2022 | |
| 10,000 | | |
$ | 1,000 | |
| | |
| | | |
| | |
| Exercisable at December 31, 2022 | |
| 10,000 | | |
$ | 1,000 | |
The
weighted average remaining contractual life of all Series B preferred stock warrants outstanding as of December 31, 2022 was 0.7 years.
Note 17. Common Stock
Holders
of our common stock are entitled to one vote per share. Our Certificate of Incorporation does not provide for cumulative voting. Holders
of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our Board out of legally available
funds. However, the current policy of our Board is to retain earnings, if any, for our operations and expansion. Upon liquidation, dissolution
or winding-up, the holders of our common stock are entitled to share ratably in all of our assets which are legally available for distribution,
after payment of or provision for all liabilities. The holders of our common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of our common stock are subject to and may be adversely affected by the rights
of the holders of shares of any series of preferred stock that we may designate and issue.
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 December 31, 2022 the shares were rescinded and returned to the Company.
On
May 31, 2022, the Company issued 169,205 shares of common stock to Highwire under the terms of the Binding Memorandum of Understanding
for a Proposed Transaction.
On
August 24, 2022, the Company entered into the Settlement with Alpha. The Settlement relates to a dispute with the Company’s then-CEO
in connection with Alpha’s partial exercise on March 20, 2022 of the Warrant Shares. Pursuant to the Settlement, Alpha agreed to
exchange the Warrant Shares for the Alpha Note. As of December 31, 2022 Alpha had returned 600,000 shares of common stock in connection
with the Settlement.
Note 18. Preferred Stock
Under
the terms of the Certificate of Incorporation, our Board is expressly granted authority to authorize the issuance from time to time of
shares of preferred stock in one or more series, for such consideration and for such corporate purposes as our Board may from time to
time determines, and by filing a certificate pursuant to applicable law of the State of Delaware to establish from time to time for each
such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the
shares of each such series, and the qualifications, limitations and restrictions thereof to the fullest extent permitted by the Certificate
of Incorporation and the laws of the State of Delaware, including, without limitation, voting rights (if any), dividend rights, dissolution
rights, conversion rights, exchange rights and redemption rights thereof.
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.
On
December 31, 2022, we issued: 3,792 shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement
of $37,920 of compensation payable to Mr. Kessler under his employment agreement from October 1, 2022 through December 31, 2022; 5,000
shares of our Series A preferred stock to John D. Maatta, our Chief Executive Officer, for settlement of $50,000 of compensation payable
to Mr. Maatta under his employment agreement from October 1, 2022 through December 31, 2022; 4,110 shares of our Series A preferred stock
to Scott Sheikh, our Chief Operating Officer and General Counsel, for settlement of $41,110 of compensation payable to Mr. Sheikh under
his employment agreement from October 1, 2022 through December 31, 2022, and 685 shares of our Series A preferred stock to Alan Urban,
our former Chief Financial Officer, for settlement of $6,850 of compensation payable to Mr. Urban under his employment agreement from
October 1, 2022 through December 31, 2022.
During
the year ended December 31, 2022 and 2021, 23,423 and 8,750 shares of Series A preferred stock were converted into 1,338,456 and 500,000
shares of common stock, respectively.
As
of December 31, 2022, there were 256,117 shares of Series A preferred stock outstanding resulting in Series A preferred stock with a
stated value of $2,567,170 and convertible into 14,635,257 shares of common stock, using a conversion price of $0.175.
On
March 1, 2021, we issued shares of our Series A preferred stock as follows: 8,500 shares to Mr. Maatta in satisfaction of an aggregate
of $85,546 due and owing to Mr. Maatta under his Separation Agreement; 22,500 shares to Bristol Capital, LLC in satisfaction of $225,000
due and owing to Bristol Capital, LLC for additional consulting services rendered by Mr. Kessler from July 1, 2020 through April 1, 2021;
and 8,300 shares to Scott D. Kaufman, our Chief Executive Officer, in satisfaction of $83,332 of compensation payable to Mr. Kaufman
under his Employment Agreement from November 24, 2020 through March 31, 2021.
On
June 30, 2021, we issued 6,249 shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement
of $62,490 of compensation payable to Mr. Kaufman under his employment agreement from April 1, 2021 through June 30, 2021.
On
September 30, 2021, we issued 6,249 shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement
of $62,490 of compensation payable to Mr. Kaufman under his employment agreement from July 1, 2021 through September 30, 2021.
