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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 2)

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _____________

 

Commission File No. 000-33383

 

Prairie Operating Co.

(Exact name of registrant as specified in its charter)

 

Delaware   98-0357690
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

8636 N. Classen Boulevard

Oklahoma City, OK

  73114
(Address of principal executive offices)   (Zip Code)

 

(713) 424-4247

(Registrant’s telephone number, including area code)

 

Creek Road Miners, Inc.

35 E. Horizon Ridge Pkwy, Ste 110-502

Henderson, NV 89002

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class   Trading Symbol(s)   Name of each Exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Title of Class   Number of Shares Outstanding on June 14, 2023
Common Stock, $0.0001 par value   175,961,698

 

 

 

 

 

 

EXPLANATORY NOTE

 

Prairie Operating Co. (the “Company,” “Prairie,” “we,” “us” or “our”) is filing this Amendment No. 2 on Form 10-Q/A (this “Amendment No. 2” or “Form 10-Q/A”) to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Original Form 10-Q”), as originally filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2023, as amended by Amendment No. 1 on Form 10-Q/A, as filed with the SEC on June 1, 2023 (the “Amendment No. 1”). The Original Form 10-Q was not reviewed by the Company’s independent registered public accounting firm, as reported in the Amendment No. 1. The Company’s prior independent registered public accounting firm resigned and the Company engaged Ham, Langston & Brezina, L.L.P. (“HL&B”) as its new independent registered public accounting firm. HL&B has now reviewed the Form 10-Q/A.

 

The Company updated its disclosures in this Amendment No. 2 for events that occurred after the date the Original Form 10-Q was filed. For the quarter ended March 31, 2022, revenues and expenses associated with eCommerce activities were reclassified to discontinued operations and for the quarter ended March 31, 2023, deposits on mining equipment were reclassified to non-current assets. The filing of this Form 10-Q/A caused the Company’s Chief Executive Officer and Chief Financial Officer to conclude that a material weakness in our internal control over financial reporting was present and that our disclosure controls and procedures were not effective as of March 31, 2023. Except as described above, this Amendment does not materially amend, modify or update the information in, or exhibits to, the Original Form 10-Q and does not change any reported financial results in the Original Form 10-Q. This Amendment should be read in conjunction with the Original Form 10-Q.

 

On May 3, 2023, the Company completed the previously announced merger with Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie LLC”), pursuant to the terms of the Amended and Restated Agreement and Plan of Merger, dated May 3, 2023 (the “Merger Agreement”), by and among the Company, Creek Road Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), and Prairie LLC (the “Closing”), pursuant to which, among other things, Merger Sub merged with and into Prairie LLC, with Prairie LLC surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company (the “Merger”). Upon consummation of the Merger, the Company changed its name from “Creek Road Miners, Inc.” to “Prairie Operating Co.”

 

Although this Quarterly Report on Form 10-Q is filed after the completion of the Merger, unless otherwise specifically noted herein, information set forth herein only relates to the period as of and for the quarter ended March 31, 2023 as of December 31, 2022 and therefore does not include the information of Prairie LLC for those periods. Accordingly, unless otherwise specifically noted herein, references herein to Prairie Operating Co., the Company, we, us or our refer only to the Company and its subsidiaries prior to the Merger and does not include Prairie LLC.

 

 

 

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION 2
Item 1. Condensed Consolidated Financial Statements 2
Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
Item 4. Controls and Procedures 40
     
PART II OTHER INFORMATION 41
Item 1. Legal Proceedings 41
Item 1A. Risk Factors 41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41
Item 3. Defaults Upon Senior Securities 41
Item 4. Mine Safety Disclosures 41
Item 5.

