UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30, 2022
| ☐ | 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
CREEK ROAD MINERS, INC.
(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.) |
| 2700 Homestead Road, Park City, UT | 84098 |
| (Address of principal executive offices) | (Zip Code) |
(435) 900-1949
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol(s) | Name of each Exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 August 8, 2022 | |
| Common Stock, $0.0001 par value |
TABLE OF CONTENTS
| PART I | FINANCIAL INFORMATION | |
| Item 1. | Condensed Consolidated Financial Statements | 2 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 43 |
| Item 4. | Controls and Procedures | 43 |
| PART II | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | 44 |
| Item 1A. | Risk Factors | 44 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44 |
| Item 3. | Defaults Upon Senior Securities | 44 |
| Item 4. | Mine Safety Disclosures | 44 |
| Item 6. | Exhibits | 45 |
| SIGNATURES | 46 | |
| 1 |
PART 1 — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 816,146 | $ | 2,785,188 | ||||
| Accounts receivable | 427 | |||||||
| Prepaid expenses | 147,487 | 107,749 | ||||||
| Deposits on mining equipment | 4,673,680 | 7,613,230 | ||||||
| Cryptocurrency | 586 | 302,654 | ||||||
| Current assets associated with discontinued operations | 18,725 | |||||||
| Total current assets | 5,637,899 | 10,827,973 | ||||||
| Other assets: | ||||||||
| Property and equipment, net of accumulated depreciation of $418,176 and $89,136, respectively | 7,192,799 | 2,226,360 | ||||||
| Right of use asset, net of accumulated amortization of $426,918 and $299,583 respectively | 127,335 | |||||||
| Investment | 225,000 | |||||||
| Deposits and other assets | 110,350 | 18,201 | ||||||
| Total assets | $ | 13,166,048 | $ | 13,199,869 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,889,091 | $ | 801,747 | ||||
| Accrued interest and expenses – related parties | 2,640,515 | 2,231,558 | ||||||
| Note payable | 588,643 | |||||||
| Lease liability, current portion | 33,977 | |||||||
| Secured convertible debenture – related party | 2,496,850 | 2,500,000 | ||||||
| Current liabilities associated with discontinued operations | 485,712 | 472,029 | ||||||
| Total current liabilities | 8,100,811 | 6,039,311 | ||||||
| Non-current liabilities: | ||||||||
| Lease liability, long term portion | 101,116 | |||||||
| Secured convertible debenture – related party | 2,496,850 | 2,500,000 | ||||||
| SBA/PPP loans payable | 149,900 | 361,595 | ||||||
| Total non-current liabilities | 2,646,750 | 2,962,711 | ||||||
| Total liabilities | 10,747,561 | 9,002,022 | ||||||
| Commitments and contingencies Stockholders’ equity: | ||||||||
| Preferred stock; shares authorized: | ||||||||
| Series A convertible preferred stock; $ par value; shares authorized; and shares issued and outstanding, respectively | 23 | 22 | ||||||
| Series
B convertible preferred stock; $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Series
C convertible preferred stock; $ par value; shares authorized; shares issued and outstanding, respectively | 1 | 1 | ||||||
| Common
stock; $ par value; shares authorized; and shares issued and outstanding, respectively | 1,251 | 819 | ||||||
| Additional paid-in capital | 54,868,200 | 51,506,854 | ||||||
| Accumulated deficit | (52,450,988 | ) | (47,309,849 | ) | ||||
| Total stockholders’ equity | 2,418,487 | 4,197,847 | ||||||
| Total liabilities and stockholders’ equity | $ | 13,166,048 | $ | 13,199,869 | ||||
See notes to unaudited condensed consolidated financial statements
| 2 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 166,592 | $ | $ | 509,647 | $ | ||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | 400,416 | 786,758 | ||||||||||||||
| Depreciation and amortization | 164,520 | 7,394 | 329,040 | 12,349 | ||||||||||||
| Stock based compensation | 466,136 | 189,919 | 2,389,241 | 2,037,475 | ||||||||||||
| General and administrative | 764,908 | 1,143,386 | 1,697,769 | 2,211,277 | ||||||||||||
| Impairment of mined cryptocurrency | 34 | 106,139 | ||||||||||||||
| Total operating expenses | 1,796,014 | 1,340,699 | 5,308,947 | 4,261,101 | ||||||||||||
| Loss from operations | (1,629,422 | ) | (1,340,699 | ) | (4,799,300 | ) | (4,261,101 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Realized loss on sale of cryptocurrency | (131,075 | ) | (131,075 | ) | ||||||||||||
| PPP loan forgiveness | 197,662 | |||||||||||||||
| Interest expense | (242,630 | ) | (245,419 | ) | (390,694 | ) | (469,511 | ) | ||||||||
| Total other income (expense) | (373,705 | ) | (245,419 | ) | (324,107 | ) | (469,511 | ) | ||||||||
| Loss from operations before provision for income taxes | (2,003,127 | ) | (1,586,118 | ) | (5,123,407 | ) | (4,730,612 | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Loss from continuing operations | (2,003,127 | ) | (1,586,118 | ) | (5,123,407 | ) | (4,730,612 | ) | ||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations | (48,917 | ) | (267,087 | ) | (17,732 | ) | 408,532 | |||||||||
| Gain on sale of discontinued operations | ||||||||||||||||
| Net income from discontinued operations | (48,917 | ) | (267,087 | ) | (17,732 | ) | 408,532 | |||||||||
| Net loss | $ | (2,052,044 | ) | $ | (1,853,205 | ) | $ | (5,141,139 | ) | $ | (4,322,080 | ) | ||||
| Dividends on preferred stock | (85,002 | ) | (12,954 | ) | (184,602 | ) | (69,852 | ) | ||||||||
| Earnings attributable to common stockholders | $ | (2,137,046 | ) | $ | (1,866,159 | ) | $ | (5,325,741 | ) | $ | (4,391,932 | ) | ||||
| Earnings (loss) per common share: | ||||||||||||||||
| Earnings (loss) per share from continuing operations, basic and diluted | $ | (0.17 | ) | $ | (0.44 | ) | $ | (0.49 | ) | $ | (1.36 | ) | ||||
| Earnings per share from discontinued operations, basic and diluted | $ | (0.01 | ) | $ | (0.07 | ) | $ | $ | 0.12 | |||||||
| Earnings (loss) per share, basic and diluted | $ | (0.18 | ) | $ | (0.51 | ) | $ | (0.49 | ) | $ | (1.24 | ) | ||||
| Weighted average common shares outstanding, basic and diluted | 12,210,032 | 3,618,420 | 10,806,764 | 3,534,546 | ||||||||||||
See notes to unaudited condensed consolidated financial statements
| 3 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended June 30, 2022
(Unaudited)
| Series A Preferred Stock Par value $0.0001 | Series B Preferred Stock Par value $0.0001 | Series C Preferred Stock Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, 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 | |||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | 363,118 | 363,118 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for investment | - | - | - | 169,205 | 17 | 99,983 | 100,000 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common | - | - | - | 11,502 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle compensation | 10,302 | 1 | - | - | - | 103,019 | 103,020 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock to settle liabilities | - | 40 | - | - | 39,381 | 39,381 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common | (2,625 | ) | - | - | 150,000 | 15 | (15 | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common | - | (940 | ) | - | 753,697 | 75 | (75 | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividend on series A preferred stock | - | - | - | - | (65,539 | ) | (65,539 | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividend on series B preferred stock | - | - | - | - | (19,463 | ) | (19,463 | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (2,052,044 | ) | (2,052,044 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 226,915 | $ | 23 | 1,400 | $ | 7,880 | $ | 1 | 12,524,209 | $ | 1,251 | $ | 54,868,200 | $ | (52,450,988 | ) | $ | $ | 2,418,487 | |||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 4 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Six Months Ended June 30, 2022
(Unaudited)
| Series
A Preferred Stock Par value $0.0001 | Series B Preferred Stock Par value $0.0001 | Series C Preferred Stock Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 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 | - | - | - | - | 472,501 | 472,501 | ||||||||||||||||||||||||||||||||||||||||||
| 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 common stock for investment | - | - | - | 169,205 | 17 | 99,983 | 100,000 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common | - | - | - | 11,502 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle compensation | 26,374 | 3 | - | - | - | 263,737 | 263,740 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock to settle liabilities | - | 152 | - | - | 150,840 | 150,840 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common | (23,423 | ) | (2 | ) | - | - | 1,338,456 | 134 | (132 | ) | ||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common | - | (2,472 | ) | - | 1,962,448 | 195 | (195 | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of secured convertible debenture to Common stock | - | - | - | 36,000 | 4 | 6,296 | 6,300 | |||||||||||||||||||||||||||||||||||||||||
| Dividend on series A preferred stock | - | - | - | - | (132,302 | ) | (132,302 | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividend on series B preferred stock | - | - | - | - | (52,300 | ) | (52,300 | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (5,141,139 | ) | (5,141,139 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 226,915 | $ | 23 | 1,400 | $ | 7,880 | $ | 1 | 12,524,209 | $ | 1,251 | $ | 54,868,200 | $ | (52,450,988 | ) | $ | $ | 2,418,487 | |||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 5 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 2021
(Unaudited)
Series A Preferred Stock Par value $0.0001 | Series
B Preferred Stock Par value $0.0001 | Series
C Preferred Stock Par value $0.0001 | Common
Stock Par value $0.0001 | Additional Paid In | Accmulated | Noncontrolling | Stockhoders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 217,293 | $ | 21 | 2,000 | $ | 1 | $ | 3,506,752 | $ | 351 | $ | 26,968,654 | $ | (32,508,021 | ) | $ | (12,498 | ) | $ | (5,551,492 | ) | |||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | 122,500 | 12 | 43,163 | 43,175 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle accrued liabilities and compensation | 9,249 | 1 | - | - | - | 189,869 | 189,870 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock and warrants, net | - | 500 | - | - | 460,000 | 460,000 | ||||||||||||||||||||||||||||||||||||||||||
| Dividend on Series A preferred stock | - | - | - | - | (12,954 | ) | (12,954 | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,853,205 | ) | (1,853,205 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 226,542 | $ | 22 | 2,500 | $ | 1 | $ | 3,629,252 | $ | 363 | $ | 27,648,732 | $ | (34,361,226 | ) | $ | (12,498 | ) | $ | (6,724,606 | ) | |||||||||||||||||||||||||||
| Series
A Preferred Stock Par value $0.0001 | Series B Preferred Stock Par value $0.0001 | Series C Preferred Stock Par value $0.0001 | Common
Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 173,993 | $ | 17 | $ | $ | 3,506,752 | $ | 351 | $ | 23,206,367 | $ | (30,039,146 | ) | $ | (12,498 | ) | $ | (6,844,909 | ) | |||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | 97,425 | 97,425 | ||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | 1,562,881 | 1,562,881 | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | 122,500 | 12 | 43,163 | 43,175 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle accrued liabilities and compensation | 52,549 | 5 | - | - | - | 623,749 | 623,754 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock and warrants, net | - | 2,500 | 1 | - | - | 2,184,999 | 2,185,000 | |||||||||||||||||||||||||||||||||||||||||
| Dividend on Series A preferred stock | - | - | - | - | (69,852 | ) | (69,852 | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (4,322,080 | ) | (4,322,080 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 226,542 | $ | 22 | 2,500 | $ | 1 | $ | 3,629,252 | $ | 363 | $ | 27,648,732 | $ | (34,361,226 | ) | $ | (12,498 | ) | $ | (6,724,606 | ) | |||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 6 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flow from operating activities: | ||||||||
| Net loss | $ | (5,141,139 | ) | $ | (4,322,080 | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 329,040 | 12,349 | ||||||
| Accretion of debt discount | 88,642 | 148,220 | ||||||
| Amortization of lease right | (7,759 | ) | (1,001 | ) | ||||
| Stock based compensation | 2,540,080 | 2,284,059 | ||||||
| Impairment of cryptocurrency | 106,139 | |||||||
| PPP loan forgiveness | (197,662 | ) | ||||||
| Realized loss on the sale of cryptocurrency | 131,075 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 428 | 33,452 | ||||||
| Prepaid expenses | (39,738 | ) | (248,906 | ) | ||||
| Inventory | 18,725 | |||||||
| Cryptocurrency, net of mining fees | (499,351 | ) | ||||||
| Current assets associated with discontinued operations | (185,508 | ) | ||||||
| Security deposits | (92,149 | ) | 102 | |||||
| Assets associated with discontinued operations | 3,448 | |||||||
| Accounts payable and accrued expenses | 1,496,302 | 242,729 | ||||||
| Accrued and unpaid dividends on preferred stock | (184,602 | ) | (69,852 | ) | ||||
| Liabilities associated with discontinued operations | 13,683 | (643,272 | ) | |||||
| Net cash used in operating activities | (1,438,286 | ) | (2,746,260 | ) | ||||
| Cash flow from investing activities: | ||||||||
| Proceeds from the sale of cryptocurrency | 564,205 | |||||||
| Purchase of investment | (125,000 | ) | ||||||
| Deposits on mining equipment, net | 2,939,550 | |||||||
| Purchase of property and equipment | (5,295,478 | ) | (23,903 | ) | ||||
| Net cash used in investing activities | (1,916,723 | ) | (23,903 | ) | ||||
| Cash flow from financing activities: | ||||||||
| Proceeds from the issuance of series B preferred stock and warrants, net | 2,185,000 | |||||||
| Proceeds from the exercise of warrants | 900,000 | |||||||
| Proceeds from the exercise of stock options | 43,175 | |||||||
| Proceeds (paydown) of SBA/PPP loans payable | (14,033 | ) | 197,662 | |||||
| Proceeds from note payable | 500,000 | |||||||
| Net cash provided by financing activities | 1,385,967 | 2,425,837 | ||||||
| Net increase (decrease) in cash and cash equivalents | (1,969,042 | ) | (344,326 | ) | ||||
| Cash and cash equivalents, beginning of period | 2,785,188 | 1,897,703 | ||||||
| Cash and cash equivalents, end of period | $ | 816,146 | $ | 1,553,377 | ||||
See notes to unaudited condensed consolidated financial statements
| 7 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosures of noncash investing and financing activity: | ||||||||
| Issuance of series A preferred stock to settle accrued liabilities and compensation | $ | 263,740 | $ | 623,754 | ||||
| Issuance of series B preferred stock to settle accrued liabilities | $ | 150,840 | $ | |||||
| Issuance of common stock for investment | $ | 100,000 | $ | |||||
| Conversion of preferred stock to common stock | $ | 329 | $ | |||||
| Conversion of secured convertible debentures to common stock | $ | 6,300 | $ | |||||
See notes to unaudited condensed consolidated financial statements
| 8 |
Creek Road Miners, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 2022
(Unaudited)
Note 1. Organization, Nature of Business and Basis of Presentation
Organization
Creek Road Miners, Inc. (formerly known as Wizard Brands, Inc., Wizard Entertainment, Inc., Wizard World, Inc., and GoEnergy, Inc.) was incorporated in Delaware on May 2, 2001. Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy operations”).
Nature of Business
Cryptocurrency Mining
We generate substantially all our revenue through cryptocurrency we earn through our mining activities. We have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. While we do not have the intention of mining any other cryptocurrencies in the near future, we may expand our mining operations to include additional crypto assets if, after evaluation of the financial merits of such crypto assets based on a number of factors, including the anticipated profitability and price stability of such crypto assets and the ability and cost of our existing miners to mine for such digital assets, we determine that such additional crypto assets are reasonably likely to result in better margin than Bitcoin. Our mining operations commenced on October 24, 2021. We use special cryptocurrency mining computers (known as “miners”) to solve complex cryptographic algorithms to support the Bitcoin blockchain and, in return, receive Bitcoin as our reward. Miners measure their processing power, which is known as “hashing” power, in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash rate.” We participate in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according to the “hashing” capacity each miner contributes to the mining pool.
On May 28, 2022, the Company entered into a Binding Memorandum of Understanding for a Proposed Transaction with Highwire Energy Partners, Inc. (“Highwire”) to acquire certain energy assets, including natural gas production opportunities in South Dakota, North Dakota and Wyoming as well as an opportunity for fixed-price electricity generation in Wyoming. In mid-June 2022 the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. As of June 30, 2022, the facility has been unable to supply sufficient natural gas to produce the level of power required to operate the miners . As a result, the Company is neither receiving cryptocurrency awards nor generating revenue from cryptocurrency mining.
Mining Equipment
All of the miners we operate 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. Cryptocurrency mining operations began in late 2021 when 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity were placed in service. As of June 30, 2022, we had 270 Bitmain S19J Pro miners with 27.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity that had yet to be placed into 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 June 30, 2022, the market price of miners has dropped significantly to approximately $7,500 per miner, and the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement. The remaining amount due under the Bitmain Agreement based on the initial total reference price is $2,793,000. The Company is in negotiation with Bitmain to cancel the Company’s future payment obligations under the Bitmain Agreement and receive the net number of miners based on (i) the payments to date of $3,969,000 and (ii) the current market price of approximately $7,500 per miner. Delivery of the S19XP miners is expected in late 2022 and early 2023.
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Mobile Data Centers
We utilize mobile data centers to house our miners. Our mobile data centers are located close to natural gas wellheads. We use natural gas to power a mobile turbine that produces electricity that, in turn, is used to power our miners.