On
December 31, 2021, we issued 6,250 shares of our Series A preferred stock to Scott D. Kaufman, our Chief Executive Officer, for settlement
of $62,500 of compensation payable to Mr. Kaufman under his employment agreement from October 1, 2021 through December 31, 2021. In addition,
on December 31, 2021 we issued 673 shares of our Series A preferred stock to Paul L. Kessler, our Executive Chairman, for settlement
of $6,730 of compensation payable to Mr. Kessler under his employment agreement from December 23, 2021 through December 31, 2021.
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.
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.
During
the years ended December 31, 2022 and 2021, 2,472 and 1,280 shares of Series B preferred stock had been converted into 1,962,448 and
948,646 shares of common stock, respectively.
As
of December 31, 2022, there were 1,439 shares of Series B preferred stock outstanding resulting in Series B preferred stock with a stated
value of $1,554,120, and convertible into 3,108,240 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.
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 December 31, 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 16,953,860 shares of common stock, using a conversion price of $0.50.
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 the 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.
Note 19. Discontinued Operations
On
August 6, 2021, the Company entered into the Informa Agreement with Informa. Pursuant to the Informa Agreement, Creek Road Miners Corp.
(fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of
operating and producing live pop culture events. The Company released deferred revenue and other
liabilities totaling $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 December 31, 2022 and 2021, the investment in CONtv was $0, for both periods. As of December 31, 2022 and 2021, the amount due to
CONtv was $0, respectively, and classified as a discontinued operation.
Prior
to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events,
and sold a gelatin machine and related consumables that were discontinued in 2021 In addition, the Company operated an eCommerce site
selling pop culture memorabilia that was discontinued on June 30, 2022 (collectively known as “legacy operations”).
The
related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the years ending December
31, 2022 and 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations
in our consolidated statement of operations for the years ending December 31, 2022 and 2021, are classified as discontinued operations.
The
assets and liabilities related to discontinued operations consists of the following:
Schedule
of Discontinued Operation of Balance Sheet and Operation Statement
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Prepaid expenses | |
$ | — | | |
$ | — | |
| Inventory | |
| — | | |
| — | |
| Total current assets | |
| — | | |
| — | |
| | |
| | | |
| | |
| Other assets: | |
| | | |
| | |
| Property and equipment, net | |
| — | | |
| — | |
| Intangible assets, net | |
| — | | |
| — | |
| Total assets | |
$ | — | | |
$ | — | |
| | |
| | | |
| | |
| Liabilities | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 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 | |
| | |
Years Ended | |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Revenue | |
$ | 43,580 | | |
$ | 829,767 | |
| | |
| | | |
| | |
| Operating costs and expenses: | |
| | | |
| | |
| Cost of revenue | |
| 59,037 | | |
| 776,719 | |
| General and administrative | |
| — | | |
| 842,097 | |
| Total operating expenses | |
| 59,037 | | |
| 1,618,816 | |
| Loss from operations | |
| (15,457 | ) | |
| (789,049 | ) |
| | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | |
| Other income | |
| (2,281 | ) | |
| 867,288 | |
| Interest income | |
| — | | |
| — | |
| 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 | ) | |
$ | 1,931,108 | |
Note 20. Subsequent Events
Decrease
in Market Price of Bitcoin, and Increase in Cost of Natural Gas
Our
business is heavily dependent on the market price of Bitcoin, which has experienced substantial volatility and has recently dropped to
its lowest price since December 2020. As of December 31, 2022 the market price of Bitcoin was $16,547, which reflects a decrease of approximately
60% since the beginning of 2022, and of approximately 75% from its all-time high of approximately $67,000. In addition, the cost of natural
gas that we use to produce electricity to power our miners has increased substantially. The cost of natural gas in the United States
during 2022 has increased by as much as approximately 260% since the beginning of 2022. These price movements result in decreased cryptocurrency
mining revenue and increased cryptocurrency mining costs, both of which have a material adverse effect on our business and financial
results.
On
March 2, 2023, we entered into a Master Services Agreement and Order Form (the “Master Services Agreement”) with Atlas Power
Hosting, LLC (“Atlas”). Atlas will provide us with cryptocurrency mining services for our miners at its facility in North
Dakota. The Master Services Agreement has a term of two
years unless otherwise
terminated pursuant to its terms. Under the Master Services Agreement, we
will pay Atlas a monthly hosting service fee for the quantity of electricity consumed by our miners, with an initial price per kilowatt-hour
of $0.08. In lieu of
a deposit or prepayment, all cryptocurrency mined by our miners will be transferred to wallets in the control of Atlas. Atlas will then
deduct the hosting service fee from the monthly total mined currency produced by our miners and remit the net mined currency to us.