Other Information

41
Item 6. Exhibits 42
     
SIGNATURES   43

 

1

 

 

PART 1 — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

 

Prairie Operating Co. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

   March 31,   December 31, 
   2023   2022 
         
Assets          
Current assets:          
Cash and cash equivalents  $27,020   $246,358 
Receivable from sale of investment   

    90,000 
Prepaid expenses   26,799    40,702 
Deposits on mining equipment       4,673,680 
Total current assets   53,819    5,050,740 
           
Other assets:          
Property and equipment, net of accumulated depreciation of $811,792 and $747,216, respectively   1,567,431    1,632,007 
Deposits on mining equipment   4,721,280     
Deposits and other assets   110,350    110,350 
Total assets  $6,452,880   $6,793,097 
           
Liabilities and Stockholders’ Deficit          
Current liabilities:          
Accounts payable and accrued expenses  $3,565,924   $3,232,855 
Accrued interest and expenses – related parties   3,259,997    3,055,989 
Convertible notes payable   1,400,000    1,400,000 
Secured convertible debenture(s) – related party(ies)   4,993,700    4,993,700 
Current liabilities associated with discontinued operations   485,712    485,712 
Total current liabilities   13,705,333    13,168,256 
           
Non-current liabilities:          
SBA/PPP loans payable   149,900    149,900 
Total non-current liabilities   149,900    149,900 
Total liabilities   13,855,233    13,318,156 
           
Commitments and contingencies          
           
Stockholders’ deficit:          
Preferred stock; 5,000,000 shares authorized:          
Series A convertible preferred stock; $0.0001 par value; 500,000 shares authorized; 273,129 and 256,117 shares issued and outstanding, respectively   27    25 
Series B convertible preferred stock; $0.0001 par value; 20,000 shares authorized; 1,458 and 1,439 shares issued and outstanding, respectively        
Series C convertible preferred stock; $0.0001 par value; 15,000 shares authorized; 7,630 and 7,630 shares issued and outstanding, respectively   1    1 
Common stock; $0.0001 par value; 100,000,000 shares authorized;
12,246,036 and 12,246,036 shares issued and outstanding, respectively
   1,224    1,224 
Additional paid-in capital   54,296,425    54,202,355 
Accumulated deficit   (61,700,030)   (60,728,664)
Total stockholders’ deficit   (7,402,353)   (6,525,059)
Total liabilities and stockholders’ deficit  $6,452,880   $6,793,097 

 

See notes to unaudited condensed consolidated financial statements

 

2

 

 

Prairie Operating Co. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

   2023   2022 
   Three Months Ended 
   March 31, 
   2023   2022 
Revenue:        
Cryptocurrency mining  $   $343,055 
           
Operating costs and expenses:          
Cryptocurrency mining costs (exclusive of depreciation and amortization shown below)   6,305    386,342 
Depreciation and amortization   64,576    164,520 
Stock based compensation   170,120    1,923,105 
General and administrative   576,289    932,861 
Impairment of mined cryptocurrency       106,105 
Total operating expenses   817,290    3,512,933 
Loss from operations   (817,290)   (3,169,878)
           
Other income (expense):          
PPP loan forgiveness       197,662 
Interest expense   (154,076)   (148,064)
Other income        
Total other income (expense)   (154,076)   49,598 
           
Loss from operations before provision for income taxes   (971,366)   (3,120,280)
Provision for income taxes        
Loss from continuing operations   (971,366)   (3,120,280)
           
Discontinued operations:          
Income from discontinued operations       31,185 
Gain on sale of discontinued operations        
Net income from discontinued operations       31,185 
           
Net loss  $(971,366)  $(3,089,095)
           
Dividends on preferred stock   (95,472)   (99,510)
Income (loss) attributable to common stockholders  $(1,066,838)  $(3,188,605)
           
Income (loss) per common share:          
Income (loss) per share from continuing operations, basic and diluted  $(0.09)  $(0.34)
Income per share from discontinued operations, basic and diluted  $   $ 
Income (loss) per share, basic and diluted  $(0.09)  $(0.34)
Weighted average common shares outstanding, basic and diluted   12,246,036    9,427,905 

 

See notes to unaudited condensed consolidated financial statements

 

3

 

 

Prairie Operating Co. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
   Series A Preferred Stock    Series B Preferred   Series C Preferred   Common Stock   Additional Paid In   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
                                             
Balance, December 31, 2021   223,964   $22    3,720   $-    7,880   $1    8,191,382   $819    $51,506,854   $(47,309,849)  $4,197,847 
                                                        