Mining Results
The Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency mining activities. The following table presents additional information regarding our cryptocurrency mining operations:
| Quantity of Bitcoin | US$ Amounts | |||||||
| Balance September 30, 2021 | $ | |||||||
| Revenue recognized from cryptocurrency mined | 6.7 | 369,804 | ||||||
| Mining pool operating fees | (0.1 | ) | (7,398 | ) | ||||
| Impairment of cryptocurrencies | (59,752 | ) | ||||||
| Balance December 31, 2021 | 6.6 | $ | 302,654 | |||||
| Revenue recognized from cryptocurrency mined | 8.3 | 343,055 | ||||||
| Mining pool operating fees | (0.2 | ) | (6,868 | ) | ||||
| Impairment of cryptocurrencies | (106,105 | ) | ||||||
| Balance March 31, 2022 | 14.7 | $ | 532,736 | |||||
| Revenue recognized from cryptocurrency mined | 4.6 | 166,592 | ||||||
| Mining pool operating fees | (0.1 | ) | (3,428 | ) | ||||
| Proceeds from the sale of cryptocurrency | (18.9 | ) | (564,205 | ) | ||||
| Realized loss on the sale of cryptocurrency | (131,075 | ) | ||||||
| Impairment of cryptocurrencies | (34 | ) | ||||||
| Balance June 30, 2022 (1) | 0.3 | $ | 586 | |||||
| (1) | As of June 30, 2022, no cryptocurrency awards are being received and no revenue from cryptocurrency mining is being generated. |
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. As of June 30, 2022, no cryptocurrency awards are being received and no revenue from cryptocurrency mining is being generated.
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 June 30, 2022 the market price of Bitcoin was $19,785, which reflects a decrease of approximately 60% since the beginning of 2022, and of approximately 70% from its all-time high of approximately $67,000. In addition, the cost of natural gas that we use to produce electricity to power our miners has increased substantially. The cost of natural gas in the United States has increased by as much as approximately 235% 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.
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Government Regulation
Cryptocurrency is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies. While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
Note 2. Going Concern Analysis
Historically, we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have incurred significant losses and experienced negative cash flow. The Company had net losses from continuing operations of $5,123,407, and $4,730,612, for the six months ended June 30, 2022 and 2021, respectively. We cannot predict if we will be profitable. We may continue to incur losses for an indeterminate period of time and may be unable to achieve profitability. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to achieve or sustain profitability on a quarterly or annual basis. On June 30, 2022, we had cash and cash equivalents of $816,146 and a working capital deficit of approximately $2.5 million.
We have evaluated the significance of these conditions 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. The Company believes that if it is unable to obtain debt and/or equity financing, the sale of fixed assets, specifically cryptocurrency miners, will be required. There can be no assurances 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. While the Company believes in the viability of management’s strategy to obtain debt and/or equity financing and/or to sell fixed assets, specifically cryptocurrency miners, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to obtain debt and/or equity financing, and/or sell of fixed assets, specifically cryptocurrency miners.
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.
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Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
These estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities, assumptions made in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.
Reclassification
Certain prior period amounts may have been reclassified to conform to current period presentation.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company does not anticipate incurring any losses related to these credit risks.
Cryptocurrency
Cryptocurrency (Bitcoin) is included in current assets in the accompanying consolidated balance sheets. The classification of cryptocurrencies as a current asset has been made after the Company’s consideration of the significant consistent daily trading volume on readily available cryptocurrency exchanges and the absence of limitations or restrictions on Company’s ability to sell Bitcoin. Cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below. Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.
Impairment of Long-Lived Assets
Long-lived assets are comprised of intangible assets and property and equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash flows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists, pursuant to the provisions of FASB ASC 360-10 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.
Property and equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 3 to 9 years. No depreciation is recorded until the property or equipment is placed into service. Leasehold improvements are amortized over the shorter of the useful lives of the related assets, or the lease term. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the consolidated statements of operations.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value.
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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.
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Fair value of the cryptocurrency award received is determined using the market rate of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
Cryptocurrency Mining Costs
The Company’s cryptocurrency mining costs consist primarily of direct costs of earning Bitcoin related to mining operations, including mining pool fees, natural gas costs, turbine rental costs, and mobile data center rental costs, but exclude depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.
Reverse Stock Split
We implemented a 1-for-20 reverse stock split of our outstanding shares of common stock that was effective on January 23, 2020. Unless otherwise noted, all share and related option, warrant, and convertible security information presented has been retroactively adjusted to reflect the reduced number of shares, and the increase in the share price which resulted from this action.
Stock-Based Compensation
The Company periodically issues stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations.
Discontinued Operations
On August 6, 2021, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Informa. Pursuant to the Agreement, Creek Road Miners Corp. (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing live pop culture events. The Company released deferred revenue and other liabilities totaling $722,429 and recognized other income of this amount.
On September 15, 2021, the Company sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations for $1,500,000 and recognized a gain on the transaction of approximately $1,130,740.
On June 30, 2022, the Company discontinued operations of an eCommerce site selling pop culture memorabilia.
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending June 30, 2022, and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the periods ending June 30, 2022 and 2021, are classified as discontinued operations.
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Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period. Potential common shares are excluded from the computation when their effect is antidilutive. Basic and diluted earnings (loss) attributable to common stockholders is the same for the three and six months ended June 30, 2022 and 2021, because the Company has only incurred losses and all potentially dilutive securities are anti-dilutive. Potentially dilutive securities that were not included in the computation of diluted earnings (loss) attributable to common stockholders at June 30, 2022 because their inclusion would be anti-dilutive are as follows:
| Potentially Dilutive Security | Quantity | Stated Value Per Share (1) | Total Value or Stated Value | Assumed Conversion Price (1) | Resulting Common Shares | |||||||||||||||
| Common stock options | 7,434,250 | $ | $ | 7,434,250 | ||||||||||||||||
| Common stock warrants | 23,360,926 | 23,360,926 | ||||||||||||||||||
| Series A preferred stock | 226,915 | 10 | 2,269,150 | 0.175 | 12,966,571 | |||||||||||||||
| Series B preferred stock | 1,400 | 1,080 | 1,512,000 | 1.000 | 1,512,000 | |||||||||||||||
| Series C preferred stock | 7,880 | 1,111 | 8,754,680 | 1.500 | 5,836,453 | |||||||||||||||
| Series B preferred stock warrants | 10,000 | 1,080 | 10,800,000 | 1.000 | 10,800,000 | |||||||||||||||
| Secured convertible debentures – related parties | 4,993,700 | 0.175 | 28,535,429 | |||||||||||||||||
| Total | 90,445,629 | |||||||||||||||||||
| (1) | As of June 30, 2022 |
Related Parties
The Company follows ASC 850-10, Related Parties, for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Note 4. Deposits on Mining Equipment
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 June 30, 2022, the market price of miners has dropped significantly to approximately $7,500 per miner, and the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement. The remaining amount due under the Bitmain Agreement based on the initial total reference price is $2,793,000. The Company is in negotiation with Bitmain to cancel the Company’s future payment obligations under the Bitmain Agreement and receive the net number of miners based on (i) the payments to date of $3,969,000 and (ii) the current market price of approximately $7,500 per miner. Delivery of the S19XP miners is expected in late 2022 and early 2023.
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Deposits on mining equipment, consisted of the following:
Cryptocurrency Miners | Mobile Data Centers |
Total | ||||||||||
| Balance December 31, 2020 | $ | $ | $ | |||||||||
| Deposits on equipment during the period | 7,089,000 | 524,230 | 7,613,230 | |||||||||
| Equipment delivered during the period | ||||||||||||
| Balance December 31, 2021 | $ | 7,089,000 | $ | 524,230 | $ | 7,613,230 | ||||||
| Deposits on equipment during the period | 1,220,100 | 178,090 | 1,398,190 | |||||||||
| Equipment delivered during the period | (2,106,000 | ) | (2,106,000 | ) | ||||||||
| Balance March 31, 2022 | $ | 6,203,100 | $ | 702,320 | $ | 6,905,420 | ||||||
| Deposits on equipment during the period | 382,200 | 352,340 | 734,540 | |||||||||
| Equipment delivered during the period | (2,616,300 | ) | (349,980 | ) | (2,966,280 | ) | ||||||
| Balance June 30, 2022 | $ | 3,969,000 | $ | 704,680 | $ | 4,673,680 | ||||||
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 June 30, 2022. The impairment amounted to $34 and $106,139 for the three and six months ended June 30, 2022, respectively.
In May 10, 2022 and June 25, 2022, the Company liquidated all of its current Bitcoin holdings. Approximately 19 Bitcoin were liquidated resulting in cash proceeds of $564,205, and a realized loss of $131,075.
The following table presents additional information regarding our cryptocurrency mining operations:
| Quantity of Bitcoin | US$ Amounts | |||||||
| Balance September 30, 2021 | $ | |||||||
| Revenue recognized from cryptocurrency mined | 6.7 | 369,804 | ||||||
| Mining pool operating fees | (0.1 | ) | (7,398 | ) | ||||
| Impairment of cryptocurrencies (1) | (59,752 | ) | ||||||
| Balance December 31, 2021 | 6.6 | $ | 302,654 | |||||
| Revenue recognized from cryptocurrency mined | 8.3 | 343,055 | ||||||
| Mining pool operating fees | (0.2 | ) | (6,868 | ) | ||||
| Impairment of cryptocurrencies (1) | (106,105 | ) | ||||||
| Balance March 31, 2022 | 14.7 | $ | 532,736 | |||||
| Revenue recognized from cryptocurrency mined | 4.6 | 166,592 | ||||||
| Mining pool operating fees | (0.1 | ) | (3,428 | ) | ||||
| Proceeds from the sale of cryptocurrency | (18.9 | ) | (564,205 | ) | ||||
| Realized loss on the sale of cryptocurrency | (131,075 | ) | ||||||
| Impairment of cryptocurrencies (1) | (34 | ) | ||||||
| Balance June 30, 2022 (2) | 0.3 | $ | 586 | |||||
| (1) | The Company recognized an impairment, or write down, of cryptocurrency (Bitcoin) rewards to the lowest fair market value of Bitcoin from the time the reward was earned through the end of the reporting period. If the subsequent market price of Bitcoin increases, the asset balance will not be adjusted for the increase. |
| (2) | As of June 30, 2022, no cryptocurrency awards are being received and no revenue from cryptocurrency mining is being generated. |
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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:
June 30, 2022 | December 31, 2021 | |||||||
| Cryptocurrency miners | $ | 6,723,152 | $ | 1,784,062 | ||||
| Mobile data center | 875,052 | 518,663 | ||||||
| Computer equipment | 12,771 | 12,771 | ||||||
| Software | ||||||||
| Equipment | ||||||||
| Total | 7,610,975 | 2,315,496 | ||||||
| Less accumulated depreciation | (418,176 | ) | (89,136 | ) | ||||
| Net, Property and equipment | $ | 7,192,799 | $ | 2,226,360 | ||||
Depreciation expense, excluding that associated with discontinued operations, for the six months ended June 30, 2022 and 2021 amounted to $329,040 and $12,349, respectively. No depreciation is recorded until the property or equipment is placed into service.
All of the miners we operate 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. Cryptocurrency mining operations began in late 2021 when 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity were placed in service. As of June 30, 2022, we had 270 Bitmain S19J Pro miners with 27.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity that had yet to be placed into service.
Note 7. Investment
On May 28,2022, the Company entered into a Binding Memorandum of Understanding for a Proposed Transaction with Highwire Energy Partners, Inc. (“Highwire”) to acquire certain energy assets including natural gas production opportunities in South Dakota, North Dakota, and Wyoming as well as an opportunity for fixed-price electricity generation in Wyoming. Under the terms of the agreement and subject to certain conditions, the Company has the following obligations Highwire (i) $125,000 upon execution, (ii) $100,000 in common stock, (iii) $125,000 within 72 hours after Bitcoin mining operations commence, (iv) $110,000 to release Highwire from its bonding obligations, (v) an amount not to exceed $450,000 for the construction of a road on the South Dakota location, (vi) $20,000 for the installation of a mobile data center on the North Dakota property, (vii) the operating costs of each property, (viii) 15% of Bitcoin mining gross profit on the properties, and up to $400,000 if the Company elects to proceed with operations in Wyoming.
As of June 30, 2022 the Company paid Highwire $125,000 upon execution and issued $100,000 worth of common stock, which amounted to shares of common stock, both of which were classified as an investment asset. In addition, the Company paid Highwire $110,000 to release its bonding obligations, which is classified as a non-current asset.
In mid-June 2022 the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. As of June 30, 2022, the facility has been unable to supply sufficient natural gas to produce the level of power required to operate the miners. As a result, the Company is neither receiving cryptocurrency awards nor generating revenue from cryptocurrency mining.
Note 8. Amounts Due to Related Parties
Amounts due to related parties as of June 30, 2022 consisted of the following:
| Bristol
Capital, LLC | Bristol Investment Fund, Ltd. | Barlock 2019 Fund, LP | Total | |||||||||||||
| Accrued Interest and expenses | $ | 206,250 | $ | 1,673,708 | $ | 760,557 | $ | 2,640,515 | ||||||||
| Current secured convertible debenture | 2,496,850 | 2,496,850 | ||||||||||||||
| Non-current secured convertible debenture | 2,496,850 | 2,496,850 | ||||||||||||||
| Total | $ | 206,250 | $ | 4,170,558 | $ | 3,257,407 | $ | 7,634,215 | ||||||||
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 June 30, 2022, 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 shares of common stock (exclusive of any accrued and unpaid interest), using a conversion price of $0.175.
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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. 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 shares of the Company’s common stock at an exercise price of $ per share, as amended.
During the term, the Company will pay Bristol Capital, as amended, a monthly fee $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 % 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 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 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 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 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 six months ended June 30, 2022 and 2021, the Company incurred expenses of approximately $112,500, for each period for consulting services provided by Bristol Capital. As of June 30, 2022 and December 31, 2021, the amount accrued to Bristol Capital for consulting services was $206,250 and $93,750, respectively.
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Non-Accountable Expense Reimbursement
On September 7, 2021, Bristol Capital received a one-time non-accountable expense reimbursement of $200,000 in consideration for significant efforts and diligence in negotiating and structuring investment transactions.
Reimbursement of Legal Fees
In January 2022, Bristol Capital was reimbursed for $12,040 in legal fees.
Related Party: Bristol Capital Advisors, LLC
Bristol Capital Advisors, LLC (“Bristol Capital Advisors”) is managed by Paul L. Kessler.
Operating Sublease
On June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease with Bristol Capital Advisors. The leased premises are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. The term of the Sublease is for beginning on July 1, 2016, with monthly payments of approximately $8,000. During the year ended December 31, 2021 and 2020, the Company paid lease obligations of $83,054 and $108,046, respectively, under the Sublease. On September 30, 2021, the lease term ended, and the Company vacated the premises.
Related Party: Bristol Investment Fund, Ltd.
Bristol Investment Fund, Ltd. (“Bristol Investment Fund”) is managed by Bristol Capital Advisors, which in turn is managed by Paul L. Kessler.
Securities Purchase Agreement – December 2016
On December 1, 2016, the Company entered into the Purchase Agreement with Bristol Investment Fund, pursuant to which the Company sold to Bristol Investment Fund, for a cash purchase price of $2,500,000, securities comprising of: (i) a secured 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 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 entered issued a secured convertible debenture with an initial principal balance of $2,500,000, and a maturity date of December 30, 2018. The secured 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 secured 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 secured convertible debenture is convertible into shares of the Company’s common stock at any time at the option of the holder. The initial conversion price was $ (as converted) per share, subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the initial conversion price of $ and (ii) 50% of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the applicable conversion date.
The secured convertible debenture contains anti-dilution provisions where, if the Company, at any time while the secured 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 secured convertible debenture was amended to December 30, 2021.
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On May 1, 2020, the maturity date of the secured 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 secured convertible debenture held by Bristol Investment Fund was convertible into 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 secured convertible debenture was amended to reduce the conversion price to $0.175.
During March 2022, secured convertible debenture principal in the amount of $3,150 was converted into shares of common stock using a conversion price of $0.175.
As of June 30, 2022, the secured convertible debenture with a principal amount of $2,496,850 held by Bristol Investment Fund was convertible into shares of common stock using a conversion price of $0.175.
As of June 30, 2022 and December 31, 2021, the amount of accrued interest payable to Bristol Investment Fund under the secured convertible debenture was $1,673,708, 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 a senior secured convertible debenture to Barlock 2019 Fund, LP 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 , 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 , 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 secured convertible debenture to $0.175 increased the common stock issuable upon the exercise of the series A common stock purchase warrants to , and decreased the exercise price to $0.175.
As of June 30, 2022, Bristol Investment Fund held series A common stock purchase warrants to acquire 10,000,000 shares of common stock at an exercise price of $0.175.
In addition, the warrants may be exercised, in whole or in part, at any time until they expire. If at any time after the 6-month anniversary of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares, then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire.
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(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 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 $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 June 30, 2022 and December 31, 2021.
Related Party: Barlock 2019 Fund, LP
Barlock 2019 Fund, LP (“Barlock”), is managed by Scott D. Kaufman, who has served as Chief Executive Officer of the Company the from November 24, 2020, through May 11, 2022, and as co-Chief Executive Officer from May 12, 2022 through July 8, 2022.
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) a secured convertible debenture, and (ii) Series A common stock purchase warrants assigned from Bristol Investment Fund. Pursuant to the purchase agreement, the Company paid $25,400 to Barlock for legal fees which was recorded as a debt discount.
(i) Secured Convertible Debenture
On December 19, 2019, the Company entered issued a secured convertible debenture with an initial principal balance of $2,500,000, and a maturity date of December 30, 2021. The secured 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 secured 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 secured convertible debenture is convertible into shares of the Company’s common stock at any time at the option of the holder. The initial conversion price was $(as converted) per share, subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the initial conversion price of $ and (ii) 50% of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the applicable conversion date.
The secured convertible debenture contains anti-dilution provisions where, if the Company, at any time while the secured 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 secured convertible debenture held by Barlock was convertible into 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 secured convertible debenture was amended to reduce the conversion price to $0.175, and the maturity date was amended to December 31, 2023.
