Prairie Operating(PROP) - 2022 Q4 - Annual Report

PART I Item 1. Business The company transitioned to cryptocurrency mining in 2021 and faces going concern risks pending a merger Company Overview & History - Company incorporated May 2, 2001, in Delaware[17][35] - Transitioned from pop culture events and gelatin machine sales to cryptocurrency mining in October 2021[17][35] - Legacy eCommerce site discontinued June 30, 2022[17][35] - Sold assets related to live pop culture events to Informa for $722,429 in other income on August 6, 2021[36] - Sold Jevo assets and operations for $1,500,000, recognizing a gain of approximately $1,130,740 on September 15, 2021[37] Merger Agreement - Merger Agreement with Prairie Operating Co, LLC entered on October 24, 2022[18][39] - Company to deliver 2,000,000 shares of common stock or 33.33% of outstanding common stock post-restructuring to Prairie members[19][40] - Convert Prairie options into 8,000,000 restricted performance-based common stock options at $0.25 per share, exercisable upon specific production hurdles[19][40] - Restructuring includes converting all outstanding preferred stock, convertible debentures, warrants, and notes into common stock, followed by a 1-23 to 1-30 reverse stock split[20][41] Nature of Business - Cryptocurrency Mining - Substantially all revenue generated from Bitcoin mining, commenced October 24, 2021[21][252] - Since June 30, 2022, no meaningful cryptocurrency awards or revenue from mining[21][26][163] - Bitcoin price volatility is a major factor affecting profitability[25][27][167] - Bitcoin market price as of December 31, 2022, was $16,547, a 60% decrease since early 2022 and 75% from its all-time high[27][259] - Natural gas costs (for electricity) increased by approximately 260% in 2022[27][259] - Bitcoin halving events (next anticipated March 2024, reducing reward to 3.125 BTC/block) impact mining rewards[25][167][257] Mining Equipment - As of December 31, 2022, owned 510 Bitmain S19J Pro (51.0 Ph/s) and 270 Bitmain S19 (24.3 Ph/s) miners, none in service[22][164][253] - Agreement with Bitmain for 600 S19XP miners (84 Ph/s) with an estimated purchase commitment of $6,762,000[23][165][254] - All 600 Bitmain miners undelivered until shipping fees are paid[23][165][254] Bitmain S19XP Miner Commitment | Item | Amount | | :---------------------- | :----------- | | Estimated total amount due | $4,016,600 | | Less: Payments made | $3,969,000 | | Remaining amount due | $47,600 | Mining Results - No meaningful cryptocurrency awards or revenue from mining since June 30, 2022[24][166][255][301] Cryptocurrency Mining Activity | Metric | 2022 (US$) | 2021 (US$) | | :-------------------------------- | :----------- | :----------- | | Revenue recognized from crypto mined | $517,602 | $369,804 | | Mining pool operating fees | $(10,452) | $(7,398) | | Impairment of cryptocurrencies | $(107,174) | $(59,752) | | Realized loss on sale of cryptocurrency | $(127,222) | $0 | | Realized gain on sale of cryptocurrency | $3,853 | $0 | | Balance December 31 | $0 | $302,654 | Government Regulation - Increasing governmental regulation of cryptocurrency in the U.S. and internationally[28][169][260] - President Biden's March 9, 2022 executive order instructs federal agencies to consider regulatory measures, including a U.S. Central Bank digital currency[28][169][260] - Future regulatory changes are unpredictable but could materially affect the business[28][169][260] Intellectual Property - No patents owned in connection with existing or planned blockchain and cryptocurrency operations[29] Liquidity and Ability to Continue as a Going Concern - Historically relied on financing, incurred significant losses, and negative cash flow[30][199][263] - Substantial doubt about the company's ability to continue as a going concern[31][200][264] - Ability to continue is dependent on closing the merger with Prairie or obtaining debt/equity financing[33][202][266] - Existing cash resources expected to be depleted in early 2023 if financing or merger not secured[31][200][264] Net Loss | Year Ended December 31 | Net Loss | | :--------------------- | :----------- | | 2022 | $(13,401,076) | | 2021 | $(19,202,114) | Financial Position as of Dec 31, 2022 | Metric | Amount | | :-------------------- | :------------- | | Cash and cash equivalents | $246,358 | | Working capital deficit | $(8.1) million | | Accumulated deficit | $(61) million | Employees - 2 full-time employees as of March 31, 2023[34] Where You Can Find More Information - Company website: www.creekroadminers.com[42](index=42&type=chunk) - SEC filings available at http://www.sec.gov[42](index=42&type=chunk) Item 1A. Risk Factors The company faces significant operational, financial, and stock-related risks, including merger uncertainty Risks Related to Our Company - Historically incurred significant losses and may be unable to maintain profitability[44] - Merger with Prairie is subject to closing conditions and may not be completed, leading to adverse effects[45][46] - Inability to complete merger or obtain financing may force sale of cryptocurrency miners[50] - Significant additional capital required for operations; failure to obtain could limit growth[51] - Cost of new cryptocurrency mining equipment is capital intensive and may increase[55] - Reliance on third-party mining pool service providers for revenue payouts[56] - Bitcoin halving events could reduce mining rewards if not offset by price increases[57] - Insiders beneficially own approximately 90% of common stock, limiting minority stockholder influence[60] - Reliance on a small number of cryptocurrency mining equipment suppliers[61] - Exposure to credit risk on prepayments to mining equipment suppliers[62] - Difficulty securing adequate insurance for cryptocurrency mining equipment[63] - Risk of losing private keys to digital wallets, resulting in loss of digital assets[66] - Cybersecurity breaches and adverse software events pose risks to digital asset storage[67] - Significant power requirements for miners and potential government restrictions on electricity supply[71] - Interruptions to internet access could disrupt operations[72] - Reliance primarily on a single model of miner (Bitmain Antminer) increases system-wide risk[73] - Difficulty finding suitable locations for mobile data centers[74] - Dependence on a small number of key personnel[75] - Breaches of data systems or unintended disclosure of data could lead to large expenditures and reputational harm[78] - Risks associated with PCI compliance[79] - Failure to comply with loan agreements could result in default[80] - Government regulations related to the Internet could increase costs or negatively affect business[81] Financial Performance Summary | Metric | Dec 31, 2022 | Dec 31, 2021 | | :-------------------- | :------------- | :------------- | | Net Loss | $(13,418,814) | $(17,270,703) | | Stockholders' Deficit | $(6,525,056) | $4,197,847 | Risks Related to the Price of Bitcoin - Stock price correlated with Bitcoin's volatile trading price[112] - Internet disruptions could adversely affect cryptocurrency prices and mining ability[113] - Geopolitical and economic events create uncertainty in cryptocurrency supply and demand[114] - Limited acceptance and widespread use of cryptocurrency in retail and commercial markets[115] - Under-regulated Bitcoin markets may lead to significant volatility or manipulation[116][117] - Potential for future illegality of cryptocurrencies in various countries[119] - Risk of loss, theft, or restriction on access to cryptocurrencies (e.g, private key loss, cybersecurity threats)[120][124] - Bitcoin forks (e.g, Bitcoin Cash, Bitcoin Gold) may affect the value of held or mined Bitcoin[121][122] - Incorrect or fraudulent cryptocurrency transactions may be irreversible[123] Risks Relating to Ownership of Our Common Stock - Paul L Kessler, Executive Chairman, beneficially owns approximately 78% of common stock, limiting minority stockholder influence[94][495] - Future equity or convertible debt issuances could result in significant dilution for existing stockholders[95] - Common stock quoted on OTCQB, leading to limited liquidity and potential unfavorable impact on stock price[96][97] - Stock price is likely to be highly volatile due to limited public float and thin trading[98][99][100] - Subject to 'penny stock rules,' making securities more difficult to sell[103][105] - No cash dividends paid historically, nor expected in the foreseeable future; return on investment limited to stock price appreciation[106] - Board has broad discretion to issue additional securities (common and preferred stock), potentially