Warrants issued for services   -    -    -    -    -    -    -    -    109,383    -    109,383 
Exercise of warrants   -    -    -    -    -    -    600,000    60    899,940    -    900,000 
Replacement warrants issued   -    -    -    -    -    -    -    -    1,608,000    -    1,608,000 
Exercise of stock options   -    -    -    -    -    -    185,216    19   (19   -    - 
Issuance of common stock for services   -    -    -    -    -    -    30,000    3    44,997    -    45,000 
Issuance of series A preferred stock to settle compensation   16,072    2    -    -    -    -    -    -    160,718    -    160,720 
Issuance of series B preferred stock to settle liabilities   -    -    112    -    -    -    -    -    111,459    -    111,459 
Conversion of series A preferred stock to common   (20,798   (2)   -    -    -    -    1,188,456    119   (117)   -    - 
Conversion of series B preferred stock to common   -    -    (1,532)   -    -    -    1,208,751    120   (120   -    - 
Conversion of secured convertible debenture to Common stock   -    -    -    -    -    -    36,000    4    6,296   -    6,300 
Dividend on Series A preferred stock   -    -    -    -    -    -    -    -   (66,763   -    (66,763)
Dividend on Series B preferred stock   -    -    -    -    -    -    -    -   (32,837   -    (32,837)
Net loss   -         -    -    -    -    -    -    -    (3,089,095)   (3,089,095)
Balance, March 31, 2022    219,238   $22    2,300   $       -    7,880   $1    11,439,805   $1,144    $54,347,791   $(50,398,944)  $3,950,014 

 

   Series A Preferred Stock    Series B Preferred Stock    Series C Preferred Stock    Common Stock   Additional Paid In   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
                                             
Balance, December 31, 2022   256,117   $25    1,439   $-    7,630   $1    12,246,036   $1,224   $54,202,355   $(60,728,664)  $(6,525,059)
                                                        
Issuance of series A preferred stock to
settle compensation
   17,012    2    -    -    -    -    -    -    170,118    -    170,120 
Issuance of series B preferred stock to
settle liabilities
   -    -    19    -    -    -    -    -    19,424    -    19,424 
Dividend on Series A preferred stock   -    -    -    -    -    -    -    -    (75,784)   -    (75,784)
Dividend on Series B preferred stock   -    -    -    -    -    -    -    -    (19,688)   -    (19,688)
Net loss   -    -    -    -    -    -    -    -    -    (971,366)   (971,366)
Balance, March 31, 2023    273,129   $27    1,458   $-    7,630   $1    12,246,036   $1,224   $54,296,425   $(61,700,030)  $(7,402,353)

 

See notes to unaudited condensed consolidated financial statements

 

4

 

 

Prairie Operating Co. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   2023   2022 
  

Three Months Ended

March 31,

 
   2023   2022 
Cash flow from operating activities:          
Net loss  $(971,366)  $(3,089,095)
Adjustment to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   64,576    164,520 
Amortization of lease right       (148)
Stock based compensation   170,120    1,923,105 
Impairment of cryptocurrency       106,105 
PPP loan forgiveness       (197,662)
Changes in operating assets and liabilities:          
Accounts receivable       307 
Receivable from sale of investment   90,000     
Prepaid expenses   13,903    (56,414)
Inventory       1,906 
Cryptocurrency, net of mining fees       (336,187)
Accounts payable and accrued expenses   556,501    446,413 
Accrued and unpaid dividends on preferred stock   (95,472)   (99,600)
Liabilities associated with discontinued operations       (8,384)
Net cash used in operating activities   (171,738)   (1,145,134)
           
Cash flow from investing activities:          
Deposits on mining equipment, net   (47,600)   707,810 
Purchase of property and equipment       (2,111,932)
Net cash used in investing activities   (47,600)   (1,404,122)
           
Cash flow from financing activities:          
Proceeds from the exercise of warrants       900,000 
Paydown of SBA/PPP loans payable       (14,033)
Net cash provided by financing activities       885,967 
           
Net decrease in cash and cash equivalents   (219,338)   (1,663,289)
Cash and cash equivalents, beginning of period   246,358    2,785,188 
Cash and cash equivalents, end of period  $27,020   $1,121,899 
           
Supplemental disclosures of cash flow information:          
Cash paid for income taxes  $   $ 
Cash paid for interest  $   $ 
           