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During March 2022, the principal amount of $3,150 under the secured convertible debenture was converted into shares of common stock at a conversion price of $0.175.
As of June 30, 2022, the secured convertible debenture with a principal amount of $2,496,850 held by Barlock was convertible into shares of common stock at a conversion price of $0.175.
As of June 30, 2022 and December 31, 2021, the amount of accrued interest payable to Barlock under the secured convertible debenture was $760,557, 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 , 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 , and decreased the exercise price to $0.175.
As of June 30, 2022, Barlock Capital Management, LLC held series A common stock purchase warrants to acquire 4,285,714 shares of common stock at an exercise price to $0.175.
In addition, the warrants may be exercised, in whole or in part, at any time until they expire. If at any time after the six-month anniversary of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares, then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire. Shares of common stock issuable upon exercise of warrants are subject to a 4.99% beneficial ownership limitation, which may increase to 9.99% upon notice to the Company.
Upon issuance of the secured convertible debenture, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted for it using the relative fair value of $545,336 as debt discount on the consolidated balance sheet. Debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates the interest method. The amortization of debt discount is included as a component of interest expense on the consolidated statement of operations. There was unamortized debt discount of $0, as of June 30, 2022 and December 31, 2021, respectively.
Related Party: Barlock Capital Management, LLC
Barlock Capital Management, LLC, 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 July 8, 2022. 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 six months ended June 30, 2022 amounted to $0.
In addition, the company paid management fees to Barlock Capital Management, LLC in the amount of $0 and $81,000, for the six months ended June 30, 2022 and 2021, respectively.
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Related Party: American Natural Energy Corporation
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 July 8, 2022, is a director and shareholder of American Natural Energy Corporation (“ANEC”). In addition, Richard G. Boyce is a former director, and 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 six months ended June 30, 2022 amounted to approximately $400,000.
In addition, in January 2022, the Company began renting executive office space located at 2700 Homestead Road, Park City, UT 84098, for approximately $3,000 per month from ANEC. The amount of rent paid to ANEC for the six months ended June 30, 2022 amounted to approximately $18,000.
Related Party: Scott D. Kaufman, former Chief Executive Officer
On September 7, 2021, 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 July 8, 2022, 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, 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 July 8, 2022. The company paid marketing fees to K2PC Consulting, LLC in the amount of $7,850 and $18,000, for the six months ended June 30, 2022 and 2021, respectively.
Related Party: John D. Maatta, Director and Chief Executive Officer
John D. Maatta is a current director, and served as Chief Executive Officer of the Company until November 24, 2020, as co-Chief Executive Officer from May 12, 2022 through July 8, 2022, and again as Chief Executive Office beginning on July 9, 2022. On November 22, 2018, the Company agreed to issue shares of preferred stock for settlement of the outstanding compensation due to Mr. Maatta of $, for the period June 17, 2017 through November 15, 2018.
On August 3, 2020, the Company cancelled the shares of preferred stock previously determined to be issued, and issued 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 shares of Series A preferred stock for the settlement of $294,965 in additional outstanding compensation due to Mr. Maatta, and shares of Series A preferred stock for the settlement of $351,000 in loans to the Company made by Mr. Matta. The non-interest-bearing loans were made as follows: during the year ended December 31, 2019, Mr. Maatta loaned $100,000 to the Company, during the year ended December 31, 2020, Mr. Matta loaned an additional $125,000 to the Company, and paid for other amounts on behalf of the Company amounting to $126,000. The outstanding balance of the loan payable to Mr. Maatta as of December 31, 2021 and 2020, was $0, for both periods.
On March 1, 2021, 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 June 30, 2022 and December 31, 2021, the investment in CONtv and the amount due to CONtv was $0, for both periods.
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Note 10. Note Payable
In May 2022, the Company entered into a verbal agreement with Leviston Resources, LLC (“Leviston”) whereby the Company would receive $722,000 in return for a note payable to Leviston in the amount of $850,000, no other terms of the agreement were finalized. On May 18, 2022, the Company received $500,000 from Levison under the agreement and recorded a note payable $588,643, which includes $500,000 of principal and $88,643 of original issue discount charged to interest expense (based on the pro rata amount of actual loan principal received in relation to the total loan principal and total original issue discount in the verbal agreement).
Note 11. SBA/PPP Notes Payable
Small Business Administration Paycheck Protection Program Loans
On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and included a provision for the Small Business Administration (“SBA”) to implement its Paycheck Protection Program (“PPP”). The PPP provides small businesses with funds to pay payroll costs, including some benefits over a covered period of up to 24 weeks. Funds received under the PPP may also be used to pay interest on mortgages, rent, and utilities. Subject to certain criteria being met, all or a portion of the loan may be forgiven. The loans bear interest at an annual rate of one percent (1%), are due two (2) years from the date of issuance, and all payments are deferred for the first six (6) months of the loan. Any unforgiven balance of loan principal and accrued interest at the end of the six (6) month loan deferral period is amortized in equal monthly installments over the remaining 18-months of the loan term.
SBA Guaranteed PPP Loan
On April 30, 2020, the Company entered into an SBA guaranteed PPP loan. The Company received aggregate proceeds of $197,600 under the loan. The loan accrues interest at a rate of 1.00%. On December 11, 2021, the SBA forgave $183,567 of loan principal. As of June 30, 2022 and December 31, 2021, the outstanding balance under the loan was $0 and $14,033, respectively.
SBA Loan
On May 31, 2020, the Company entered into a loan agreement with the SBA. The Company received aggregate proceeds of $149,900 under the loan. The loan accrues interest at a rate of 3.75%, and will mature in June 2050. As of June 30, 2022 and December 31, 2021, the outstanding balance under the loan was $149,900, for both periods.
Second Draw SBA Guaranteed PPP Loan
On February 24, 2021, the Company entered into a Second Draw SBA guaranteed PPP loan. The Company received aggregate proceeds of $197,662 under the loan. The loan accrues interest at a rate of 1.00%, and will mature in February 2026. On March 10, 2022, the SBA forgave $197,662 of loan principal. As of June 30, 2022 and December 31, 2021, the outstanding balance under the loan was $0 and $197,662, respectively.
The following table summarizes PPP/SBA loans payable:
| As of | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
| SBA Guaranteed PPP Loan | $ | $ | 14,033 | |||||
| SBA Loan | 149,900 | 149,900 | ||||||
| Second Draw SBA Guaranteed PPP Loan | 197,662 | |||||||
| Total | $ | 149,900 | $ | 361,595 | ||||
Note 12. Contingencies and Commitments
COVID-19
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
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The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
Russia – Ukraine Conflict
The Russia – Ukraine conflict is a global concern. The Company does not have any direct exposure to Russia or Ukraine through its operations, employee base, investments or sanctions. The Company does not receive goods or services sourced from those countries, does not anticipate any disruption in its supply chain and has no business relationships, connections to or assets in Russia, Belarus or Ukraine. No impairments to assets have been made due to the conflict. We are unable at this time to know the full ramifications of the Russia – Ukraine conflict and its effects on our business.
Note 13. Common Stock Options
On May 9, 2011, the Company adopted the 2016 Incentive Stock Award Plan (the “2011 Plan”), on August 12, 2016, the Company adopted the 2016 Incentive Stock Award Plan (the “2016 Plan”), on August 3, 2020, the Company adopted the 2020 Stock Plan (the “2020 Plan”), and on December 1, 2021, the Company adopted the 2021 Incentive Stock Award Plan (the “2021 Plan”), collectively (the “Plans”). The purpose of the Plans is to grant options to purchase our common stock, and other incentive awards, to our employees, directors and key consultants.
The maximum number of shares of common stock that may be issued pursuant to awards granted under the 2020 Plan was . On December 1, 2021, all prior stock award plans were retired, and the 2021 Plan was adopted. The maximum number of shares of common stock that may be issued pursuant to awards granted under the 2021 Plan is . The shares of our common stock underlying cancelled and forfeited awards issued under the 2021 Plan may again become available for grant under the 2021 Plan. As of June 30, 2022, there were shares available for grant under the 2021 Plan, and no shares were available for grant under the 2020 Plan, 2016 Plan, or 2011 Plan.
On August 21, 2020 the Board approved the repricing of the exercise price of outstanding stock options that had been issued to directors and employees to $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.
| Weighted | ||||||||
| Average | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| Outstanding at December 31, 2021 | 7,651,750 | $ | 2.45 | |||||
| Granted | ||||||||
| Exercised | (217,500 | ) | 0.42 | |||||
| Forfeited/Cancelled | ||||||||
| Outstanding at June 30, 2022 | 7,434,250 | $ | 2.51 | |||||
| Exercisable at December 31, 2021 | 4,151,750 | $ | 2.28 | |||||
| Exercisable at June 30, 2022 | 3,934,250 | $ | 2.39 | |||||
The weighted average remaining contractual life of all options outstanding as of June 30, 2022 was years. The weighted average remaining contractual life for options vested and exercisable at June 30, 2022 was years. Furthermore, the aggregate intrinsic value of options outstanding as of June 30, 2022 was $, based on the fair value of the Company’s common stock on June 30, 2022.
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During the three months ended March 31, 2022, the Company issued net shares of common stock upon the cashless exercise of options underlying shares of common stock.
| Option | Remaining | |||||||||||||
| Exercise | Options | Contractual | Options | |||||||||||
| Price | Outstanding | Life (in years) | Exercisable | |||||||||||
| $ | ||||||||||||||
| Total | ||||||||||||||
Note 14. Common Stock Warrants
On January 1, 2022, the Company granted warrants to purchase shares of the Company’s common stock to a consultant in connection with the issuance of Series C preferred stock as follows: a warrant to purchase 400,000 shares with an exercise price of $1.50 per share, and a term of years; a warrant to purchase 250,000 shares with an exercise price of $2.50 per share, and term of years; and a warrant to purchase shares with an exercise price of $ per share, and term of years.
On March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $1.50 per common share, in exchange for any warrants exercised at this time at the exercise price of $1.50 per common share. The issuance of replacement warrants has the effect of resetting the conversion price of all outstanding shares of Series C preferred stock to $1.50 per common share and resetting the exercise price of all outstanding warrants to $1.50 per common share in instances where those conversion and exercise prices are above $1.50.
On 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 shares of the Company’s common stock to such warrant holder.
The following table summarizes common stock warrant activity during the three months ended June 30, 2022:
Common Stock Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2021 | 22,460,926 | $ | 0.82 | |||||
| Granted | 1,500,000 | 1.88 | ||||||
| Exercised | (600,000 | ) | 1.50 | |||||
| Forfeited/Cancelled | ||||||||
| Outstanding at June 30, 2022 | 22,360,926 | $ | 0.71 | (1) | ||||
| Exercisable at December 31, 2021 | 21,690,926 | $ | 0.80 | |||||
| Exercisable at June 30, 2022 | 22,900,926 | $ | 0.69 | |||||
| (1) | On March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $1.50 per common share, in exchange for any warrants exercised at this time at the exercise price of $1.50 per common share. The issuance of replacement warrants has the effect of resetting the conversion price of all outstanding shares of Series C preferred stock to $1.50 per common share and resetting the exercise price of all outstanding warrants to $1.50 per common share in instances where those conversion and exercise prices are above $1.50. |
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 six months ended June 30, 2022:
| Assumptions | ||||
| Expected dividend yield | 0 | % | ||
| Risk-free interest rate | 2.09 | % | ||
| Expected life (in years) | 3 | |||
| Expected volatility | 297 | % | ||
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The weighted average remaining contractual life of all common stock warrants outstanding as of June 30, 2022 was years. Furthermore, the aggregate intrinsic value of common stock warrants outstanding as of June 30, 2022 was $, based on the fair value of the Company’s common stock on June 30, 2022.
| Warrant | Remaining | |||||||||||||
| Exercise | Warrants | Contractual | Warrants | |||||||||||
| Price | Outstanding | Life (in years) | Exercisable | |||||||||||
| $ | 0.175 | 14,285,714 | 14,285,714 | |||||||||||
| 0.50 | 50,000 | 50,000 | ||||||||||||
| 1.00 | 300,000 | 300,000 | ||||||||||||
| 1.50 | 8,045,212 | 7,585,212 | ||||||||||||
| 1.53 | 180,000 | 180,000 | ||||||||||||
| 2.50 | 250,000 | 250,000 | ||||||||||||
| 2.75 | 250,000 | 250,000 | ||||||||||||
| Total | 23,360,926 | 22,900,926 | ||||||||||||
Note 15. Series B Preferred Stock Warrants
From March 2021 through December 2021, in connection with the issuance of Series B preferred stock, the Company issued (i) a warrant to acquire 5,000 shares of the Series B preferred stock at an exercise price of $1,000 per share of Series B preferred stock, which became exercisable immediately upon issuance and which expires on March 26, 2023; and (ii) a warrant to acquire 5,000 shares of the Series B preferred stock at an exercise price of $1,000 per share of Series B preferred stock, which became exercisable immediately upon issuance and which expires on March 26, 2024. If at any time after the 60-day anniversary of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares, then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire. The Company can force the exercise of the warrants if the VWAP exceeds $3.75 per share per share for 20 consecutive trading days and the daily average trading volume of the Common Stock exceeds $100,000 in aggregate value for such period. The warrant holder may not be forced to exercise the warrant if such exercise would cause the holder’s beneficial ownership to exceed 4.9%.
The Series B preferred stock issuable upon exercise of the Series B preferred stock warrants are automatically convertible into shares of common stock at the Series B conversion price. Each share of our Series B preferred stock is convertible into a number of shares of our common stock determined by dividing the aggregate stated value for the Series B preferred stock being converted ($1,080 per share, as amended, subject to adjustment as set forth in the currently effective Series B Certificate of Designation) by the then-applicable conversion price (initially $1.50 per share), subject to adjustment as set forth in the currently effective Series B Certificate of Designation. As of June 30, 2022, in connection with the issuance of Series B preferred stock, there were outstanding warrants to acquire 10,000 shares of Series B preferred stock at an exercise price of $, resulting in Series B preferred stock with a stated value of $, and convertible into shares of common stock, using a conversion price of $.
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The following table summarizes Series B preferred stock warrant activity during the three months ended June 30, 2022:
Series B Preferred Stock Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2021 | 10,000 | $ | 1,000 | |||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited/Cancelled | ||||||||
| Outstanding at June 30, 2022 | 10,000 | $ | 1,000 | |||||
| Exercisable at June 30, 2022 | 10,000 | $ | 1,000 | |||||
The weighted average remaining contractual life of all Series B preferred stock warrants outstanding as of June 30, 2022 was years.
Note 16. Common Stock
Holders of our Common Stock are entitled to one vote per share. Our Certificate of Incorporation does not provide for cumulative voting. Holders of our Common Stock are entitled to receive ratably such dividends, if any, as may be declared by our Board out of legally available funds. However, the current policy of our Board is to retain earnings, if any, for our operations and expansion. Upon liquidation, dissolution or winding-up, the holders of our Common Stock are entitled to share ratably in all of our assets which are legally available for distribution, after payment of or provision for all liabilities. The holders of our Common Stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our Common Stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue.
We implemented a 1-for-20 reverse stock split of our outstanding shares of common stock that was effective on January 23, 2020. Unless otherwise noted, all share and related option, warrant, and convertible security information presented has been retroactively adjusted to reflect the reduced number of shares, and the increase in the share price which resulted from this action.
From August 2021 through October 2021, we consummated the transactions contemplated by the securities purchase agreement with the investors party thereto, pursuant to which, we generated net cash proceeds of $3,925,050, and issued in a private placement: (i) shares of common stock for $ 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 shares of common stock as compensation under his employment agreement for services provided through December 31, 2021.
On May 31, 2022, the Company issued shares of common stock to Highwire under the terms of the Binding Memorandum of Understanding for a Proposed Transaction.
Note 17. Preferred Stock
Under the terms of the Certificate of Incorporation, our Board is expressly granted authority to authorize the issuance from time to time of shares of preferred stock in one or more series, for such consideration and for such corporate purposes as our Board may from time to time determines, and by filing a certificate pursuant to applicable law of the State of Delaware to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof to the fullest extent permitted by the Certificate of Incorporation and the laws of the State of Delaware, including, without limitation, voting rights (if any), dividend rights, dissolution rights, conversion rights, exchange rights and redemption rights thereof.
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Series A Preferred Stock
Holders of our Series A Preferred Stock are entitled to the number of votes per share equal to shares of Common Stock. Holders of our Series A Preferred Stock are entitled to receive a cumulative dividend on each share of Series A Preferred Stock issued and outstanding at the rate of twelve percent (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 $ 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 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 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 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 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 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.
During the six months ended June 30, 2022, shares of Series A preferred stock were converted into shares of common stock.
As of June 30, 2022, there were shares of Series A preferred stock outstanding resulting in Series A preferred stock with a stated value of $2,269,150 and convertible into shares of common stock, using a conversion price of $0.175.