causing substantial dilution[107] - Exercise of outstanding options and warrants could substantially dilute existing investments[108][109] Internal Controls and Financial Reporting Risks - Failure to maintain effective internal controls (Sarbanes-Oxley Section 404) could result in financial statement restatement and loss of investor confidence[110][111] - Testing and maintaining internal controls can divert management attention[111] Item 1B. Unresolved Staff Comments This item is not applicable to the company - Not applicable[125] Item 2. Properties The company does not own any properties - No properties owned[126] Item 3. Legal Proceedings The company disputes an alleged default on a $2.5 million convertible debenture from Barlock Capital - Involved in ordinary course legal proceedings, not expected to materially affect financial statements[126] - Dispute with Barlock Capital Management LLC over alleged event of default on a $2,496,850 secured convertible debenture[127] - Barlock demanded payment of $5,004,978.76[127] - Company disputes the default, citing Alpha Note issuance and former CEO's resignation as invalid reasons[128] - If default is confirmed, the debenture's principal, accrued interest, and liquidated damages would be due, with interest accruing at up to 18% per annum[129] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[130][131] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's volatile OTCQB-traded stock has 71 holders, with no dividends paid and recent unregistered sales Market Information and Number of Holders - Common stock quoted on OTCQB under symbol "CRKR"[133] - 71 record holders of common stock as of December 31, 2022[134] Stock Price Performance | Period | High Bid | Low Bid | | :-------------------------- | :--------- | :-------- | | Year Ended Dec 31, 2022: | | | | First Quarter | $2.95 | $1.45 | | Second Quarter | $1.80 | $0.29 | | Third Quarter | $0.52 | $0.19 | | Fourth Quarter | $0.22 | $0.05 | | Year Ended Dec 31, 2021: | | | | First Quarter | $5.00 | $0.61 | | Second Quarter | $4.33 | $2.05 | | Third Quarter | $2.81 | $1.45 | | Fourth Quarter | $3.90 | $1.04 | Dividends - Never paid cash dividends on common stock[135] - Intends to retain all funds for business operations and expansion[135] Recent Sales of Unregistered Securities - Implemented a 1-for-20 reverse stock split effective January 23, 2020[137] - Granted warrants to consultants (300,000 shares at $1.00, 180,000 shares at $1.5278) in March 2021[138] - Issued Series A preferred stock to Scott D Kaufman for compensation ($62,490 each quarter in 2021)[139][140][145] - Granted warrants to directors (30,000 shares at $1.50) in October 2021[141] - Granted 7,000,000 common stock options to Directors and employees in December 2021, vesting based on VWAP targets ($2.50, $3.00, $3.50, $4.00)[144] - Issued Series A preferred stock to Paul L Kessler for compensation ($6,730 in Dec 2021, $49,410 in Q1/Q2 2022, $29,580 in Q3 2022, $37,920 in Q4 2022)[145][150][151] - Issued 169,205 shares of common stock to Highwire Energy Partners, Inc in May 2022[148] - Alpha Capital Anstalt returned 600,000 common shares in connection with a settlement for a convertible promissory note in August 2022[149] Item 6. [Reserved] This item is reserved and not required - Not required[154] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company's transition to crypto mining resulted in a net loss of $(13.4) million amid market volatility Company Overview - Incorporated May 2, 2001, in Delaware[159] - Transitioned from legacy operations (pop culture events, gelatin machines, eCommerce) to cryptocurrency mining starting October 2021[159][163] - Sold pop culture event assets to Informa in August 2021, recognizing $722,429 in other income[160] - Sold Jevo assets in September 2021 for $1,500,000, recognizing a gain of approximately $1,130,740[161] - Entered Merger Agreement with Prairie Operating Co, LLC on October 24, 2022[162] Cryptocurrency Mining & Equipment - Substantially all revenue from Bitcoin mining, commenced October 24, 2021[163] - As of December 31, 2022, 780 Bitmain S19J Pro and S19 miners (total 75.3 Ph/s) were owned but not in service[164] - Agreement for 600 Bitmain S19XP miners (84 Ph/s); $3,969,000 paid as deposits, $47,600 remaining due, miners undelivered[165] - No meaningful