Supplemental disclosures of noncash investing and financing activity:          
Issuance of series A preferred stock to settle accrued liabilities and compensation  $170,120   $160,720 
Issuance of series B preferred stock to settle accrued liabilities  $19,424   $111,459 
Accrued dividends on preferred stock  $95,472   $ 
Conversion of preferred stock to common stock  $    $239 
Conversion of secured convertible debentures to common stock  $    $6,300 

 

See notes to unaudited condensed consolidated financial statements

 

5

 

 

Prairie Operating Co. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2023

(Unaudited)

 

Note 1. Organization, Nature of Business and Basis of Presentation

 

Organization

 

On May 3, 2023, we changed our name from Creek Road Miners, Inc. to Prairie Operating Co. (the “Company,” “we,” “us” or “our”) in connection with the Merger (as defined below). The Company 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”).

 

The Merger Agreement and Related Transactions

 

On May 3, 2023, Prairie Operating Co., a Delaware corporation formerly named Creek Road Miners, Inc., completed its previously announced merger with Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie LLC”), pursuant to the terms of the Amended and Restated Agreement and Plan of Merger, dated as of May 3, 2023 (the “Merger Agreement,” and the closing thereunder, the “Closing”), by and among the Company, Creek Road Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), and Prairie LLC, pursuant to which, among other things, Merger Sub merged with and into Prairie LLC, with Prairie LLC surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company (the “Merger”). Upon consummation of the Merger, the Company changed its name from “Creek Road Miners, Inc.” to “Prairie Operating Co.” The Company continues to trade under the current ticker symbol “CRKR” and expects to commence trading on the OTCQB under the new name and ticker symbol “PROP” once FINRA processes the Company’s pending Rule 10b-17 action request pursuant to FINRA Rule 6490.

 

Prior to the consummation of the Merger, the Company effectuated a series of restructuring transactions in the following order: (i) the Company’s Series A preferred stock, par value $0.0001 per share (“Series A Preferred Stock”), Series B preferred stock, par value $0.0001 per share (“Series B Preferred Stock”), and Series C preferred stock, par value $0.0001 per share (“Series C Preferred Stock”), plus accrued dividends, were converted, in the aggregate, into 76,251,018 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”); (ii) the Company’s 12% senior secured convertible debentures (the “Original Debentures”), plus accrued but unpaid interest and a 30% premium, were exchanged, in the aggregate, for (a) 12% amended and restated senior secured convertible debentures in the principal amount of $1,000,000 in substantially the same form as their respective Original Debentures, (b) shares of Common Stock and (c) shares of Series D Preferred Stock, and such Series D Preferred Stock shall automatically convert into shares of Common Stock at a price of $0.175 per share immediately after the shares of Common Stock is listed or quoted for trading on the NYSE American securities exchange (or any successor thereto) or any other national securities exchange; (iii) accrued fees payable to the Company’s board of directors (the “Board”) in the amount of $110,250 were converted into 630,000 shares of Common Stock; (iv) accrued consulting fees of the Company in the amount of $318,750 payable to Bristol Capital Advisors, LLC (“Bristol Capital”) were converted into 1,821,429 shares of Common Stock; and (v) all amounts payable pursuant to certain convertible promissory notes were converted into an aggregate of 6,608,220 shares of Common Stock.

 

Prior to the Closing, all of the Company’s then existing warrants to purchase shares of Common Stock and Series B Preferred Stock and options to purchase shares of Common Stock were cancelled and retired and ceased to exist without the payment of any consideration to the holders thereof.

 

At the effective time of the Merger, membership interests in Prairie LLC were converted into the right to receive each member’s pro rata share of 65,647,676 shares of Common Stock (the “Merger Consideration”).

 

In addition, the Company consummated the previously announced purchase of oil and gas leases, including all of Exok, Inc.’s, an Oklahoma corporation (“Exok”), right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 3,157 net mineral acres in, on and under approximately 4,494 gross acres from Exok for $3,000,000 pursuant to the Amended and Restated Purchase and Sale Agreement, dated as of May 3, 2023, by and among the Company, Prairie LLC and Exok (the “Exok Transaction”).