Series B Preferred Stock
Holders of our Series B Preferred Stock have no voting rights. Holders of our Series B Preferred Stock are entitled to receive a cumulative dividend on each share of Series B Preferred Stock issued and outstanding at the rate of five percent (5%) per annum, in cash or at the holder’s option, in fully paid and non-assessable shares of Series B Preferred Stock, at the Dividend Conversion Rate (as defined in the Series B Certificate of Designation). Such dividends are payable quarterly on January 1, April 1, July 1 and October 1. In the event of any liquidation, dissolution or winding up of our company, whether voluntary or involuntary, holders of our Series B Preferred Stock are entitled to receive, prior and in preference to any distribution of any of our assets to the holders of Common Stock and Common Stock Equivalents (as defined in the Series B Certificate of Designation, and which includes the Series A Preferred Stock and the Series C Preferred Stock) by reason of their ownership thereof, for each share held an amount equal to the Stated Value (as defined in the Series B Certificate of Designation), plus unpaid dividends or liquidated damages, if any. The Series B Preferred Stock is convertible, at the option of the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Stated Value, currently $1,080 as amended, by the Series B Conversion Price, subject to a minimum of $1.00, but not to exceed $1.50, subject to further adjustment in the event that the Company, subject to certain exemptions, disposes of or issues any Common Stock or securities convertible into, exercisable, or exchangeable for Common Stock for no consideration or for consideration less than the applicable Series B Conversion Price in effect immediately prior to such issuance. We are entitled to redeem some or all of the outstanding shares of Series B Preferred Stock for cash in an amount equal to the Optional Redemption Amount (as defined in the Series B Certificate of Designation). The Series B Preferred Stock is entitled to certain protective provisions and we may not take certain actions without the written consent of at least fifty one percent (51%) in Stated Value of the outstanding shares of the Series B Preferred Stock, including, without limitation, amend, alter or repeal any provision of the Series B Certificate of Incorporation or the Bylaws that materially and adversely affects the rights of the Series B Preferred Stock, pay cash dividends or distributions on Junior Securities (as defined in the Series B Certificate of Designation), or repay, repurchase or offer to repay, or otherwise acquire more than a de minimis number of shares of Common Stock, Common Stock Equivalents (as defined in the Series B Certificate of Designation) or Junior Securities. Shares of common stock issuable upon the conversion of Series B Preferred Stock are subject to a 9.99% beneficial ownership limitation.
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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) shares of Series B preferred stock, convertible by dividing the stated value, currently $1,080, as amended, by the Series B conversion price; and (ii) a warrant to acquire 5,000 shares of the Series B preferred stock at an exercise price of $1,000 per share of Series B preferred stock, which became exercisable immediately upon issuance and which expires on March 26, 2023; and (iii) a warrant to acquire 5,000 shares of the Series B preferred stock at an exercise price of $1,000 per share of Series B preferred stock, which became exercisable immediately upon issuance and which expires on March 26, 2024. The Series B preferred stock issuable upon exercise of the Series B preferred stock warrants are automatically convertible into shares of common stock at the Series B conversion price.
During the six months ended June 30, 2022, shares of Series B preferred stock had been converted into shares of common stock.
As of June 30, 2022, there were shares of Series B preferred stock outstanding resulting in Series B preferred stock with a stated value of $1,512,000, and convertible into shares of common stock, using a conversion price of $1.00.
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 ranks junior to the Series B Preferred Stock as to rights upon a liquidation, dissolution or winding up of the Company. 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.
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During December 2021, we consummated the transactions contemplated by the securities purchase agreement with the investors party thereto, pursuant to which we generated net cash proceeds of $7,733,601, and issued in a private placement: (i) shares of Series C preferred stock, convertible by dividing the stated value, currently $1,111, by the Series C Conversion Price; and (ii) warrants to acquire 1,750,936 shares of Common Stock at an exercise price of $2.50 per share, which became exercisable immediately upon issuance and with a term of 5 years; and (iii) warrants to acquire 1,750,936 shares of Common Stock at an exercise price of $2.75 per share, which became exercisable immediately upon issuance and with a term of 5 years.
On March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $1.50 per common share, in exchange for any warrants exercised at this time at the exercise price of $1.50 per common share. The issuance of replacement warrants has the effect of resetting the conversion price of all outstanding shares of Series C preferred stock to $1.50 per common share and resetting the exercise price of all outstanding warrants to $1.50 per common share in instances where those conversion and exercise prices are above $1.50.
As of June 30, 2022, there were shares of Series C preferred stock outstanding resulting in Series C preferred stock with a stated value of $8,754,680, and convertible into shares of common stock, using a conversion price of $1.50.
Note 18. Discontinued Operations
Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy operations”).
On August 6, 2021, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Informa. Pursuant to the 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:
| 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 June 30, 2022 and December 31, 2021, the investment in CONtv was $0, for both periods. As of June 30, 2022 and December 31, 2021, the amount due to CONtv was $, for both periods, and classified as a discontinued operation.
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending June 30, 2022 and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the three and six months ending June 30, 2022 and 2021, are classified as discontinued operations.
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The assets and liabilities related to discontinued operations consists of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Prepaid expenses | $ | $ | ||||||
| Inventory | 18,725 | |||||||
| Total current assets | 18,725 | |||||||
| Other assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | 18,725 | |||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 485,712 | $ | 472,029 | ||||
| Deferred revenue | ||||||||
| Due to CONtv | ||||||||
| Total liabilities | $ | 485,712 | $ | 472,029 | ||||
In addition, revenue and expenses from discontinued operations were as follows:
| 2022 | 2021 | |||||||
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | 43,511 | $ | 605,900 | ||||
| Operating costs and expenses: | ||||||||
| Cost of revenue | 58,962 | 463,277 | ||||||
| General and administrative | 569,231 | |||||||
| Total operating expenses | 58,962 | 1,032,508 | ||||||
| Loss from operations | (15,451 | ) | (426,608 | ) | ||||
| Other income (expense): | ||||||||
| Other income | (2,281 | ) | 835,140 | |||||
| Interest income | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Total other income (expense) | (2,281 | ) | 835,140 | |||||
| Income (loss) from discontinued operations | $ | (17,732 | ) | $ | 408,532 | |||
Note 19. Subsequent Events
Non-binding Merger Agreement Term Sheet
On July 13, 2022 the Company executed a non-binding term sheet (the “Term Sheet”) with the intention to enter into a binding and definitive merger agreement with Prairie Operating Co., LLC (“Prairie”). Pursuant to the Term Sheet, the Company expects to consummate a business combination and finance the acquisition of certain oil and gas properties. At the conclusion of the merger, if consummated, the Company will change its name to Prairie Operating Co., LLC to reflect the new business operation, and Prairie will operate as the surviving company.
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 June 30, 2022 the market price of Bitcoin was $19,785, which reflects a decrease of approximately 60% since the beginning of 2022, and of approximately 70% from its all-time high of approximately $67,000. In addition, the cost of natural gas that we use to produce electricity to power our miners has increased substantially. The cost of natural gas in the United States has increased by as much as approximately 235% 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.
Conversion of Series C Preferred Stock
On July 7, 2022, shares of Series C preferred stock were converted into shares of common stock.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2022 and 2021 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
Company Overview
Creek Road Miners, Inc. (formerly known as Wizard Brands, Inc., Wizard Entertainment, Inc., Wizard World, Inc., and GoEnergy, Inc.) was incorporated in Delaware on May 2, 2001. Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events, and sold a gelatin machine and related consumables that were discontinued in 2021 In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (collectively known as “legacy operations”).
On August 6, 2021, we entered into an Asset Purchase Agreement (the “Agreement”) with Informa Pop Culture Events, Inc., a Delaware corporation (“Informa”). Pursuant to the 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.
Cryptocurrency Mining
We generate substantially all our revenue through cryptocurrency we earn through our mining activities. We have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. While we do not have the intention of mining any other cryptocurrencies in the near future, we may expand our mining operations to include additional crypto assets if, after evaluation of the financial merits of such crypto assets based on a number of factors, including the anticipated profitability and price stability of such crypto assets and the ability and cost of our existing miners to mine for such digital assets, we determine that such additional crypto assets are reasonably likely to result in better margin than Bitcoin. Our mining operations commenced on October 24, 2021. We use special cryptocurrency mining computers (known as “miners”) to solve complex cryptographic algorithms to support the Bitcoin blockchain and, in return, receive Bitcoin as our reward. Miners measure their processing power, which is known as “hashing” power, in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash rate.” We participate in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according to the “hashing” capacity each miner contributes to the mining pool.
All of the miners we operate 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. Cryptocurrency mining operations began in late 2021 when 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity were placed in service. As of June 30, 2022, we had 270 Bitmain S19J Pro miners with 27.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity that had yet to be placed into 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 June 30, 2022, the market price of miners has dropped significantly to approximately $7,500 per miner, and the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement. The remaining amount due under the Bitmain Agreement based on the initial total reference price is $2,793,000, however, the Company is in negotiation with Bitmain to make no more payments under the agreement and only receive the net number of miners based on the payments to date of $3,969,000, and the current market price of approximately $7,500 per miner. Delivery of the S19XP miners is expected late 2022 through January 2023.
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Mobile Data Centers
We utilize mobile data centers to house our miners. Our mobile data centers are located close to natural gas wellheads. We use natural gas to power a mobile turbine that produces electricity that, in turn, is used to power our miners.
Mining Results
The Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency mining activities. The following table presents additional information regarding our cryptocurrency mining operations:
| Quantity of Bitcoin | US$ Amounts | |||||||
| Balance September 30, 2021 | — | $ | — | |||||
| Revenue recognized from cryptocurrency mined | 6.7 | 369,804 | ||||||
| Mining pool operating fees | (0.1 | ) | (7,398 | ) | ||||
| Impairment of cryptocurrencies | — | (59,752 | ) | |||||
| Balance December 31, 2021 | 6.6 | $ | 302,654 | |||||
| Revenue recognized from cryptocurrency mined | 8.3 | 343,055 | ||||||
| Mining pool operating fees | (0.2 | ) | (6,868 | ) | ||||
| Impairment of cryptocurrencies | — | (106,105 | ) | |||||
| Balance March 31, 2022 | 14.7 | $ | 532,736 | |||||
| Revenue recognized from cryptocurrency mined | 4.6 | 166,592 | ||||||
| Mining pool operating fees | (0.1 | ) | (3,428 | ) | ||||
| Proceeds from the sale of cryptocurrency | (18.9 | ) | (564,205 | ) | ||||
| Realized loss on the sale of cryptocurrency | — | (131,075 | ) | |||||
| Impairment of cryptocurrencies | — | (34 | ) | |||||
| Balance June 30, 2022 (1) | 0.3 | $ | 586 | |||||
| (1) | As of June 30, 2022, no cryptocurrency awards are being received and no revenue from cryptocurrency mining is being generated. |
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. As of June 30, 2022, no cryptocurrency awards are being received and no revenue from cryptocurrency mining is being generated.
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. The market price of Bitcoin has dropped by as much as approximately 60% since the beginning of 2022, and by as much as approximately 70% from its all-time high. 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 has increased by as much as approximately 235% 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.
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Competition
Our business environment is constantly evolving, and cryptocurrency miners can range from individuals to large-scale commercial mining operations. We compete with other companies that focus all or a portion of their activities on mining activities at scale, including several public and private companies. We face significant competition in every aspect of our business, including, but not limited to, the acquisition of mining equipment, the ability to raise capital, and the ability to obtain the lowest cost energy to power our mining operations.
Government Regulation
Cryptocurrency is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies. While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
COVID-19
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Russia – Ukraine Conflict
The Russia – Ukraine conflict is a global concern. The Company does not have any direct exposure to Russia or Ukraine through its operations, employee base, investments or sanctions. The Company does not receive goods or services sourced from those countries, does not anticipate any disruption in its supply chain and has no business relationships, connections to or assets in Russia, Belarus or Ukraine. No impairments to assets have been made due to the conflict. We are unable at this time to know the full ramifications of the Russia – Ukraine conflict and its effects on our business.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties.
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Principles of Consolidation
The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with an original maturity of three months or less. In all periods presented, cash equivalents consist primarily of money market funds.
Fair value of financial instruments
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied. A fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
| Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| Level 2 – Inputs, other than the quoted prices in active markets, are observable either directly or indirectly. | |
| Level 3 – Unobservable inputs based on the Company’s assumptions. |
The Company is required to use observable market data if such data is available without undue cost and effort. The Company has no fair value items required to be disclosed as of December 31, 2021 or 2020 under these requirements. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments.
Transactions involving related parties typically cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. However, in the case of the secured convertible debentures due to related parties, the Company obtained a fairness opinion from an independent third party which supports that the transaction was carried out at an arm’s length basis.
Cryptocurrency
Cryptocurrency (Bitcoin) is included in current assets in the accompanying consolidated balance sheets. The classification of cryptocurrencies as a current asset has been made after the Company’s consideration of the significant consistent daily trading volume on readily available cryptocurrency exchanges and the absence of limitations or restrictions on Company’s ability to sell Bitcoin. Cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below. Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.
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Impairment of Long-Lived Assets
Long-lived assets are comprised of intangible assets and property and equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash flows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists, pursuant to the provisions of FASB ASC 360-10 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.
Property and equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 3 to 9 years. No depreciation is recorded until the property or equipment is placed into service. Leasehold improvements are amortized over the shorter of the useful lives of the related assets, or the lease term. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the consolidated statements of operations.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value.
Revenue Recognition
We account for revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
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.
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Fair value of the cryptocurrency award received is determined using the market rate of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
Cryptocurrency Mining Costs
The Company’s cryptocurrency mining costs consist primarily of direct costs of earning Bitcoin related to mining operations, including mining pool fees, natural gas costs, turbine rental costs, and mobile data center rental costs, but exclude depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.
Reverse Stock Split
We implemented a 1-for-20 reverse stock split of our outstanding shares of common stock that was effective on January 23, 2020. Unless otherwise noted, all share and related option, warrant, and convertible security information presented has been retroactively adjusted to reflect the reduced number of shares, and the increase in the share price which resulted from this action.
Stock-Based Compensation
We periodically issue stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. We account for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations.
Income taxes
We account for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Discontinued Operations
Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy operations”).
On August 6, 2021, we entered into an Asset Purchase Agreement (the “Agreement”) with Informa. Pursuant to the Agreement, Creek Road Miners Corp (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing live pop culture events. The Company released deferred revenue and other liabilities totaling $722,429 and recognized other income of this amount.
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On September 15, 2021, we sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations for $1,500,000 and recognized a gain on the transaction of approximately $1,130,740.
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending June 30, 2022, and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the three and six months ending June 30, 2022 and 2021, are classified as discontinued operations.
Results of Operations
Comparison of the Three and Six Months Ended June 30, 2022 and 2021
| Three Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 165,592 | $ | — | $ | 165,592 | — | % | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | 400,416 | — | 400,416 | — | % | |||||||||||
| Depreciation and amortization | 164,520 | 7,394 | 157,126 | 2,125 | % | |||||||||||
| Stock based compensation | 466,136 | 189,919 | 276,217 | 145 | % | |||||||||||
| General and administrative | 764,908 | 1,143,386 | (378,478 | ) | (33 | )% | ||||||||||
| Impairment of mined cryptocurrency | 34 | — | 34 | — | % | |||||||||||
| Total operating expenses | 1,796,014 | 1,340,699 | 455,315 | 34 | % | |||||||||||
| Loss from operations | (1,629,422 | ) | (1,340,699 | ) | (288,723 | ) | (22 | )% | ||||||||
| Other income (expense): | ||||||||||||||||
| Realized loss on sale of cryptocurrency | (131,075 | ) | — | (131,075 | ) | — | % | |||||||||
| PPP loan forgiveness | — | — | — | — | % | |||||||||||
| Interest expense | (242,630 | ) | (245,419 | ) | 2,789 | 1 | % | |||||||||
| Total other income (expense) | (373,705 | ) | (245,419 | ) | (128,286 | ) | (52 | )% | ||||||||
| Net loss from continuing operations | (2,003,127 | ) | (1,586,118 | ) | (417,008 | ) | (26 | )% | ||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations | (48,917 | ) | (267,087 | ) | 218,169 | 82 | % | |||||||||
| Gain from sale of discontinued operations | — | — | — | — | % | |||||||||||
| Net income from discontinued operations | (48,917 | ) | (267,087 | ) | 218,169 | 82 | % | |||||||||
| Net loss | $ | (2,052,044 | ) | $ | (1,853,205 | ) | $ | (198,839 | ) | (11 | )% | |||||
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| Six Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 509,647 | $ | — | $ | 509,647 | — | % | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cryptocurrency
mining costs (exclusive of depreciation and amortization shown below) | 786,758 | — | 786,758 | — | % | |||||||||||
| Depreciation and amortization | 329,040 | 12,349 | 316,691 | 2,565 | % | |||||||||||
| Stock based compensation | 2,389,241 | 2,037,475 | 351,766 | 17 | % | |||||||||||
| General and administrative | 1,697,769 | 2,211,277 | (513,508 | ) | (23 | )% | ||||||||||
| Impairment of mined cryptocurrency | 106,139 | — | 106,139 | — | % | |||||||||||
| Total operating expenses | 5,308,947 | 4,261,101 | 1,047,846 | 25 | % | |||||||||||
| Loss from operations | (4,799,300 | ) | (4,261,101 | ) | (538,199 | ) | (13 | )% | ||||||||
| Other income (expense): | ||||||||||||||||
| Realized loss on sale of cryptocurrency | (131,075 | ) | — | (131,075 | ) | — | % | |||||||||
| PPP loan forgiveness | 197,662 | — | 197,662 | — | % | |||||||||||
| Interest expense | (390,694 | ) | (469,511 | ) | 78,817 | 17 | % | |||||||||
| Total other income (expense) | (324,107 | ) | (469,511 | ) | 145,4047 | 31 | % | |||||||||
| Net loss from continuing operations | (5,123,407 | ) | (4,730,612 | ) | (392,795 | ) | (8 | )% | ||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations | (17,732 | ) | 408,532 | (426,264 | ) | (104 | )% | |||||||||
| Gain from sale of discontinued operations | — | — | — | — | % | |||||||||||
| Net income from discontinued operations | (17,732 | ) | 408,532 | (426,264 | ) | (104 | )% | |||||||||
| Net loss | $ | (5,141,139 | ) | $ | (4,322,080 | ) | $ | (819,059 | ) | (19 | )% | |||||
Revenue
| Three Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 165,592 | $ | — | $ | 165,592 | — | % | ||||||||
| Six Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 509,647 | $ | — | $ | 509,647 | — | % | ||||||||
Revenue from cryptocurrency mining began in late 2021. All revenue associated with discontinued operations is classified accordingly on our consolidated statement of operations for the three and six months ending June 30, 2022 and 2021.