cryptocurrency awards or revenue from mining since June 30, 2022[163] Mining Results - Revenue increased 40% in 2022 due to mining operations starting in late 2021[195] Cryptocurrency Mining Activity | Metric | 2022 (US$) | 2021 (US$) | | :-------------------------------- | :----------- | :----------- | | Revenue recognized from crypto mined | $517,602 | $369,804 | | Mining pool operating fees | $(10,452) | $(7,398) | | Impairment of cryptocurrencies | $(107,174) | $(59,752) | | Realized loss on sale of cryptocurrency | $(127,222) | $0 | | Realized gain on sale of cryptocurrency | $3,853 | $0 | | Balance December 31 | $0 | $302,654 | Factors Affecting Profitability - Business heavily dependent on volatile Bitcoin market price[167] - Bitcoin price decreased 60% in 2022 and 75% from its all-time high[27][167][259] - Natural gas costs increased by approximately 260% in 2022, increasing mining costs[27][167][259] - Bitcoin halving events (next in March 2024) reduce mining rewards[167] Competition - Faces significant competition in cryptocurrency mining, including equipment acquisition, capital raising, and low-cost energy[168] Government Regulation - Increasing governmental regulation of cryptocurrency, including President Biden's executive order in March 2022[169] - Future regulatory changes are unpredictable and could materially affect the business[169] Critical Accounting Policies and Estimates - Financial statements require significant estimates and assumptions[170][172] - Cryptocurrency (Bitcoin) classified as current asset and accounted for as indefinite-lived intangible asset, assessed for impairment annually[177][275] - Revenue from cryptocurrency mining recognized when mining pool operator successfully places a block and consideration is confirmed[183][285] - Fair value of cryptocurrency award determined using market rate at time of receipt[184][286] - Cryptocurrency mining costs include mining pool fees, natural gas, turbine, and mobile data center rentals, excluding depreciation[185][287] - No specific definitive GAAP guidance for cryptocurrency accounting, requiring significant management judgment[184][286] Reverse Stock Split - 1-for-20 reverse stock split effective January 23, 2020[186] Stock-Based Compensation - Stock-based compensation for employees and non-employees measured at grant date fair value and expensed over service period[187] Income Taxes - Income taxes accounted for using asset and liability method; deferred tax assets reduced by valuation allowance if not likely to be realized[188] Discontinued Operations - Legacy operations (pop culture events, Jevo assets, eCommerce site) discontinued[191] - Related assets, liabilities, and financial results classified as discontinued operations[192] Results of Operations - Comparison of Years Ended December 31, 2022 and 2021 - Cryptocurrency mining costs increased 280% due to operations starting in October 2021[197] - Depreciation and amortization increased 485% due to addition of mining equipment[197] - Stock-based compensation decreased 78% due to decreased issuances[197] - General and administrative expenses decreased 38% due to lesser marketing and consulting expenses[197] - Impairment of mined cryptocurrency increased 79% due to drop in Bitcoin price[197] - Net loss from continuing operations decreased 30% due to lower stock-based compensation and G&A, partially offset by $5.2M fixed asset impairment[198] Consolidated Results of Operations | Metric | 2022 (US$) | 2021 (US$) | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Revenue: Cryptocurrency mining | $517,602 | $369,804 | $147,798 | 40% | | Operating costs and expenses: | | | | | | Cryptocurrency mining costs | $1,071,458 | $281,790 | $789,668 | 280% | | Depreciation and amortization | $658,080 | $112,512 | $545,568 | 485% | | Stock based compensation | $2,681,201 | $12,338,424 | $(9,657,223) | (78)% | | General and administrative | $3,606,522 | $5,782,687 | $(2,181,267) | (38)% | | Impairment of mined cryptocurrency | $107,174 | $59,752 | $47,422 | 79% | | Total operating expenses | $8,124,435 | $18,575,165 | $(10,455,832) | (56)% | | Loss from operations | $(7,606,833) | $(18,210,464) | $10,603,630 | 58% | | Net loss from continuing operations | $(13,401,076) | $(19,202,114) | $5,801,038 | 30% | | Net income (loss) from discontinued operations | $(17,738) | $1,931,411 | $(1,949,146) | (101)% | | Total net loss | $(13,418,814) | $(17,270,703) | $3,851,892 | 22% | Going Concern Analysis - Substantial doubt about the company's ability to continue as a going concern due to historical losses, negative cash flow, and significant deficits[199][200] - Continuation is dependent on closing the merger with Prairie or obtaining debt/equity financing[202] - Existing cash resources expected to be depleted in early 2023 without additional financing or merger completion[200] Financial Position as of Dec 31, 2022 | Metric | Amount | | :-------------------- | :------------- | | Cash and cash equivalents | $246,358 | | Working capital deficit | $(8.1) million | | Accumulated deficit | $(61) million | Liquidity and Capital Resources - Decrease in cash primarily due to operating and investing activities, partially offset by financing[204] - Net cash used in operating activities in 2022 was $2.19M, driven by net loss, offset by fixed asset impairment and increased payables[205] - Net cash used in investing activities in 2022 was $1.81M, mainly from property and equipment purchases, offset by mining equipment deposits[207] - Net cash provided by financing activities in 2022 was $1.47M, from warrant exercises and note payable[208] - Working capital shifted to an $8.1M deficit in 2022 due to decreased cash/deposits and increased liabilities[210] Consolidated Cash Flow Summary | Cash Flow Activity | 2022 (US$) | 2021 (US$) | | :-------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(2,192,607) | $(6,969,723) | | Net cash used in investing activities | $(1,815,520) | $(9,928,726) | | Net cash provided by financing activities | $1,469,297 | $17,785,933 | | Net increase (decrease) in cash | $(2,538,830) | $887,484 | | Cash and cash equivalents, end of period | $246,358 | $2,785,187 | Working Capital | Metric | Dec 31, 2022 (US$) | Dec 31, 2021 (US$) | Change (US$) | | :---------------------- | :----------------- | :----------------- | :------------- | | Current assets | $5,050,740 | $10,827,973 | $(5,777,233) | | Current liabilities | $13,168,256 | $6,039,311 | $7,128,945 | | Working capital (deficit) | $(8,117,516) | $4,788,662 | $(12,906,178) | Off-Balance Sheet Arrangements - No off-balance sheet arrangements[211] Recently Issued Accounting Pronouncements - Recent accounting pronouncements not expected to materially impact financial statements[212] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not required for the company - Not required[213] Item 8. Financial Statements and Supplementary Data The auditor expressed substantial doubt about the company's ability to continue as a going concern Report of Independent Registered Public Accounting Firm - MaughanSullivan LLC provided an unqualified opinion on consolidated financial statements for 2022 and 2021[218] - Substantial doubt about the company's ability to continue as a going concern due to losses and accumulated deficit[219] - Critical audit matters included accounting for cryptocurrency mining revenue and fair value of mining computer equipment[223][224][226] Consolidated Balance Sheets - Accumulated deficit increased to $(60,728,664) in 2022 from $(47,309,849) in 2021[229] Consolidated Balance Sheet Summary | Metric | Dec 31, 2022 | Dec 31, 2021 | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Cash and cash equivalents | $246,358 | $2,785,188 | $(2,538,830) | (91.1)% | | Deposits on mining equipment | $4,673,680 | $7,613,230 | $(2,939,550) | (38.6)% | | Cryptocurrency | $0 | $302,654 | $(302,654) | (100)% | | Total current assets | $5,050,740 | $10,827,973 | $(5,777,233) | (53.3)% | | Property and equipment, net | $1,632,007 | $2,226,360 | $(594,353) | (26.7)% | | Total assets | $6,793,097 | $13,199,869 | $(6,406,772) | (48.5)% | | Accounts payable and accrued expenses | $3,232,855 | $801,747 | $2,431,108 | 303.2% | | Accrued interest and expenses – related parties | $3,055,989 | $2,231,558 | $824,431 | 36.9% | | Convertible notes payable | $1,400,000 | $0 | $1,400,000 | N/A | | Secured convertible debentures – related party(ies) | $4,993,700 | $2,500,000 | $2,493,700 | 99.7% | | Total current liabilities | $13,168,256 | $6,039,311 | $7,128,945 | 118.0% | | Total liabilities | $13,318,156 | $9,002,022 | $4,316,134 | 47.9% | | Total stockholders' equity (deficit) | $(6,525,059) | $4,197,847 | $(10,722,906) | (255.4)% | Consolidated Statements of Operations - Impairment of fixed assets of $5,231,752 in 2022 significantly contributed to other expenses[231] Consolidated Statement of Operations Summary | Metric | 2022 (US$) | 2021 (US$) | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Revenue: Cryptocurrency mining | $517,602 | $369,804 | $147,798 | 40% | | Operating costs and expenses: | | | | | | Cryptocurrency mining costs | $1,071,458 | $281,790 | $789,668 | 280% | | Depreciation and amortization | $658,080 | $112,512 | $545,568 | 485% | | Stock based compensation | $2,681,201 | $12,338,424 | $(9,657,223) | (78)% | | General and administrative | $3,606,522 | $5,787,790 | $(2,181,268) | (37.7)% | | Impairment of mined cryptocurrency | $107,174 | $59,752 | $47,422 | 79.4% | | Total operating expenses | $8,124,435 | $18,580,268 | $(10,455,833) | (56.3)% | | Loss from operations | $(7,606,833) | $(18,210,464) | $10,603,631 | 58.2% | | Other income (expense), net | $(5,794,243) | $(991,650) | $(4,802,593) | (484.3)% | | Loss from continuing operations | $(13,401,076) | $(19,202,114) | $5,801,038 | 30.2% | | Net income (loss) from discontinued operations | $(17,738) | $1,931,411 | $(1,949,149) | (100.9)% | | Net loss | $(13,418,814) | $(17,270,703) | $3,851,889 | 22.3% | | Earnings (loss) per share, basic and diluted | $(1.18) | $(3.71) | $2.53 | 68.2% | Consolidated Statements of Stockholders' Equity (Deficit) - Net loss of $(13,418,814) in 2022 was the primary driver of the shift to stockholders' deficit[234] - Additional paid-in capital increased by $2,695,501 in 2022, reflecting warrant exercises and preferred stock issuances for compensation[234] Stockholders' Equity (Deficit) Summary | Metric | Dec 31, 2022 (US$) | Dec 31, 2021 (US$) | Change (US$) | | :------------------------------------ | :----------------- | :----------------- | :------------- | | Total Stockholders' Equity (Deficit) | $(6,525,059) | $4,197,847 | $(10,722,906) | | Accumulated Deficit | $(60,728,664) | $(47,309,849) | $(13,418,815) | | Additional Paid-In Capital | $54,202,355 | $51,506,854 | $2,695,501 | Consolidated Statements of Cash Flows - Operating cash outflow improved in 2022 due to lower net loss, higher fixed asset impairment, and increased payables[240] - Investing cash outflow improved in 2022 due to proceeds from crypto sales and lower net deposits on mining equipment[240] - Financing cash inflow significantly decreased in 2022 due to lower proceeds from stock/warrant issuances compared to 2021[240] Consolidated Cash Flow Summary | Cash Flow Activity | 2022 (US$) | 2021 (US$) | Change ($) | | :-------------------------------- | :----------- | :----------- | :----------- | | Net cash used in operating activities | $(2,192,607) | $(6,969,723) | $4,777,116 | | Net cash used in investing activities | $(1,815,520) | $(9,928,726) | $8,113,206 | | Net cash provided by financing activities | $1,469,297 | $17,785,933 | $(16,316,636) | | Net increase (decrease) in cash | $(2,538,830) | $887,484 | $(3,426,314) | | Cash and cash equivalents, end of period | $246,357 | $2,785,187 | $(2,538,830) | Notes to the Consolidated Financial Statements - Detailed notes on organization, business, accounting policies, and financial instruments[244] - Reiteration of going concern uncertainty[263][264][265] - Deposits on mining equipment totaled $4,673,680 as of Dec 31, 2022, with $3,969,000 for miners and $704,680 for mobile data centers[298] - Cryptocurrency balance was $0 as of Dec 31, 2022, with $107,174 impairment recognized in 2022[300] - Property and equipment, net, was $1,632,007 as of Dec 31, 2022, with a $5,231,752 impairment on fixed assets recorded in 2022[302] - Related party balances as of Dec 31, 2022, include $3,055,989 in accrued interest and expenses and $4,993,700 in current secured convertible debentures[307] - Convertible notes payable totaled $1,400,000 as of Dec 31, 2022, including the Creecal Note ($500,000) and Alpha Note ($900,000)[360][363] - SBA/PPP loans payable totaled $149,900 as of Dec 31, 2022, with $197,662 of a Second Draw PPP loan forgiven in March 2022[374] - Subsequent event: Master Services Agreement with Atlas Power Hosting, LLC for cryptocurrency mining services, with fees deducted from mined