 

To fund the Exok Transaction, the Company received an aggregate of $17.3 million in proceeds from a number of investors (the “PIPE Investors”), and the PIPE Investors were issued Series D preferred stock, par value $0.01 per share (“Series D Preferred Stock”), with a stated value of $1,000 per share and convertible into shares of Common Stock at a price of $0.175 per share, and 100% warrant coverage for each of Series A warrants to purchase shares of Common Stock (the “Series A Warrants”) and Series B warrants to purchase shares of Common Stock (the “Series B Warrants” and together with the Series A Warrants, the “PIPE Warrants”), in a private placement pursuant to securities purchase agreements entered into with each PIPE Investor (collectively, the “Securities Purchase Agreements”).

 

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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 has neither received meaningful cryptocurrency awards nor generated 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 March 31, 2023, 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.

 

On December 17, 2021 the Company entered into a Non-Fixed Price Sales and Purchase Agreement (the “Bitmain Agreement”) with Bitmain Technologies Limited (“Bitmain”) for 600 Bitmain S19XP miners with a reference price of approximately $11,250 per miner. The miners have a total of 84 Ph/s of hashing capacity and an initial estimated purchase commitment of $6,762,000 (the “total reference price”), subject to price adjustments and related offsets, including potential adjustments related to the market price of miners. The final adjusted price under the contract was $4,016,600 as of March 31, 2023, and the Company has made payments of $4,016,600 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement as of such date.

 

As of March 31, 2023, none of the 600 miners purchased from Bitmain have been delivered to the Company. In May 2023, the Company paid shipping costs of $54,000 and initiated the shipment of miners to the Company from Asia.

 

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 
Revenue recognized from cryptocurrency mined        
Mining pool operating fees        
Proceeds from the sale of cryptocurrency   (0.6)   (11,203)
Realized gain on the sale of cryptocurrency       3,853 
Balance December 31, 2022      $ 
Revenue recognized from cryptocurrency mined          
Mining pool operating fees          
Proceeds from the sale of cryptocurrency          
Realized gain on the sale of cryptocurrency          
Balance March 31, 2023 (1)       $  

 

  (1) Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.

 

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Factors Affecting Profitability

 

Our business is heavily dependent on the market price of Bitcoin. The prices of cryptocurrencies, specifically Bitcoin, have experienced substantial volatility. Further affecting the industry, and particularly for the Bitcoin blockchain, the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving.” For Bitcoin the reward was initially set at 50 Bitcoin currency rewards per block. The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block 210,000; (2) on July 9, 2016 at block 420,000; and (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 Bitcoin per block. The next halving for the Bitcoin blockchain is anticipated to occur in March 2024 at block 840,000, when the reward will be reduced to 3.125 Bitcoin per block. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted. Many factors influence the price of Bitcoin, and potential increases or decreases in prices in advance of, or following, a future halving is unknown.

 

We have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. Since June 30, 2022 the Company has neither received meaningful cryptocurrency awards nor generated 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 March 31, 2023 the market price of Bitcoin was $28,478, which reflects a decrease of approximately 31% since the beginning of 2022, and a decrease of approximately 58% from its all-time high of approximately $67,000. The price movements result in decreased cryptocurrency mining revenue which has had a material adverse effect on our business and financial results.

 

Government Regulation

 

Cryptocurrency is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies. While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

 

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Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.

 

Note 2. Going Concern Analysis

 

Historically, we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have incurred significant losses and experienced negative cash flow. The Company had net losses from continuing operations of $971,366, and $3,095,699, for the three months ended March 31, 2023 and 2022, 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 March 31, 2023, we had cash and cash equivalents of $27,020, a working capital deficit of approximately $14 million, and an accumulated deficit of approximately $62 million. Upon closing of the Merger and related transactions on May 3, 2023, we received proceeds from the issuance of preferred stock of $17.3 million. A majority of these proceeds remain within the Company after the Merger and related transactions for use in our business.

 

The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company can meet its obligations and has adequate liquidity to operate. Significant assumptions used in the Company’s forecasted model of liquidity in the next 12 months include its current cash position, inclusive of the impacts from the Merger and related transactions discussed above, and its ability to manage spending. Based on an assessment of these factors, management believes that the Company will have adequate liquidity for its operations for at least the next 12 months.