On May 28, 2022, the Company entered into a Binding Memorandum of Understanding for a Proposed Transaction with Highwire Energy Partners, Inc. (“Highwire”) to acquire certain energy assets including natural gas production opportunities in South Dakota, North Dakota, and Wyoming as well as an opportunity for fixed-price electricity generation in Wyoming. In mid-June 2022 the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. As of June 30, 2022, the facility has been unable to supply sufficient natural gas to produce the level of power required to operate the miners. As a result, the Company is neither receiving cryptocurrency awards nor generating revenue from cryptocurrency mining is being generated.
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Operating Costs and Expenses
| Three Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Operating Costs and Expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | $ | 400,416 | $ | — | $ | 400,416 | — | % | ||||||||
| Depreciation and amortization | 164,520 | 7,394 | 157,126 | 2,125 | % | |||||||||||
| Stock based compensation | 466,136 | 189,919 | 276,217 | 145 | % | |||||||||||
| General and administrative | 764,908 | 1,143,386 | (378,478 | ) | (33 | )% | ||||||||||
| Impairment of mined cryptocurrency | 34 | — | 34 | — | % | |||||||||||
| Total operating expenses | $ | 1,796,014 | $ | 1,340,699 | $ | 455,315 | 34 | % | ||||||||
Operating costs and expenses increased $455,315 or 34%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to cryptocurrency mining operations and depreciation of $400,416 and 157,126, respectively, that were not present in the prior year period, greater stock based compensation of $276,217, and partially offset by lower general and administrative expenses of $378,478.
| Six Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Operating Costs and Expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | $ | 786,758 | $ | — | $ | 786,758 | — | % | ||||||||
| Depreciation and amortization | 329,040 | 12,349 | 316,691 | 2,565 | % | |||||||||||
| Stock based compensation | 2,389,241 | 2,037,475 | 351,766 | 17 | % | |||||||||||
| General and administrative | 1,697,769 | 2,211,277 | (513,508 | ) | (23 | )% | ||||||||||
| Impairment of mined cryptocurrency | 106,139 | — | 106,139 | — | % | |||||||||||
| Total operating expenses | $ | 5,308,947 | 4,261,101 | 1,047,846 | 25 | % | ||||||||||
Operating costs and expenses increased $1,047,846 or 25%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to cryptocurrency mining operations and depreciation of $786,758 and 316,691, respectively, that were not present in the prior year period, greater stock based compensation of $351,766, and partially offset by lower general and administrative expenses of $513,508.
Net Income (Loss)
| Three Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Net Income (Loss): | ||||||||||||||||
| Net loss from continuing operations | $ | (2,003,127 | ) | $ | (1,586,118 | ) | $ | (417,008 | ) | (26 | )% | |||||
| Net income from discontinued operations | (48,917 | ) | (267,087 | ) | 218,169 | 82 | % | |||||||||
| Total net loss | $ | (2,052,044 | ) | $ | (1,853,205 | ) | $ | (198,839 | ) | (11 | )% | |||||
Net loss from continuing operations increased $417,008 or 26%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to increased operating costs and expenses as described above.
Net loss from continuing operations increased $392,795 or 8%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to increased operating costs and expenses as described above.
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 $5,123,407, and $4,730,612, for the six months ended June 30, 2022 and 2021, respectively. We cannot predict if we will be profitable. We may continue to incur losses for an indeterminate period of time and may be unable to achieve profitability. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to achieve or sustain profitability on a quarterly or annual basis. On June 30, 2022, we had cash and cash equivalents of $816,146 and working capital deficit of approximately $2.5 million.
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We have evaluated the significance of these conditions 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. The Company believes that if it is unable to obtain debt and/or equity financing, the sale of fixed assets, specifically cryptocurrency miners, will be required. There can be no assurances 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. While the Company believes in the viability of management’s strategy to obtain debt and/or equity financing, and/or to sell fixed assets, specifically cryptocurrency miners, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to obtain debt and/or equity financing, and/or sell of fixed assets, specifically cryptocurrency miners.
Liquidity and Capital Resources
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Consolidated Statements of Cash Flow Data: | ||||||||
| Net cash used in operating activities | $ | (1,438,286 | ) | $ | (2,746,260 | ) | ||
| Net cash used in investing activities | (1,916,723 | ) | — | |||||
| Net cash provided by financing activities | 1,385,967 | 2,425,837 | ||||||
| Net increase (decrease) in cash and cash equivalents | (1,969,042 | ) | (344,326 | ) | ||||
| Cash and cash equivalents, beginning of period | 2,785,188 | 1,897,703 | ||||||
| Cash and cash equivalents, end of period | $ | 816,146 | $ | 1,553,377 | ||||
Liquidity
As of June 30, 2022, we had cash and cash equivalents of $816,146, compared to $2,785,188 as of December 31, 2021, a decrease of $1,969,042. This decrease was primarily due to cash of $1,916,723 used in investing activities, cash of $1,438,286 used in operating activities, and partially offset by cash of $1,385,967 provided by financing activities.
Operating Activities
Net cash used in operating activities was $1,438,286 for the six months ended June 30, 2022 and resulted primarily from a net loss of $5,141,139, partially offset by stock based compensation of $2,540,080 and an increase in accounts payable and accrued expenses of $1,496,301.
Net cash used in operating activities was $2,746,260 for the six months ended June 30, 2021 and resulted primarily from a net loss of $4,322,080, partially offset by stock based compensation of $2,284,059.
Investing Activities
Net cash used in investing activities was $1,916,723 for the six months ended June 30, 2022 and resulted primarily from an increase in property and equipment, specifically mining equipment, of $5,295,478, partially offset by a decrease in net deposits on mining equipment of $2,939,550 and proceeds from the sale of cryptocurrency of $564,205.
Cryptocurrency mining operations began in late 2021 when 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity were placed in service. As of June 30, 2022, we had 270 Bitmain S19J Pro miners with 27.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity that had yet to be placed into 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 June 30, 2022, the market price of miners has dropped significantly to approximately $7,500 per miner, and the Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement which are classified as deposits on mining equipment. The remaining amount due under the Bitmain Agreement based on the initial total reference price is $2,793,000, however, the Company is in negotiation with Bitmain to make no more payments under the agreement and only receive stock-based the net number of miners based on the payments to date of $3,969,000, and the current market price of approximately $7,500 per miner. Delivery of the S19XP miners is expected in late 2022 and early 2023.
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Financing Activities
Net cash provided by financing activities was $1,3855,967 for the six months ended June 30, 2022 and resulted primarily from proceeds from the exercise of warrants for $900,000 and proceeds from note payable of $500,000.
Net cash provided by financing activities was $2,425,837 for the six months ended June 30, 2022 and resulted primarily from proceeds from the issuance of Series B preferred stock and warrants of $2,185,000.
Working Capital (Deficit)
The following table summarizes total current assets, liabilities, and working capital for the periods ended June 30, 2022 and December 31, 2021:
| As of | ||||||||||||
June 30, 2022 | December 31, 2021 | Increase/(Decrease) | ||||||||||
| Current assets | $ | 5,637,899 | $ | 10,827,973 | $ | (5,190,074 | ) | |||||
| Current liabilities | $ | 8,100,811 | $ | 6,039,311 | $ | 2,061,500 | ||||||
| Working capital (deficit) | $ | (2,462,912 | ) | $ | 4,788,662 | $ | (7,251,574 | ) | ||||
As of June 30, 2022, we had working capital deficit of $2,462,912, compared to working capital of $4,788,662 as of December 31, 2021, a decrease of 7,251,574. The decrease was primarily due to a decrease in cash and deposits on mining equipment, and an increase in accounts payable and accrued expenses.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
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Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control Over Financial Reporting
In addition, our management with the participation of our principal executive officer and principal financial officer have determined that no change in our internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Exchange Act) occurred during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any disputes and does not have any litigation matters pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Informa Lawsuit and Dismissal
On May 6, 2022, Informa filed an action in the Delaware Court of Chancery asserting breach of contract in regards to the August 6, 2021 Asset Purchase Agreement, pursuant to which the Company sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing live pop culture events. On July 29, 2022, Informa and the Company entered into a Settlement Agreement pursuant to which Company assigned certain social media accounts and a domain name to Informa, and Informa agreed to file a notice of dismissal to dismiss the action with prejudice.
Item 1A. Risk Factors
We must find a reliable source of electric power at favorable prices to resume the operation of our miners and generate revenue.
Our Bitcoin mining operations require significant amounts of power. On May 30, 2022, the Company entered into a binding memorandum of understanding with Highwire Energy Partners, Inc. (“Highwire”) to acquire certain energy assets, including natural gas production opportunities in South Dakota, North Dakota and Wyoming as well as an opportunity for fixed-price electricity generation in Wyoming. In mid-June 2022, the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. The Company’s miners have currently not been placed in operational service pending resolution of gas supply start-up issues at the Highwire site. As a result, as of June 30, 2022 the Company is neither receiving cryptocurrency awards nor generating revenue from cryptocurrency mining.
If we are unable to obtain sufficient electric power at the Highwire site or elsewhere to operate our miners on a cost-effective basis, we may not realize the anticipated benefits of the significant capital investments in our miners. There can be no assurance that we can obtain the needed energy at acceptable prices, volume and other terms, if at all, or that our mining operations will resume in a timely manner, if it all.
Our ability to continue as a going concern is contingent on obtaining debt and/or equity financing, and we may not be able to obtain sufficient financing and may be forced to sell our cryptocurrency miners.
We do not have sufficient capital to fund our future operations without significant additional capital investments. If adequate additional financing is not available on reasonable terms or at all, we may be forced to sell our fixed assets, specifically cryptocurrency miners, which would adversely affect our business and prospects. Such sales would materially adversely affect our ability to compete.
The non-binding Term Sheet between Company and Prairie provides that the parties must use commercially reasonable efforts to negotiate a business combination for the financing and acquisition of certain oil and gas assets. However, there can be no assurance that the Company and Prairie will agree on a binding agreement and plan of merger, or, if such binding agreement is agreed, that the Company and Prairie will be able to successfully consummate the proposed merger on a timely basis, or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2022, that were not otherwise disclosed in a Current Report on Form 8-K or at Part II, Item 9B in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Item 3. Defaults Upon Senior Securities
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 6. Exhibits
EXHIBIT INDEX
* Filed herewith
# Schedules have been omitted pursuant to Items 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission. The Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules so furnished.
+ Management contract or compensatory plan, contract or arrangement.
† Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement for purposes of Section 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these section
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CREEK ROAD MINERS, INC. | ||
| By: | /s/ John D. Maatta | |
| John D. Maatta | ||
| Date: August 15, 2022 | President and Chief Executive Officer (Principal Executive Officer) | |
| By: | /s/ Alan L. Urban | |
| Alan L. Urban | ||
| Date: August 15, 2022 | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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Exhibit 10.2
Certain information in this document has been excluded from this exhibit because it is both (i) not material and (ii) is the type that the registrant treats as private or confidential. Information that has been omitted has been identified in this document with a placeholder identified by the mark “[***].”
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this “Agreement”), is entered into as of May 1, 2022 (the “Effective Date”), by and between Creek Road Miners, Inc., a Delaware corporation (the “Company”), and John D. Maatta (“Executive”) (collectively, the “Parties,” and each a “Party”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in Appendix A of this Agreement.
Section 1. Terms of Employment.
(a) Position; Duties. During the Term of Employment, Executive shall be employed by the Company as Co-Chief Executive Officer of the Company. As Co-Chief Executive Officer, Executive shall have such duties, responsibilities and authority as are commensurate and consistent with his position and as are assigned to him by the Board. Such duties shall include, without limitation, responsibility for all ongoing operations of the Company and responsibility for insuring that the Company meets all stated financial goals and objectives. Specific duties may include preparing materials for and participating in review meetings with the Board (the “Review Meetings”). The Board shall determine from time to time and advise Executive regarding the agenda for the Review Meetings and the required supporting documents and analyses, which are generally expected to include budgets, growth prospects, projections and targets, as well as comparisons with respect to prior periods. The Board shall also determine from time to time the frequency and timing of the Review Meetings. Executive shall devote his full business time and efforts to the performance of his duties hereunder, unless otherwise explicitly authorized by the Board .In such position, during the Term of Employment, Executive shall provide such services to the Company and its Subsidiaries and Affiliates as the Board may request and have such duties and responsibilities as may be assigned from time to time by the Board. Executive shall report to the Board and shall carry out and perform the lawful orders, directions, and policies given to Executive by the Board. Executive agrees to perform faithfully, industriously, and to the best of Executive’s ability, experience and talents, all of the duties and responsibilities, and to exercise the authority, customarily performed, undertaken, and exercised by an employee situated in a similar position and to the satisfaction of the Board. In addition, Executive agrees to serve as an officer and/or director/manager of the Company and/or one or more of the Company’s Subsidiaries and/or Affiliates if elected or appointed, in each case, without additional compensation.
(b) Exclusivity. The Executive agrees to devote such time as is reasonably and customarily necessary to perform completely his duties to the Company; provided that the Executive shall spend no less than Fifty percent (50%) of his business time and attention on the affairs of the Company and its Subsidiaries and Affiliates. Executive shall use best efforts to promote the success of the Company’s and its Subsidiaries’ and Affiliates’ business(es), and agrees to comply with all terms and conditions set forth in the Company’s policy documents and procedures applicable to Executive. Notwithstanding the foregoing, the Company acknowledges and agrees that Executive may (i) manage Executive’s personal investments and affairs, and (ii) participate in non-profit, educational, community or philanthropic activities, in each case, to the extent that such activities, individually or in the aggregate, do not interfere or conflict with the performance of Executive’s duties and responsibilities under this Agreement, are not in conflict with and do not interfere with the business interests of the Company or any of its Subsidiaries or Affiliates, do not result in a violation of any covenants by which Executive may be bound, including, without limitation, those provided for in Section 6 below, and do not otherwise compete with the Company or any of its Subsidiaries or Affiliates.
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(c) Term of Employment. Executive’s term of employment under this Agreement shall commence on the Effective Date and shall continue through the second (2nd) anniversary of the Effective Date (the “Initial Term”), and shall renew for an additional twelve (12) months (the “Renewal Term”) on the second (2nd) anniversary of the Effective Date and on each subsequent one-year anniversary thereafter, unless terminated by the Company or Executive at least thirty (30) calendar days in advance prior to the end of the Initial Term or Renewal Term (as the case pay be) (a “Non-Renewal”) and subject to earlier termination as provided in Section 4 hereof. The “Term of Employment” shall mean the period commencing on the Effective Date and continuing until terminated in accordance with Section 4 hereof.
(d) Location. Unless otherwise agreed in writing by the Company and Executive, Executive shall be based in Park City, Utah, although Executive understands and agrees that Executive may be required to travel from time to time to perform Executive’s duties.
Section 2. Compensation.
(a) Base Salary. During the Term of Employment, Executive’s annual base salary shall be $200,000 (pro-rated for partial years during the Term of Employment), less applicable taxes and deductions, which amount shall be subject to annual review by the Board (and/or committee thereof), and may be increased but not decreased, from time to time by the Board in its sole discretion (such annual base salary as in effect from time to time, “Base Salary”). From the Effective Date and continuing until the uplisting of the common shares of Company onto a national stock exchange or a Qualified Financing Event (as defined below) (either one a, “Change Event”), the Base Salary shall be paid in in the form of the Company’s Series A Cumulative Convertible Preferred Stock (“Preferred Stock”). Following the Change Event and for the each of the next six months, Executive may elect to receive his base salary in the form of Preferred Stock. Cash compensation shall be payable in accordance with the Company’s normal payroll practices, as in effect from time to time. For purposes of this paragraph, a “Qualified Financing Event,” means the occurrence of a sale of equity securities or securities convertible into equity securities of the Company where the Company receives gross proceeds of at least twelve million dollars ($12,000,000).
(b) Annual Bonus. During the Term of Employment and commencing with the fiscal year beginning January 1, 2022, Executive shall be eligible to receive a discretionary annual cash bonus (the “Annual Bonus”) with a target bonus opportunity of 150% of Base Salary (“Target Bonus Opportunity”) and maximum bonus opportunity of 300% of Base Salary, based upon the Executive’s and Company’s performance as determined by the Board (or a committee thereof) in its sole discretion. The payment of the Annual Bonus, if any, will be paid by March 31 in the calendar year following the calendar year to which the Annual Bonus relates at the same time annual bonuses are paid to other senior executives of the Company, and, except as provided in Section 5(a), (d), and (e) hereof, shall be subject to Executive’s continuing employment in good standing (and not having resigned or given notice of Executive’s resignation or been terminated or received notice of Executive’s termination) with the Company through the payment date of the Annual Bonus.
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(c) Uplisting Bonus. In addition to the other compensation due to Executive, the Company shall issue to Executive, shares of common stock equal to three and one third percent (3.33%) of the fully diluted shares of common stock of the Company (the “Stock”), calculated with the inclusion of Executive’s equity stock holdings and shares issuable upon conversion of convertible instruments, preferred stock, options, and warrants, in association with the uplisting of the Company’s common stock to a national exchange (the “Uplisting”). Such Stock shall be delivered to Executive within ten (10) days following the Uplisting. The entitlement under this paragraph shall survive any termination of this Agreement due to a Change of Control of the Company.
Section 3. Employee Benefits.