currency[444] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with the company's accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[446] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective Evaluation of Disclosure Controls and Procedures - Disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022[448] Management's Report on Internal Control over Financial Reporting - Management concluded internal control over financial reporting was effective as of December 31, 2022, based on COSO 2013 framework[451] Inherent Limitations on the Effectiveness of Controls - Control systems have inherent limitations, providing only reasonable assurance against errors or fraud[452] - Limitations include faulty judgment, human error, circumvention, and management override[453] Changes in Internal Controls Over Financial Reporting - No material changes in internal control over financial reporting during the last fiscal year[454] Item 9B. Other Information The maturity date of a $500,000 convertible promissory note was extended - Maturity date of $500,000 convertible promissory note extended to earlier of May 31, 2023, or Merger closing[455] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[456] PART III Item 10. Directors, Executive Officers and Corporate Governance The company is led by its Executive Chairman and CEO, with one independent director overseeing key committees Directors and Executive Officers - Paul L Kessler has over 30 years of experience as an investor, financier, and venture capitalist[460] - John D Maatta has served as EVP and COO of The CW Television Network[461] - Scott Sheikh has expertise in logistics, emerging technologies (blockchain), and crypto mining law[462] Board of Directors and Executive Officers | Name | Age | Position | Date of Appointment | | :---------------- | :-- | :-------------------------------- | :------------------ | | Paul L. Kessler | 62 | Executive Chairman | March 17, 2013 | | John D. Maatta | 71 | Director and Chief Executive Officer | May 25, 2011 | | Scott Sheikh | 41 | Chief Operating Officer and General Counsel | December 23, 2021 | | Michael Breen | 60 | Director | March 29, 2017 | Term of Office & Family Relationships - Directors serve a one-year term[464] - No family relationships between officers and directors[465] Corporate Governance - Michael Breen is the only independent director as per NASDAQ rules[466] - Audit Committee and Compensation Committee are both chaired by Mr Breen[467][468] - Company does not have an audit committee financial expert due to size and cost control[467] - Adopted a Code of Ethical Conduct for all employees, officers, and directors[470] - One Section 16(a) report for Mr Maatta was delinquent in 2022[471] Legal Proceedings (Directors/Officers) - No material legal proceedings involving directors or officers adverse to the company[472] - No directors or executive officers involved in bankruptcy, criminal offenses, or securities law violations in the past ten years[472] Item 11. Executive Compensation Executive compensation included salaries and stock awards, with performance-based options cancelled in 2022 Compensation of Executive Officers - Options granted in December 2021 to Kessler, Maatta, and Sheikh (vesting based on VWAP targets) were cancelled in 2022[474][478] - Compensation for 2022 included Series A preferred stock for settlement of compensation for Kessler ($166,320), Maatta ($133,330), Sheikh ($152,580), Kaufman ($69,720), and Urban ($6,850)[479][480][481] Summary Compensation Table | Name | Fiscal Year | Salary | Stock Awards | All other Compensation | Total | | :------------------------------------ | :---------- | :------- | :----------- | :--------------------- | :------ | | Paul L. Kessler, Executive Chairman | 2022 | $48,342 | $166,320 | $14,355 | $229,017 | | | 2021 | $48,219 | $6,700,480 | $12,015 | $6,760,714 | | John D. Maatta, President and CEO | 2022 | $0 | $133,330 | $0 | $133,330 | | | 2021 | $0 | $85,564 | $60,000 | $145,564 | | Scott Sheikh, COO and General Counsel | 2022 | $84,142 | $152,580 | $3,008 | $239,730 | | | 2021 | $99,362 | $2,231,250 | $536 | $2,331,148 | | Scott D. Kaufman, Former President and CEO | 2022 | $22,104 | $69,720 | $811 | $92,635 | | | 2021 | $19,518 | $6,964,563 | $200,111 | $7,184,192 | | Alan L. Urban, Former CFO | 2022 | $196,610 | $6,850 | $49,495 | $252,955 | | | 