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The condensed 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.

 

Note 3. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

 

These estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities, assumptions made in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.

 

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Reclassification

 

Certain prior period amounts have been reclassified to conform to current period presentation.

 

Concentration of Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company does not anticipate incurring any losses related to these credit risks.

 

Cryptocurrency

 

Cryptocurrency (Bitcoin) is included in current assets in the accompanying consolidated balance sheets. The classification of cryptocurrencies as a current asset has been made after the Company’s consideration of the significant consistent daily trading volume on readily available cryptocurrency exchanges and the absence of limitations or restrictions on Company’s ability to sell Bitcoin. Cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below. Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.

 

Impairment of Long-Lived Assets

 

Long-lived assets are comprised of intangible assets and property and equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash flows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists, pursuant to the provisions of FASB ASC 360-10 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.

 

Property and equipment

 

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 3 to 9 years. 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.

 

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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.

 

We recognize lease expense for these leases on a straight-line basis over the lease term. We recognize variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.

 

Revenue Recognition

 

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.

 

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:

 

  identify the contract with a customer;
  identify the performance obligations in the contract;
  determine the transaction price;
  allocate the transaction price to performance obligations in the contract; and
  recognize revenue as the performance obligation is satisfied.

 

The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

 

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.

 

Fair value of the cryptocurrency award received is determined using the market rate of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

 

Cryptocurrency Mining Costs

 

The Company’s cryptocurrency mining costs consist primarily of direct costs of earning Bitcoin related to mining operations, including mining pool fees, natural gas costs, turbine rental costs, and mobile data center rental costs, but exclude depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.

 

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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

 

We account for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Discontinued Operations

 

On August 6, 2021, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Informa. Pursuant to the Asset Purchase Agreement, Creek Road Miners Corp. (formerly known as 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.

 

The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the three months ended March 31, 2023 and year ended December 31, 2022, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the three months ended March 31, 2023 and 2022, are classified as discontinued operations.

 

Earnings (Loss) Per Common Share

 

Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period. Potential common shares are excluded from the computation when their effect is antidilutive. Basic and diluted earnings (loss) attributable to common stockholders is the same for the three months ended March 31, 2023 and 2022, 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 March 31, 2023 because their inclusion would be anti-dilutive are as follows:

 

Potentially Dilutive Security  Quantity   Stated Value Per Share (1)   Total Value or Stated Value  

Assumed

Conversion Price (1)

  

Resulting Common

Shares

 
Common stock options   259,250   $   $        259,250 
Common stock warrants   21,984,266                21,984,266 
Series A preferred stock   273,129    10    2,731,290    0.175    15,607,371 
Series B preferred stock   1,458    1,080    1,574,640    0.500    3,149,280 
Series C preferred stock   7,630    1,111    8,476,930    0.500    16,953,860 
Series B preferred stock warrants   5,000    1,080    5,400,000    0.500    10,800,000 
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                       100,089,456 

 

(1)As of March 31, 2023

 

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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 of 1933, as amended (the “Securities Act”)); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

Recently Issued Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

Note 4. Deposits on Mining Equipment

 

Deposits on mining equipment, consisted of the following:

 

   Cryptocurrency Miners   Mobile Data Centers   Total 
Balance December 31, 2021  $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 
Deposits on equipment during the period   47,600        47,600 
Equipment delivered during the period            
Balance March 31, 2023  $4,016,600   $704,680   $4,721,280 

 

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 March 31, 2023, 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.

 

13

 

 

On December 17, 2021 the Company entered into a Non-Fixed Price Sales and Purchase Agreement (the “Bitmain Agreement”) with Bitmain Technologies Limited (“Bitmain”) for 600 Bitmain S19XP miners with a reference price of approximately $11,250 per miner. The miners have a total of 84 Ph/s of hashing capacity and an initial estimated purchase commitment of $6,762,000 (the “total reference price”), subject to price adjustments and related offsets, including potential adjustments related to the market price of miners. The final adjusted price under the contract was $4,016,600 as of March 31, 2023, and the Company has made payments of $4,016,600 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement as of such date.