(a) General. During the Term of Employment, Executive shall be eligible to participate in the Company’s employee benefit plans (other than any annual bonus plan not otherwise contemplated herein or any severance plan) generally applicable to other senior executives of the Company, in each case, as may be in effect from time to time, in accordance with their terms, and subject to the eligibility requirements of such plans. Nothing contained herein or otherwise shall be construed to limit the Company’s or any of its Subsidiaries’ or Affiliates’ ability to amend, suspend or terminate any employee benefit plan or policy, at any time, without providing Executive notice, and the right to do so is expressly reserved.
(b) Vacation. During the Term of Employment, Executive shall be entitled to vacation in accordance with the Company’s vacation policy. The terms and conditions of such vacation and all other forms of leave shall be as set forth in the Company’s vacation and leave policies, as they may exist and be amended from time to time. The Company shall have the absolute right and sole discretion to change its vacation and leave policies to the extent permitted by law. Executive shall also be entitled to all paid holidays given by the Company in accordance with the Company’s regular paid holiday policy, as it may exist and be amended from time to time.
(c) Reimbursement of Expenses. During the Term of Employment, Executive is authorized to incur business expenses in carrying out Executive’s duties and responsibilities under this Agreement and the Company agrees to promptly reimburse Executive for all such business expenses, subject to necessary documentation and in accordance with the Company’s policies as in effect from time to time. Without limiting the foregoing, during the Term of Employment the Company shall reimburse Executive for Executive’s reasonable business travel expenses (including travel by private plane) expenses and lodging expenses, subject to reasonable substantiation. Executive may undertake business travel to such locations as Executive determines in Executive’s reasonable discretion are necessary to carry out Executive’s duties and responsibilities under this Agreement, including, without limitation, travel to the Company’s offices, site locations, conferences, investment banking offices, and governmental meetings.
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(d) Long-Term Incentives. During the Term of Employment, Executive shall be eligible to participate in the Long-Term Equity Bonus Program (LTEBP), or similar program, of the Company.
(e) Other Benefits. During the Term, (i) the Executive Chairman shall be entitled to participate in all fringe benefit and perquisite practices, policies and programs of the Company generally made available to the Company CEO, including but not limited to the Company’s executive car program, financial planning services, executive life insurance program, executive long-term disability program and executive physical program, or any other programs or benefits in each case, to the extent permitted under applicable law, the terms of the applicable plan, program or policy and Company policies; provided that (x) such participation shall be on a basis no less favorable than that available to the Company CEO.
(f) Legal Fees. The Company shall pay to the Executive or on behalf of the Co- Chief Executive upon demand or receipt all reasonable legal fees and expenses incurred by him in the performance of the Executive Chairman’s services under this Agreement and or as a result of a termination of employment including any and all such reasonable fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided in this Agreement.
Section 4. Termination of Employment. Executive’s employment and the Employment Term shall terminate on the first of the following to occur:
(a) Death. Automatically upon the date of death of Executive.
(b) Disability. Upon thirty (30) days prior written notice by the Company to Executive of a termination due to Disability.
(c) Termination for Cause. Immediately upon written notice by the Company to Executive of a termination of employment for Cause.
(d) Termination without Cause. Upon thirty (30) days’ prior written notice by the Company to Executive of a termination of employment without Cause (other than due to death or Disability).
(e) Termination for Good Reason. Executive may terminate Executive’s employment for Good Reason by providing the Company thirty (30) days’ prior written notice (“Good Reason Notice”) setting forth in reasonable specificity the event that allegedly constitutes Good Reason (a “Qualifying Event”). To be effective, the Good Reason Notice must be provided to the Company within sixty (60) days of the initial occurrence of the Qualifying Event. The Company shall have a cure right during the thirty (30) day Good Reason Notice period, and, if not cured within such period, Executive shall terminate employment within thirty (30) days following the expiration of such cure period; provided, however, that if Executive does not terminate employment within thirty (30) days following the expiration of such cure period, Executive shall not be permitted to terminate employment for Good Reason as a result of such specific Qualifying Event.
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(f) Termination without Good Reason. Upon thirty (30) day’s prior written notice by Executive to the Company of Executive’s termination of employment without Good Reason; provided, however, the Company may, in its sole and absolute discretion, by written notice, accelerate such Date of Termination without changing the characterization of such termination as a termination without Good Reason and without payment of any salary, bonus, or other payments, rights or benefits in connection therewith.
(g) Non-Renewal. In the event of a Non-Renewal by either Party, Executive’s employment will terminate on the applicable anniversary of the Effective Date that immediately follows the date on which the written notice of Non-Renewal was given (or earlier, if Executive’s employment terminates in accordance with this Section 4 prior to such anniversary or as mutually agreed by the Company and Executive).
(h) Notice of Termination. Upon the termination of Executive’s employment by the Company for any reason, all positions Executive holds with the Company or any of its Subsidiaries or Affiliates shall immediately terminate. Any termination of Executive’s employment by the Company or by Executive (other than termination by reason of Executive’s death) shall be communicated by written Notice of Termination to the other Party of this Agreement. The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.
Section 5. Obligations of the Company upon Termination
(a) Death or Disability, Termination due to Non-renewal by the Company. If during the Term of Employment Executive’s employment is terminated (i) due to Executive’s death (ii) by the Company due to Executive’s Disability, or (iii) due to Non-Renewal by the Company, in each case, Executive or Executive’s estate or Executive’s beneficiaries, as the case may be, shall be entitled to receive: (1) within thirty (30) days following the Date of Termination (or such earlier time as may be required by applicable law), (x) payment of Executive’s earned but unpaid Base Salary and (y) reimbursement for any unreimbursed but properly incurred expenses in accordance with the terms and conditions of this Agreement, in each case of (x) and (y), earned or incurred, as applicable, through the Date of Termination, and (2) all other vested and non-forfeitable amounts or accrued benefits due to Executive in accordance with and subject to the terms and conditions of the applicable employee benefit plans, programs or policies of the Company or its Subsidiaries or Affiliates, as applicable (collectively, the “Accrued Amounts”). In addition to the Accrued Amounts, subject to Section 5(f) and (g) below and Executive’s continued compliance with the covenants by which Executive may be bound, including, without limitation, those set forth in Section 6 hereof, Executive shall be entitled to receive the Annual Bonus earned but unpaid with respect to the year prior to the year in which the Date of Termination occurs (the “Unpaid Prior Year Bonus”), if any, which shall be payable in full in a lump sum cash payment to be made to Executive on the later of the first regularly scheduled payroll date following the sixtieth (60th) day following the Date of Termination and the date such bonus would be paid if Executive had remained an employee of the Company, if later. Following such termination of Executive’s employment by reason of death or Disability, or due to Non-Renewal by the Company, in each case, except as set forth in this Section 5(a), Executive shall have no further rights to any compensation or any other benefits under this Agreement.
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(b) Termination for Cause. If during the Term of Employment Executive’s employment is terminated by the Company for Cause, Executive shall be entitled only to receive the Accrued Amounts. Following such termination of Executive’s employment by the Company for Cause, except as set forth in this Section 5(b), Executive shall have no further rights to any compensation or any benefits under this Agreement.
(c) Termination by Executive without Good Reason or due to Non-Renewal by Executive. If during the Term of Employment Executive’s employment is terminated (i) by Executive without Good Reason or (ii) due to a Non-Renewal by Executive, in each case, in addition to the Accrued Amounts, subject to Section 5(f) and (g) below and Executive’s continued compliance with the covenants by which Executive may be bound, including, without limitation, those set forth in Section 6 hereof, Executive shall be entitled to receive the Unpaid Prior Year Bonus, if any, which shall be payable in full in a lump sum cash payment to be made to Executive on the later of the first regularly scheduled payroll date following the sixtieth (60th) day following the Date of Termination and the date such bonus would be paid if Executive had remained an employee of the Company. Following such termination of Executive’s employment without Good Reason or due to a Non-Renewal by Executive, in each case, except as set forth in this Section 5(c), Executive shall have no further rights to any compensation or any benefits under this Agreement.
(d) Termination without Cause or by Executive for Good Reason not During the Change of Control Protection Period. If during the Term of Employment Executive’s employment is terminated (i) by the Company without Cause (excluding due to death or Disability) or (ii) by Executive for Good Reason, and in each case such Date of Termination occurs before or after the Change of Control Protection Period, in addition to the Accrued Amounts, subject to Section 5(f) and (g) below and Executive’s continued compliance with the covenants by which Executive may be bound, including, without limitation, those set forth in Section 6 hereof, Executive shall be entitled to receive:
(i) the Unpaid Prior Year Bonus, if any, which Unpaid Prior Year Bonus shall be payable in full in a lump sum cash payment to be made to Executive on the later of the first regularly scheduled payroll date following the sixtieth (60th) day following the Date of Termination and the date such bonus would be paid if Executive had remained an employee of the Company;
(ii) subject to the satisfaction of the applicable performance goals for the applicable calendar year in which the Date of Termination occurs, the Annual Bonus, if any, in respect of such calendar year had the Executive remained employed in good standing with the Company through the payment date, which Annual Bonus, if any, shall be pro-rated (determined by multiplying the amount of such Annual Bonus which would be due in respect of the full calendar year by a fraction, the numerator of which is the number of days during the calendar year of termination that Executive was employed by the Company and the denominator of which is the number of days in such calendar year) (the “Pro-Rata Bonus”), which Pro-Rata Bonus, if any, shall be payable in full in a lump sum cash payment to be made to Executive on the later of the first regularly scheduled payroll date following the sixtieth (60th) day following the Date of Termination and the date such bonus would be paid if Executive had remained an employee of the Company; and
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(iii) an amount of cash equal to two (2) times the sum of Executive’s Base Salary and Target Bonus Opportunity (such resulting amount, the “Severance Payments”), which Severance Payments, if any, the Company shall pay in substantially equal installments over the twelve (12) month period following the Date of Termination in accordance with the Company’s regular payroll practices; provided, however, that the first payment shall be made on the first regularly scheduled payroll date following the sixtieth (60th) day following the Date of Termination and shall include payments of any amounts that would otherwise be due prior thereto.
Following such termination of Executive’s employment before or after the Change of Control Protection Period by the Company without Cause (excluding due to death or Disability) or by Executive for Good Reason, in each case, except as set forth in this Section 5(d), Executive shall have no further rights to any compensation or any benefits under this Agreement.
(e) Termination without Cause or by Executive for Good Reason During Change of Control Protection Period. If during the Term of Employment Executive’s employment is terminated (i) by the Company without Cause (excluding due to death or Disability) or (ii) by Executive for Good Reason, and in each case such Date of Termination occurs during the Change of Control Protection Period, in addition to the Accrued Amounts, subject to Section 5(f) and (g) below and Executive’s continued compliance with the covenants by which Executive may be bound, including, without limitation, those set forth in Section 6 hereof, Executive shall be entitled to receive:
(i) the Unpaid Prior Year Bonus, if any, payable in accordance with Section 5(d)(i);
(ii) the Pro-Rata Bonus, if any, payable in accordance with Section 5(d)(ii); and
(iii) an amount of cash equal to three (3) times the sum of Executive’s Base Salary and Target Bonus Opportunity (such resulting amount, the “Enhanced Severance Payments”), which Enhanced Severance Payments, if any, the Company shall pay on the sixtieth (60th) day following the Date of Termination.
Following such termination of Executive’s employment during the Change of Control Protection Period by the Company without Cause (excluding due to death or Disability) or by Executive for Good Reason, in each case, except as set forth in this Section 5(e), Executive shall have no further rights to any compensation or any benefits under this Agreement.
(f) Waiver and Release. Notwithstanding any provision herein to the contrary, and as a condition precedent to payment of any Unpaid Prior Year Bonus, Pro-Rata Bonus, Severance Payments, or Enhanced Severance Payments (collectively, the “Severance Benefits”) Executive shall execute, deliver and shall not revoke, a release of claims in favor of the Company and its Subsidiaries and its and their respective Affiliates in substantially the form attached hereto as Appendix B (the “Release”), and any revocation period applicable to such Release must have expired no later than the sixtieth (60th) day following the Date of Termination. If Executive fails to execute and deliver the Release in such a timely manner so as to permit any revocation period to expire prior to the end of such sixty (60) day period, or timely revokes Executive’s acceptance of such Release following its execution, Executive shall not be entitled to any Severance Benefits.
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(g) Severance Benefits. In addition to the rights and remedies available to the Company under this Agreement, and not in any way in limitation of any right or remedy otherwise available to the Company, if Executive violates any material term of this Agreement, including, for the avoidance of doubt, the covenants set forth in Section 6, or any other agreement between the Company or its Subsidiaries or Affiliates and Executive, then the Company’s obligation to pay the Severance Benefits or to cause the Severance Benefits to be paid and Executive’s right to receive such Severance Benefits shall terminate and be of no further force or effect.
(h) Treatment of Equity. Upon termination of Executive’s employment hereunder Executive’s equity and equity-based awards with respect to the Company shall be treated in accordance with the applicable plans and agreements governing such equity and equity- based awards. In the event the co-chief executive’s employment is terminated by the Company other than for Cause, all the outstanding equity and or equity-based awards or stock options will be converted into common stock of the company or if stock options converted into common stock of the company on a cashless basis on the date of such termination.
Section 6. Restrictive Covenants.
| (a) | Confidential Information. |
i. Executive acknowledges that Executive’s employment with the Company will result in Executive’s exposure, access, and contribution to Confidential Information. Except as within the lawful and authorized performance of Executive’s duties and obligations, or as provided in Section 6(a)(ii) below, Executive shall not, at any time during Executive’s employment with the Company or thereafter, directly or indirectly, use, disclose, exploit, or make available to any other person or entity any Confidential Information, including for Executive’s own personal use or advantage or for the use or advantage of any person or entity other than the Company Entities.
ii. In accordance with the employee immunity provisions under the Defend Trade Secrets Act, 18 U.S.C. § 1833(b), notwithstanding anything herein to the contrary, nothing in this Agreement shall prohibit Executive from, or expose Executive to criminal or civil liability under federal or state trade secret law for: (A) filing a charge or complaint with, communicating with, participating in any investigation or proceeding that may be conducted by, or otherwise directly or indirectly sharing any Company Entity’s trade secrets or other Confidential Information (except information protected by any Company Entity’s attorney-client or work product privilege) with law enforcement, an attorney, or any federal, state, or local government agencies, regulators, or officials (including the Equal Employment Opportunity Commission, the Securities and Exchange Commission, and equivalent state and local agencies), without notice to the Company Entities, or (B) disclosing trade secrets in a complaint or other document filed in connection with a legal claim, provided that the filing is made under seal.
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| (b) | Legal Process; Cooperation. |
i. Except as provided in Section 6(a)(ii), above, Executive agrees that in the event Executive is served with a subpoena or any other legal or regulatory process that may require Executive to disclose any Confidential Information, whether during Executive’s employment or thereafter, Executive will immediately notify the Board and provide a copy of such subpoena or other legal or regulatory process, unless such subpoena or other legal process or regulatory process (A) is from a court or governmental agency, and (B) explicitly prohibits Executive from doing so.
ii. Executive agrees that during Executive’s employment with the Company and thereafter, Executive shall provide reasonable and timely cooperation, without additional compensation, in connection with (A) any actual or threatened litigation, investigation, or other matter, or proceeding (whether conducted by or before any court, regulatory, self- regulatory or governmental entity, or by or on behalf of any Company Party), that relates to events occurring during Executive’s employment at the Company or about which the Company otherwise believes Executive may have relevant information; (B) the transitioning of Executive’s role and responsibilities to other personnel; and (C) the provision of information in response to the Company’s requests and inquiries in connection with Executive’s separation. Executive’s cooperation shall include being available to (1) meet with and provide information to the Company Parties and their counsel or other agents in connection with fact-finding, investigatory, discovery, and/or pre-litigation or other proceeding issues, and (2) provide truthful testimony (including via affidavit, deposition, at trial, or otherwise) in connection with any such matter, all without the requirement of being subpoenaed. The Company shall try to schedule Executive’s cooperation pursuant to this Section so as not to unduly interfere with Executive’s other personal or professional pursuits.
(c) Protected Property. Executive acknowledges and agrees that all the Company’s Protected Property coming into Executive’s possession, custody, or control during the course of Executive’s employment with the Company is the sole property of the Company Parties. Upon the termination of Executive’s employment with the Company, or upon the request of the Company at any time, Executive agrees to promptly deliver all Protected Property to the Company, without retaining a copy of any such property. At no time will Executive remove or copy or cause to be removed from the premises of the Company any original or copy of any Protected Property except in furtherance of Executive’s proper duties to the Company and in accordance with the terms of this Agreement and all applicable Company policies and procedures.
(d) Work Product. Executive agrees all Work Product shall be and remain the sole and exclusive property of the Company. To the maximum extent allowable by law, any Work Product subject to copyright protection shall be considered “works made for hire” for the Company under U.S. copyright law. To the extent that any Work Product that is subject to copyright protection is not considered a work made for hire, or to the extent that Executive otherwise has or retains any ownership or other rights in any Work Product (or any intellectual property rights therein) anywhere in the world, Executive hereby assigns and transfers to the Company all such rights, including the intellectual property rights therein, effective automatically as and when such Work Product is conceived, made, authored, created, invented, developed, or reduced to practice. The Company shall have the full worldwide right to use, assign, license, and/or transfer all rights in, with, to, or relating to Work Product (and all intellectual property rights therein). Executive shall, whenever requested to do so by the Company (whether during Executive’s employment or thereafter), execute any and all applications, assignments, and/or other instruments, and do all other things (including cooperating in any matter or giving testimony in any legal proceeding) which the Company may deem necessary or appropriate in order to (i) apply for, obtain, maintain, enforce, or defend patent, trademark, copyright, or similar registrations of the United States or any other country for any Work Product; (ii) assign, transfer, convey, or otherwise make available to the Company any right, title, or interest which Executive might otherwise have in any Work Product; and/or (iii) confirm the Company’s right, title, and interest in any Work Product. Executive shall promptly communicate and disclose all Work Product to the Company and, upon request, report upon and deliver all such Work Product to the Company. Executive shall not use or permit any Work Product to be used for any purpose other than on behalf of the Company Entities, whether during Executive’s employment or thereafter.