2021 | $0 | $2,231,250 | $0 | $2,331,250 | Outstanding Equity at Fiscal Year Ended December 31, 2022 Outstanding Equity Awards | Name | Options/Warrants Exercisable () | Options/Warrants Unexercisable () | Exercise Price ($) | Expiration Date | | :---------------- | :------------------------------- | :--------------------------------- | :----------------- | :-------------- | | Paul L. Kessler | 15,000 | 15,000 | $0.25 | 1/22/2024 | | John D. Maatta | 100,000 | 100,000 | $0.25 | 8/3/2025 | | John D. Maatta | 20,000 | 20,000 | $0.25 | 1/22/2024 | Compensation of Directors - Non-employee directors receive meeting fees ($1,000 in-person, $250-$500 telephonic) and a $750 monthly retainer, which was accrued and unpaid in 2021 and 2020[490] - Company may issue stock to non-employee directors in lieu of cash compensation[490] Director Compensation Table | Name | Fiscal Year | Fees earned or paid in cash | Stock Awards | Officer Compensation | Total | | :-------------------- | :---------- | :------------------------ | :----------- | :------------------- | :------ | | Paul L. Kessler | 2022 | $0 | $0 | $229,017 | $229,017 | | | 2021 | $0 | $0 | $6,760,714 | $6,760,714 | | John D. Maatta | 2022 | $0 | $0 | $133,330 | $133,330 | | | 2021 | $0 | $30,096 | $145,564 | $175,660 | | Michael Breen | 2022 | $0 | $0 | $0 | $0 | | | 2021 | $0 | $30,096 | $0 | $30,096 | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Executive officers and directors as a group beneficially own 92.4% of the company's shares Beneficial Ownership - Paul L Kessler exercises voting and investment power over shares held by Bristol Investment Fund, Ltd and related entities[495] - Scott D Kaufman exercises voting and investment power over shares held by Barlock 2019 Fund LP and Barlock Capital Management, LLC[496] Security Ownership Table | Name | Shares Beneficially Owned | Percentage of Shares | | :------------------------------------ | :------------------------ | :------------------- | | Bristol Investment Fund, Ltd. | 33,750,725 | 77.9% | | Barlock 2019 Fund LP | 19,500,757 | 61.4% | | Leviston Resources, LLC | 25,237,808 | 68.3% | | Paul L. Kessler | 34,130,821 | 81.4% | | John D. Maatta | 6,334,343 | 32.4% | | Scott Sheikh | 721,866 | 5.6% | | Michael Breen | 77,500 | 0.6% | | All Directors and Executive Officers as a group (4 persons) | 40,884,454 | 92.4% | Equity Compensation Plan Information - 2021 Incentive Stock Award Plan authorizes 10,000,000 shares for grant[500] Equity Compensation Plan Table | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (c) | | :------------------------------ | :-------------------------------------------------------------------------------- | :---------------------------------------------------- | :------------------------------------------------------------------------------------------------ | | 2021 Incentive Stock Award Plan | 0 | N/A | 10,000,000 | Item 13. Certain Relationships and Related Transactions, and Director Independence Michael Breen is the sole independent director on the three-member board Related Party Transactions - Detailed related party transactions are in Note 8 of financial statements[502] Director Independence - Michael Breen is the sole independent director on the three-member board[503] - OTCQB does not have director independence requirements[503] - Board annually assesses director independence[504] Item 14. Principal Accounting Fees and Services Maughan Sullivan LLC provided audit and tax services totaling approximately $45,700 in 2022 and 2021 - All audit and non-audit services require pre-approval by the audit committee[511] - Certain services prohibited by the SEC are not provided by the auditor[511] Accounting Fees | Category | 2022 | 2021 | | :--------------- | :------- | :------- | | Audit Fees | $37,756 | $37,732 | | Tax Fees | $8,500 | $8,000 | | Total | $45,732 | $45,732 | PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements and an index of exhibits filed with the report - Financial statements are incorporated by reference from Item 8[513] - Exhibit index includes merger agreements, corporate governance documents, securities agreements, and employment contracts[515][516][517] Item 16. Form 10-K Summary The company has elected not to include a summary of the Form 10-K - Company elected not to include a Form 10-K summary[518]