 

As of March 31, 2023, none of the 600 miners purchased from Bitmain have 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 impairments, or write downs, of cryptocurrency (Bitcoin) rewards to the lowest fair market value of Bitcoin from the time the reward was earned through the end of the reporting period. The impairments amounted to $0 and $106,105 for the three months ended March 31, 2023 and March 31, 2022, respectively. If the subsequent market price of Bitcoin increases, the asset balance will not be adjusted for the increase. The following table presents additional information regarding our cryptocurrency mining operations:

           
    

Quantity of Bitcoin

    

US $ Amounts

 
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   0.6   $7,350 
Revenue recognized from cryptocurrency mined        
Mining pool operating fees        
Proceeds from the sale of cryptocurrency   (0.6)   (11,203)
Realized gain on the sale of cryptocurrency       3,853 
Balance December 31, 2022      $ 
Revenue recognized from cryptocurrency mined        
Mining pool operating fees        
Proceeds from the sale of cryptocurrency        
Realized gain on the sale of cryptocurrency        
Balance March 31, 2023      $ 

 

  (1) Since June 30, 2022 the Company has neither received meaningful cryptocurrency awards nor generated meaningful revenue from cryptocurrency mining.

 

14

 

 

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:

 

  

March 31,

2023

  

December 31,

2022

 
Cryptocurrency miners  $2,152,970   $2,152,970 
Mobile data center   219,372    219,372 
Computer equipment   6,881    6,881 
Total   2,379,223    2,379,223 
Less accumulated depreciation   (811,792)   (747,216)
Property and equipment, net  $1,567,431   $1,632,007 

 

Depreciation expense, excluding that associated with discontinued operations, for the three months ended March 31, 2023 and 2022 amounted to $64,576 and $164,520, respectively.

 

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 March 31, 2023, 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.

 

Note 7. Amounts Due to Related Parties

 

Amounts due to related parties as of March 31, 2023 consisted of the following:

 

  

Bristol Capital,

LLC

  

Bristol

Investment

Fund, Ltd.

  

Barlock 2019

Fund, LP

   Total 
Accrued interest and expenses  $375,000   $1,899,074   $985,923   $3,259,997 
Current secured convertible debenture       2,496,850    2,496,850    4,993,700 
Total  $375,000   $4,395,924   $3,482,773   $8,253,697 

 

Amounts due to related parties as of December 31, 2022 consisted of the following:

 

  

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 debenture       2,496,850    2,496,850    4,993,700 
Total  $318,750   $4,322,045   $3,408,894   $8,049,689 

 

As of March 31, 2023, the secured convertible debentures with an aggregate principal amount of $4,993,700, comprised of a secured convertible debenture with a principal amount of $2,496,850 held by Bristol Investment Fund and a secured convertible debenture with a principal amount of $2,496,850 held by Barlock 2019 Fund, LP, 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 8. 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.

 

15

 

 

Consulting Agreement

 

On December 29, 2016, the Company entered into a Consulting Services Agreement with Bristol Capital. Pursuant to the Consulting Agreement, Mr. Kessler agreed to serve as Executive Chairman of the Company. The initial term of the 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 one-time non-accountable expense reimbursement of $200,000.

 

On November 22, 2018, the Company agreed to issue 202,022 shares of preferred stock for settlement of $496,875 due under the consulting agreement as of October 31, 2018.

 

On August 3, 2020, the Company cancelled the 202,022 shares of preferred stock previously determined to be issued, and issued 49,688 shares of Series A preferred stock for the settlement of the previous outstanding amount due. In addition, on August 3, 2020, the Company issued 38,438 shares of Series A preferred stock for the settlement of $384,375 due under the consulting agreement as of July 31, 2020.

 

On March 1, 2021, the Company issued 22,500 shares of Series A preferred stock to Bristol Capital for the settlement of $225,000 due under the consulting agreement as of July 31, 2021.

 

During the three months ended March 31, 2023 and 2022, the Company incurred expenses of approximately $56,250, for each period for consulting services provided by Bristol Capital. As of March 31, 2023 and December 31, 2022, the amount accrued to Bristol Capital for consulting services was $