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(e) Non-Solicitation. Executive agrees that during Executive’s employment with the Company and the Non-Solicit Restricted Period, Executive shall not, without the express written consent of the Board (which consent may be granted or withheld in the Board’s sole and absolute discretion), whether on behalf of or for the benefit of Executive or any other person or entity, whether as an employee, principal, partner, owner, officer, director, individual, member, consultant, contractor, volunteer, representative, agent, or in any other capacity whatsoever, and whether or not for compensation, directly or indirectly: (A) solicit, induce, or encourage the resignation or termination of, or attempt to solicit, induce, or encourage the resignation or termination of, any member, partner, principal, owner, officer, director, employee, contractor, consultant, or other business relation of any of the Company Parties; (B) interfere, or attempt to interfere, in any way with the relationship between any of the Company Parties, on the one hand, and any of their respective members, partners, principals, owners, officers, directors, employees, contractors, consultants, or other business relations on the other hand; or (C) solicit, hire, recruit, employ, engage, or retain; or allow Executive’s name to be used in connection with the solicitation, hiring, recruiting, employing, engaging, or retention of, any person or entity who as of such date, or at some time during the twelve (12) months preceding such date, is or was a member, partner, principal, owner, officer, director, employee, contractor, consultant, or other business relation of any of the Company Parties.
(f) Non-Competition. Executive acknowledges that during the course of Executive’s employment with the Company, its Subsidiaries, and Affiliates, Executive will become familiar with the Company’s trade secrets and Confidential Information, that Executive will represent and embody the goodwill of the Company in Executive’s dealings with others, and that Executive’s services will be of special, unique, and extraordinary value to the Company, and, therefore, and as a further material inducement for the Company to employ Executive under this Agreement, Executive agrees that during Executive’s employment with the Company and for Non- Competition Restricted Period, Executive shall not, without the express written consent of the Board (which consent may be granted or withheld in the Board’s sole and absolute discretion), directly or indirectly: (i) advise or participate in the formation or management of any Competing Business; (ii) render any services to a Competing Business (whether as a partner, member, principal, employee, consultant, volunteer, or otherwise); or (iii) own any portion of, or be associated in any way with, any Competing Business; provided, however, that nothing in this Agreement shall preclude Executive from investing Executive’s personal assets in the securities of any Competing Business if such securities are traded on a national stock exchange or in the over-the-counter market and if such investment does not result in Executive beneficially owning, at any time, more than two percent (2%) of such Competing Business.
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(g) Non-Disparagement; Non-Publicity.
i. Except as provided in Section 6(a)(ii), above, as otherwise approved in writing by the Board, or within the lawful and authorized scope of Executive’s employment, Executive agrees that, both during and after Executive’s employment with the Company, Executive will not, whether in private or in public, whether orally, in writing, or otherwise, whether directly or indirectly, (i) make, publish, encourage, ratify, or authorize; or aid, assist, or direct any other person or entity in making or publishing, any statements that in any way defame, criticize, malign, impugn, denigrate, reflect negatively on, or disparage any of the Company Parties, or place any of the Company Parties in a negative light, in any manner whatsoever; (ii) comment upon or discuss any of the Company Parties (whether disparagingly or otherwise) in, on, to, or through any Media; (iii) make any statement, posting, or other communication (including on or through any Media) that purports to be on behalf of any Company Party, or which a third party may perceive (A) has been authorized, approved, or endorsed by a Company Party, or (B) reflects the views of any Company Party; (iv) share, post, transmit, or upload any material related to any of the Company Parties with, to, through, or on any Media; (v) utilize any Company Party’s logos, graphics, trade names, or trademarks on any Media or for any other purpose; or (vi) aid, assist, or direct any other person or entity to do any of the foregoing.
ii. The Company agrees that it will instruct its senior officers not to make any untruthful and disparaging statements regarding Executive, nor publicly, in writing or otherwise, directly or indirectly, make, publish or direct any other person or entity in making or publishing, any statements that in any way are untruthful and disparaging regarding Executive, provided, however, that this non-disparagement covenant shall not limit the Company’s ability to exercise any and all rights hereunder, comply with any disclosure or reporting obligations, assess the Executive’s employment and performance, or otherwise provide truthful information about Executive, Executive’s employment, and this Agreement, or the termination of any of the foregoing, and provided, further, that nothing herein shall prevent any Company employee from exercising any legally protected right.
(h) Reasonableness/Tolling. Executive hereby acknowledges that the limitations set forth in Sections 6(a) through 6(g) of this Agreement are fair and reasonable, and will not prevent Executive from earning a livelihood after the termination of Executive’s employment with the Company. Executive recognize that these restrictions are appropriate based on the special and unique nature of the services Executive will render, the access to the Company’s Confidential Information that Executive will enjoy as a result of Executive’s employment and position with the Company, and the risks that the Company will face absent such restrictions. Executive agrees that should Executive breach any of the provisions of Sections 6(a), 6(e), or 6(f), above, the running of the Non-Solicit Restricted Period and/or the Non-Competition Restricted Period shall be tolled during the period of such breach.
(i) Remedy for Breach. Executive agrees that Executive’s breach or threatened breach of any of the restrictions set forth in Section 6 of this Agreement will result in irreparable and continuing damage to the Company Parties for which there is no adequate remedy at law. Thus, the Company Parties shall be entitled to obtain emergency equitable relief, including a temporary restraining order and/or preliminary injunction, from any state or federal court of competent jurisdiction, without first posting a bond, to restrain any such breach or threatened breach.
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Section 7. Executive’s Representations. Executive hereby represents and warrants to the Company that (a) the execution, delivery and performance of this Agreement by Executive does not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument order, judgment or decree to which Executive is a party or by which Executive is bound, (b) Executive is not a party to or bound by any employment agreement, non- compete agreement, confidentiality agreement or other restriction with any other person or entity, which would be breached by entering into this Agreement, (c) Executive has not engaged in any conduct (or aided or assisted any other person or entity to engage in any conduct or cover-up of such conduct), whether within the scope of Executive’s employment at a previous employer or otherwise, that could cause any damage to the Company’s or any of its Subsidiaries’ or Affiliates’ reputation or business or the Company’s or any of its Subsidiaries’ or Affiliates’ employees, including, but not limited to, any conduct constituting sexual misconduct, sexual harassment, harassment or discrimination and (d) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the Parties, enforceable in accordance with its terms. Executive agrees to immediately notify the Company, in writing, if any representation in this Section 7 is or becomes untrue or inaccurate at any time. In addition, should Executive become aware of any reason that Executive cannot remain employed by the Company or fully execute Executive’s responsibilities for the Company, or should a former employer or any other person or entity allege that Executive is in violation of any obligation to such person or entity or if Executive believes any violation of law exists relating to the Company, Executive promises to immediately so notify the Board in writing.
Section 8. Waiver and Amendments. Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by each of the Parties. No waiver by either of the Parties of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.
Section 9. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via electronic mail, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.Notices will be deemed to have been given hereunder and received when delivered personally, when received if transmitted via electronic mail, five (5) days after deposit in the U.S. mail and one (1) day after deposit for overnight delivery with a reputable overnight courier service.
If to the Company, to:
Creek Road Miners, Inc.
2700 Homestead Road, Suite 50 Park City, UT 84098
Attention: Scott A. Sheikh, General Counsel
Email: SSheikh@CreekRoadMiners.com
If to Executive, to Executive’s physical and/or email address most recently on file with the Company with a copy (which shall not constitute notice) to such other persons as may be designated by Executive in writing.
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Section 10. Section Headings; Mutual Drafting. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof or affect the meaning or interpretation of this Agreement or of any term or provision hereof. As a consequence, the Parties do not intend that the presumptions of laws or rules relating to the interpretation of contracts against the drafter of any particular clause should be applied to this Agreement or any document or instrument executed in connection herewith, and therefore waive their effects.
Section 11. Entire Agreement. This Agreement, including Appendix A and B attached hereto and incorporated herein by reference, and the Indemnification Agreement constitute the entire understanding and agreement of the Parties with respect to the subject matter hereof. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the Parties and any other person or entity relating to the employment of Executive.
Section 12. Survival of Operative Sections. Upon any termination of Executive’s employment, the provisions of this Agreement (together with any related definitions set forth in herein) shall survive to the extent necessary to give effect to the provisions thereof.
Section 13. Binding Effect; Counterparts. This Agreement shall be binding and inure to the benefit of the Parties and their respective successors, permitted assigns, heirs, executors and legal representatives. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature. Electronic copies of this Agreement shall have the same force and effect as the original.
Section 14. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delware , without regard to its conflict of laws rules. The parties hereto hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought in any court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. Each party hereto waives any right to trial by jury.
Section 15. Miscellaneous. This Agreement shall be interpreted strictly in accordance with its terms, to the maximum extent permissible under governing law, and shall not be construed against or in favor of any Party, regardless of which Party drafted this Agreement or any provision hereof. For purposes of this Agreement, the connectives “and,” “or” and “and/or” shall be construed either disjunctively or conjunctively as necessary to bring within the scope of a sentence or clause all subject matter that might otherwise be construed to be outside of its scope and “including” shall be construed as “including without limitation.” The definitions for all defined terms in this Agreement shall apply equally to both the singular and plural forms of such terms.
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Section 16. Set Off. The Company’s obligation to pay or cause to be paid Executive the amounts provided and to make the arrangements provided hereunder shall be subject to set- off, counterclaim or recoupment of amounts owed by Executive to the Company or any of its Subsidiaries and/or Affiliates to the extent permitted by Section 409A.
Section 17. Assignment. This Agreement may be assigned by the Company to an affiliated entity or to any successor assignee of the Company with or without Executive’s consent. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such assigned party. Executive may not assign or delegate Executive’s rights and/or obligations under this Agreement. Any purported assignment or delegation by Executive in violation of the foregoing shall be null and void ab initio and of no force or effect.
Section 18. Taxes. The Company or any of its Affiliates may withhold from any payments made under this Agreement all applicable taxes, including, but not limited to, income, employment and social insurance taxes as shall be required by law.
Section 19. Indemnification. It shall be a condition to Executive’s commencement of services under this Agreement that the Company and Executive shall have entered into an Indemnification Agreement in the form of Exhibit A hereto (“Indemnification Agreement”).
Section 20. Section 280G. Notwithstanding any other provision of this Agreement or any other plan, arrangement or agreement to the contrary, if any of the payments or benefits provided or to be provided by the Company or any of its Affiliates to Executive or for Executive’s benefit pursuant to the terms of this Agreement or otherwise (“Covered Payments”) constitute “excess parachute payments” within the meaning of Section 280G of the Code and would, but for this Section 20, be (x) nondeductible under Section 280G of the Code and/or (y) subject to the excise tax imposed under Section 4999 of the Code (or any successor provisions applicable to such Sections) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), then the Covered Payments will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, is subject to the Excise Tax; provided, however, that the foregoing reduction will be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided, determined on an after-tax basis after taking into account the applicable federal, state, local and foreign income, employment and excise taxes (including the Excise Tax). Any reductions hereunder shall be made in accordance with Section 409A and the following: (A) the payments and benefits that do not constitute nonqualified deferred compensation subject to Section 409A shall be reduced first; and (B) all other payments and benefits shall then be reduced as follows: (I) cash payments shall be reduced before non-cash payments; and (II) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date. Any determination required under this Section 20, including, but not limited to, whether any payments or benefits are or could be “parachute payments” within the meaning of Section 280G of the Code, shall be determined by the Board (or its designee).
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Section 21. Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payments and benefits set forth herein shall either be exempt from the requirements of Section 409A, or shall comply with the requirements of such provision and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be exempt from or in compliance with Section 409A. To the extent the Company determines that any provision of this Agreement would cause Executive to incur any additional tax or interest under Section 409A, the Company shall be entitled to reform such provision to attempt to comply with or be exempt from Section 409A through good faith modifications. To the extent that any provision hereof is modified in order to comply with Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to Executive and the Company without violating the provisions of Section 409A.
Notwithstanding anything in this Agreement or elsewhere to the contrary, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that constitute “non-qualified deferred compensation” within the meaning of Section 409A upon or following a termination of Executive’s employment unless such termination is also a “separation from service” within the meaning of Section 409A. For purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean a “separation from service” and the date of such separation from service shall be the date of termination for purposes of any such payment or benefits. Each payment under this Agreement or otherwise in a series of payments shall be treated as a separate payment for purposes of Section 409A. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A. Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment or benefit under this Agreement that constitutes “nonqualified deferred compensation” for purposes of Section 409A be subject to offset by any other amount unless otherwise permitted by Section 409A.
All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A. To the extent that any reimbursements pursuant to this Agreement or otherwise are taxable to Executive, any reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred; provided, that, Executive has provided the Company written documentation of such expenses in a timely fashion and such expenses otherwise satisfy the Company’s expense reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or exchange for another benefit and the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements that Executive receives in any other taxable year.
Notwithstanding any provision in this Agreement to the contrary, if on the date of Executive’s termination from employment with the Company Executive is deemed to be a “specified employee” within the meaning of Section 409A using the identification methodology selected by the Company from time to time, or if none, the default methodology under Section 409A, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Section 409A that would otherwise be paid or provided during the first six months following such Date of Termination shall be paid in a lump sum or provided (in each case, without interest) on the first payroll date on or following the earlier of (i) the date which is six (6) months and one (1) day after Executive’s termination of employment for any reason other than death, and (ii) the date of Executive’s death, and any remaining payments and benefits shall be paid or provided in accordance with the normal payment dates specified for such payment or benefit.
Notwithstanding any of the foregoing to the contrary, the Company and its Affiliates and its and their respective officers, managers, directors, employees or agents make no guarantee that the terms of this Agreement as written comply with, or are exempt from, the provisions of Section 409A, and none of the foregoing shall have any liability, including, without limitation, for any tax, interest, penalty or damage, for the failure of the terms of this Agreement to comply with, or be exempt from, the provisions of Section 409A.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the Effective Date.
| COMPANY | ||
| By: | /s/ Paul Kessler | |
| Paul L. Kessler, Executive Chairman | ||
| EXECUTIVE | ||
| By: | /s/ John D. Maatta | |
| John D. Maatta | ||
July 8, 2022
Signature Page to co-chief executive
Employment Agreement
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Exhibit A
INDEMNIFICATION AGREEMENT
[***]
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Appendix A
DEFINITIONS
As used in the Agreement, the following words and phrases shall have the following meanings:
| (a) | “Affiliate” shall mean any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities, by contract or otherwise. |
| (b) | “Board” shall mean the Board of Directors of the Company. |
| (c) | “Company Entities” shall mean the Company and each and all of the Company’s respective Subsidiaries and Affiliates, including each and all of their respective advisory, management, and/or partner entities, and any successor or any permitted transferee thereof. |
| (d) | “Company Parties” shall mean, collectively, each and all of the Company Entities and each and all of their respective shareholders, interest holders, unit holders, advisors, managers, officers, directors, partners, principals, members, employees, fiduciaries, representatives, and agents. |
| (e) | “Confidential Information” shall mean any and all nonpublic information, confidential information, proprietary information, trade secrets, or other sensitive information (whether in oral, written, electronic, or any other form) concerning, created by, or relating to any of the Company Parties, including any and all information relating to the business, assets, operations, budgets, strategies, studies, compilations, policies, procedures, organization, processes, personal information (including personal information about any current or former employees, members, partners, principals, owners, equityholders, officers, agents, business associates, or representatives of any of the Company Parties, or the family members of any of the foregoing), business developments, investment or business arrangements, negotiations, prospective or existing commercial agreements, costs, revenues, performances, research, profiles, valuations, valuation models or analyses, profits, tax or financial structure, positions or products, financial models, financial results or analyses, other financial affairs, actual or proposed opportunities, acquisitions, transactions or investments, results, assets, current or prospective suppliers, customers, clients, investors, marketers, advertisers, vendors, current or prospective supplier, customer, or client lists (including their identity, addresses, contact persons, and/or status, preferences, strategies, or needs), internal controls, diligence or vetting process, security procedures, contingencies, marketing plans, databases, pricing, risk management, credit files, strategies, techniques, methods of operation, market consultants, computer programs, passwords, patent applications, information technology infrastructure, products, services, systems, designs, inventions, existing and contemplated properties, technical analyses, geologic surveys, or any other information, documents, or materials that (A) may be identified as confidential or proprietary, (B) is required to be maintained as confidential under governing law or regulation or under an agreement with any third parties, and/or (C) would otherwise appear to a reasonable person to be confidential or proprietary. Confidential Information shall not include any information that is generally known to the public or is publicly available other than as a result of Executive’s breach of this Agreement. For purposes of this Agreement, |
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| (f) | “Cause” shall mean: (i) Executive’s indictment for, conviction of, or pleading of guilty or nolo contendere to, any felony or any crime involving fraud, dishonesty or moral turpitude; (ii) Executive’s gross negligence with regard to the Company or any Affiliate in respect of Executive’s duties for the Company or any Affiliate; (iii) Executive’s willful misconduct having or, which in the good faith discretion of the Board could have, an adverse impact on the Company or any Affiliate economically or reputation-wise; (iv) Executive’s material breach of this Agreement, any other material agreement between Executive and Company, including, but not limited to, any incentive or equity or equity-based award or agreement, or any code of conduct or ethics or any other policy of the Company, which breach (if curable in the good faith discretion of the Board) has remained uncured for a period of ten (10) days following the Company’s delivery of written notice to Executive specifying the manner in which the agreement or policy has been materially breached; or (v) Executive’s continued or repeated failure to perform Executive’s duties or responsibilities to the Company or any Affiliate at a level and in a manner satisfactory to the Board in its sole discretion, which failure has not been cured to the satisfaction of the Board following notice to Executive. To the extent Executive is terminated as a member of the Board or the board of directors of any Subsidiary of the Company, “Cause” shall include a termination of such directorship for “cause” as determined in accordance with the provisions of Section 141(k) of the Delaware General Corporation Law. Any voluntary termination of Executive’s employment in anticipation of a termination of Executive’s employment by the Company for Cause shall be deemed to be a termination by the Company for Cause. |
| (g) | “Change of Control” shall mean the occurrence, after the Effective Date, of any of the following events; provided, however, that for purposes of this Agreement an event shall not qualify as a “Change of Control” unless such event also constitutes a “change in control event,” as defined in Treasury Regulations Section 1.409A-3(i)(5): |
| i. | any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (A) the then outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company or any Subsidiary or Affiliate, (2) any acquisition by the Company or any Subsidiary or Affiliate, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, (4) any acquisition pursuant to a transaction which complies with clauses (A) or (B) of Section (g)(iii) of this Glossary, below, or (5) any acquisition of additional securities by any Person who, as of the Effective Date, held 15% or more of either (x) the Outstanding Company Common Stock or (y) the Outstanding Company Voting Securities; |
| 19 |
| ii. | a majority of the individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason during any twelve (12)-month period to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or | |
| iii. | consummation by the Company of a reorganization, merger, or consolidation, or sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the board of directors (or equivalent governing authority) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or | |
| iv. | approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. |
| (h) | “Change of Control Protection Period” means the period beginning on the occurrence of a Change of Control and ending twelve (12) months thereafter. |
| (i) | “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended from time to time, and any successor thereto, the Treasury Regulations thereunder and other relevant interpretive guidance issued by the Internal Revenue Service or the Treasury Department. Reference to any specific section of the Code shall be deemed to include such regulations and guidance, as well as any successor provision of the Code. |
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| (j) | “Common Stock” shall mean the Common Stock of the Company, $0.01 par value per share. |
| (k) | “Competing Business” shall mean (i) the selling, distributing, transporting, trading, or marketing of liquefied natural gas inside or outside of the United States; (ii) the designing, permitting, constructing, developing or operating of liquefied natural gas facilities inside or outside of the United States; or (iii) the financing of liquefied natural gas facilities inside or outside of the United States. |
| (l) | “Date of Termination” shall mean (i) if Executive’s employment is terminated by his death, the date of his death, (ii) if the Executive’s employment is terminated due to Non-Renewal by either the Company or Executive, the last day of the Initial Term or then current Renewal Term, as applicable, and (iii) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination; provided, however, that the date specified in the Notice of Termination shall not be a date prior to the date such Notice of Termination is given or the expiration of any required notice or cure period; and provided further that in the case of termination of employment by Executive, Executive may not elect to use accrued vacation (if any) or other paid leave to avoid working during the notice period, nor may Executive otherwise cease reporting to work during the notice period, in either case, unless agreed to by the Company in writing. |
| (m) | “Disability” shall mean that Executive has experienced a “permanent and total disability” within the meaning of Section 22(e)(3) of the Code. The determination of whether Executive has experienced a Disability shall be determined under procedures established by the Compensation Committee of the Board. |
| (n) | “Exchange Act” shall mean U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. |
| (o) | “Good Reason” shall mean the occurrence of any of the following events without Executive’s written consent (i) a material diminution in Executive’s Base Salary; (ii) Executive ceases to be the senior most executive of the Company; (iii) any requirement that Executive relocate his primary residence more than fifty (50) miles from its then-current location; or (iv) a material breach by the Company of the Agreement. |
| (p) | “Media” shall mean any media (whether print, television, radio, the internet, social media, or with or through any reporter, blogger, “app” (such as Instagram, Snapchat, or the like), or otherwise. |
| (q) | “Non-Competition Restricted Period” shall mean the twelve (12) month period following the Date of Termination (regardless of whether Executive resigns or is terminated, or the reason for any such resignation or termination). |
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| (r) | “Non-Solicit Restricted Period” shall mean the twelve (12) month period following the Date of Termination (regardless of whether Executive resigns or is terminated, or the reason for any such resignation or termination). |
| (s) | “Notice of Termination” shall mean a written notice which shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) if the “Date of Termination” is other than the date of receipt of such notice, specifies the termination date. |
| (t) | “Protected Property” shall mean all property, proprietary materials, Confidential Information, documents, records, files, memoranda, emails, computer media, software, equipment (including laptops, smartphones, and other devices), system and software login information, passwords, access codes, authorization codes (to the extent such codes relate in whole or in part to the Company Parties’ respective businesses, data rooms, systems, sites, or information), telephone numbers, email addresses, messaging contact information, identification cards, keys, and any other materials in any form (whether paper, electronic, or otherwise, and all copies thereof) relating or belonging to any of the Company Parties. |
| (u) | “Section 409A” shall mean Section 409A of the Code. |
| (v) | “Subsidiary” shall mean a corporation, partnership, joint venture, limited liability company, limited liability partnership, or other entity in which the Company owns directly or indirectly, fifty percent (50%) or more of the voting power or profit interests, or as to which the Company or one of its Affiliates serves as general or managing partner or in a similar capacity. |
| (w) | “Treasury Regulations” shall mean the regulations promulgated under the Code by the United States Treasury Department, as amended. |
| (x) | “Work Product” shall mean, individually and collectively, any and all developments, improvements, inventions, discoveries, creations, formulae, algorithms, processes, systems, interfaces, protocols, concepts, programs, products, risk management tools, methods, designs, and works of authorship, and any and all documents, information (including Confidential Information), or things relating thereto, whether patentable or not, within the scope of or pertinent to any business, research, or development in which the Company or any other Company Entity is engaged or (if such is known to or ascertainable by Executive) considering engaging, which Executive may conceive, make, author, create, invent, develop, or reduce to practice, in whole or in part, during Executive’s employment with the Company or affiliation with any of the Company Parties, whether alone or working with others, whether during or outside of normal working hours, whether inside or outside of the Company’s offices, and whether with or without the use of the Company’s computers, systems, materials, equipment, or other property. |
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Exhibit 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (“Amendment”) is made and effective on the date hereof to that Employment Agreement dated as of May 1, 2022 , (the “Employment Agreement”), between Creek Road Miners, Inc., a Delaware corporation (the “Company”), and John D. Maatta (the “Executive”).
WHEREAS, Executive has been employed by the Company pursuant to the terms of the Employment Agreement; and,
WHEREAS the parties desire to now amend the Employment Agreement,
NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree to further amend the Employment Agreement and to supersede the provisions of the Employment Agreement as follows:
1. Section 2(a) is hereby amended to provide that as of May 1, 2022, the compensation payable in Series “A” preferred shares shall be calculated at the rate of $200,000.00 per year rather than at the rate of $250,000.00 per year.
2. Section 2(c) is hereby amended to provide that the percentage of shares payable as an up-listing bonus shall be reduced from five percent (5%) to three and one third percent (3.33%).
3. Section 4 of the Employment Agreement is hereby amended as follows: (i) a new Paragraph (a) is inserted, (with the other currently existing paragraphs now becoming sequentially numbered paragraphs (b), ( c), (d), etc. The new Paragraph (a) shall read as follows:
Upon an event of Change of Control this agreement shall immediately terminate as of the date of the event of Change of Control and this agreement shall be of no further force or effect. However, immediately prior to any event of Change of Control the provisions of Paragraph 2(c) shall become effective and the Stock to which Employee shall be entitled to receive will be calculated as of the date of the Change of Control. Aside from calculation of shares under such Paragraph 2(c), and the payment to Executive of any accrued vacation time, which shall be payable in Preferred Class A Stock issued by the Company, there shall be no further obligations including but not limited to any further financial obligations of any nature owed or payable to Executive. Executive hereby acknowledges that except as stated herein, the Company owes no obligations of any nature to him and hereby waives and relinquishes any and all rights or entitlements of any nature whatsoever that may be owed to him by the Company except as expressly stated in this Amendment.
“Change of Control” shall have the same meaning as defined in the Employment Agreement
Except as expressly provided herein, all other terms and conditions of the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties agree as follows:
| EXECUTIVE | ||
| July 6, 2022 | /s/ John D. Maatta | |
| John D. Maatta | ||
| Creek Road Miners, Inc. | ||
| July 7, 2022 | By: | /s/ Paul Kessler |
| Name: | Paul Kessler, Chairman |
Exhibit 10.4
SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT (“Amendment”) is made and effective on the date hereof to that Amended and Restated Employment Agreement dated as of December 23, 2021 (the “Employment Agreement”), between Creek Road Miners, Inc., a Delaware corporation (the “Company”), and Paul L. Kessler (the “Executive”).
WHEREAS, Executive has been employed by the Company pursuant to the terms of the Employment Agreement dated and entered into with Executive on March 1, 2021, (but effective as of November 24, 2020) and subsequently amended and restated as of December 23, 2021; and,
WHEREAS the parties desire to now amend the Employment Agreement,
NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree to further amend the Employment Agreement and to supersede the provisions of the Employment Agreement as follows:
1. Section 2(a) is hereby amended to provide that as of May 1, 2022, the compensation payable in Series “A” preferred shares shall be calculated at the rate of $200,000.00 per year rather than at the rate of $250,000.00 per year.
2. Section 2(c) is hereby amended to provide that the percentage of shares payable as an up-listing bonus shall be reduced from five percent (5%) to three and one third percent (3.33%).
3. Section 4 of the Employment Agreement is hereby amended as follows: (i) a new Paragraph (a) is inserted, (with the other currently existing paragraphs now becoming sequentially numbered paragraphs (b), (c), (d), etc. The new Paragraph (a) shall read as follows:
Upon an event of Change of Control this agreement shall immediately terminate as of the date of the event of Change of Control and this agreement shall be of no further force or effect. However, immediately prior to any event of Change of Control the provisions of Paragraph 2(c) shall become effective and the Stock to which Employee shall be entitled to receive will be calculated as of the date of the Change of Control. Aside from calculation of shares under such Paragraph 2(c), and the payment to Executive of any accrued vacation time, which shall be payable in Preferred Class A Stock issued by the Company, there shall be no further obligations including but not limited to any further financial obligations of any nature owed or payable to Executive. Executive hereby acknowledges that except as stated herein, the Company owes no obligations of any nature to him and hereby waives and relinquishes any and all rights or entitlements of any nature whatsoever that may be owed to him by the Company except as expressly stated in this Amendment.
“Change of Control” shall have the same meaning as defined in the Employment Agreement
Except as expressly provided herein, all other terms and conditions of the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties agree as follows:
| EXECUTIVE | ||
| July 6, 2022 | /s/ Paul L. Kessler | |
| Paul L. Kessler | ||
| Creek Road Miners, Inc. | ||
| July 7, 2022 | By: | /s/ John D. Maatta |
| Name: | John D. Maatta | |
Exhibit 10.5
SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT (“Amendment”) is made and effective on the date hereof to that Amended and Restated Employment Agreement dated as of December 23, 2021 (the “Employment Agreement”), between Creek Road Miners, Inc., a Delaware corporation (the “Company”), and Paul L. Kessler (the “Executive”).
WHEREAS, Executive has been employed by the Company pursuant to the terms of the Employment Agreement dated and entered into with Executive on March 1, 2021, (but effective as a November 24, 2020) and subsequently amended and restated as of December 23, 2021; and ,
WHEREAS the parties desire to now amend the Employment Agreement,
NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree to further amend the Employment Agreement and to supersede the provisions of the Employment Agreement as follows:
1. Section 2(a) is hereby amended to provide that as of May 1, 2022, the compensation payable in Series “A” preferred shares shall be calculated at the rate of $200,000.00 per year rather than at the rate of $250,000.00 per year.
2. Section 2(c) is hereby amended to provide that the percentage of shares payable as an up-listing bonus shall be reduced from five percent (5%) to three and one third percent (3.33%).
3. Section 4 of the Employment Agreement is hereby amended as follows: (i) a new Paragraph (a) is inserted, (with the other currently existing paragraphs now becoming sequentially numbered paragraphs (b), (c), (d), etc. The new Paragraph (a) shall read as follows:
Upon an event of Change of Control this agreement shall immediately terminate as of the date of the event of Change of Control and this agreement shall be of no further force or effect. However, immediately prior to any event of Change of Control the provisions of Paragraph 2(c) shall become effective and the Stock to which Employee shall be entitled to receive will be calculated as of the date of the Change of Control. Aside from calculation of shares under such Paragraph 2(c), and the payment to Executive of any accrued vacation time, which shall be payable in Preferred Class A Stock issued by the Company, there shall be no further obligations including but not limited to any further financial obligations of any nature owed or payable to Executive. Executive hereby acknowledges that except as stated herein, the Company owes no obligations of any nature to him and hereby waives and relinquishes any and all rights or entitlements of any nature whatsoever that may be owed to him by the Company except as expressly stated in this Amendment.
“Change of Control” shall have the same meaning as defined in the Employment Agreement
Except as expressly provided herein, all other terms and conditions of the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties agree as follows:
| EXECUTIVE | ||
| July 6, 2022 | /s/ Scott D. Kaufman | |
| Scott D. Kaufman | ||
| Creek Road Miners, Inc. | ||
| July 8, 2022 | By: | /s/ John D. Maatta |
| Name: | John D. Maatta |
Exhibit 10.6
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (“Amendment”) is made and effective on the date hereof to that Employment Agreement dated as of December 23, 2021, (the “Employment Agreement”), between Creek Road Miners, Inc., a Delaware corporation (the “Company”), and Scott A. Sheikh (the “Executive”).
WHEREAS, Executive has been employed by the Company pursuant to the terms of the Employment Agreement; and
WHEREAS the parties desire to now amend the Employment Agreement,
NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree to further amend the Employment Agreement and to supersede the provisions of the Employment Agreement as follows:
1. Section 4 of the Employment Agreement is hereby amended as follows: (i) a new Paragraph (a) is inserted, (with the other currently existing paragraphs now becoming sequentially numbered paragraphs (b), (c), (d), etc. The new Paragraph (a) shall read as follows:
Upon an event of Change of Control this agreement shall immediately terminate as of the date of the event of Change of Control and this agreement shall be of no further force or effect. Aside from the payment to Executive of any accrued vacation time, which shall be payable in Preferred Class A Stock issued by the Company, there shall be no further obligations including but not limited to any further financial obligations of any nature owed or payable to Executive. Executive hereby acknowledges that except as stated herein, the Company owes no obligations of any nature to him and hereby waives and relinquishes any and all rights or entitlements of any nature whatsoever that may be owed to him by the Company except as expressly stated in this Amendment.
“Change of Control” shall have the same meaning as defined in the Employment Agreement.
Except as expressly provided herein, all other terms and conditions of the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties agree as follows:
| EXECUTIVE | ||
| July 6, 2022 | /s/ Scott A. Sheikh | |
| Scott A. Sheikh | ||
| Creek Road Miners, Inc. | ||
| July 7, 2022 | By: | /s/ Paul Kessler |
| Name: | Paul Kessler, Chairman |
Exhibit 10.7
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (“Amendment”) is made and effective on the date hereof to that Employment Agreement dated as of December 23, 2021, (the “Employment Agreement”), between Creek Road Miners, Inc., a Delaware corporation (the “Company”), and Alan Urban (the “Executive”).
WHEREAS, Executive has been employed by the Company pursuant to the terms of the Employment Agreement ;and ,
WHEREAS the parties desire to now amend the Employment Agreement,
NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree to further amend the Employment Agreement and to supersede the provisions of the Employment Agreement as follows:
1. Section 4 of the Employment Agreement is hereby amended as follows: (i) a new Paragraph (a) is inserted, (with the other currently existing paragraphs now becoming sequentially numbered paragraphs (b), (c), (d), etc. The new Paragraph (a) shall read as follows:
Upon an event of Change of Control this agreement shall immediately terminate as of the date of the event of Change of Control and this agreement shall be of no further force or effect. Aside from the payment to Executive of any accrued vacation time, which shall be payable in Preferred Class A Stock issued by the Company, there shall be no further obligations including but not limited to any further financial obligations of any nature owed or payable to Executive. Executive hereby acknowledges that except as stated herein, the Company owes no obligations of any nature to him and hereby waives and relinquishes any and all rights or entitlements of any nature whatsoever that may be owed to him by the Company except as expressly stated in this Amendment.
“Change of Control” shall have the same meaning as defined in the Employment Agreement
Except as expressly provided herein, all other terms and conditions of the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties agree as follows:
| EXECUTIVE | ||
| July 28, 2022 | /s/ Alan Urban | |
| Alan Urban | ||
| Creek Road Miners, Inc. | ||
| July 28, 2022 | By: | /s/ Paul Kessler |
| Name: | Paul Kessler, Chairman |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, John D. Maatta, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Creek Road Miners, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: August 15, 2022 | By: | /s/ John D. Maatta |
|
John D. Maatta Principal Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Alan L. Urban, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Creek Road Miners, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: August 15, 2022 | By: | /s/ Alan L. Urban |
|
Alan L. Urban Principal Financial and Accounting Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Creek Road Miners, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2022, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, John D. Maatta, Principal Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended June 30, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period June 30, 2022, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 15, 2022 | By: | /s/ John D. Maatta |
| John D. Maatta | ||
| Principal Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Creek Road Miners, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2022, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Alan L. Urban, Principal Financial and Accounting Officer and of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended June 30, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period ended June 30, 2022, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 15, 2022 | By: | /s/ Alan L. Urban |
|
Alan L. Urban Principal Financial and Accounting Officer |