Prairie Operating Co. 10-K

Item 1. Business 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 (known collectively as “legacy operations”). All legacy operations were discontinued during 2021. The Company operates an eCommerce site selling pop culture memorabilia and will evaluate whether to continue the eCommerce operations in 2022. Cryptocurrency Mining We currently generate substantially all our revenue through cryptocurrency we earn through our mining activities, which we may strategically hold or sell at beneficial prices and times. We currently mine and hold Bitcoin exclusively and do not have the intention of mining any other cryptocurrencies in the near future. While we plan to hold our mined Bitcoin until the next halving event (expected to occur around March 2024), we may sell the Bitcoin we mine as necessary for operations or as dictated by market conditions. 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 (“mining pool”) 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. 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. In October 2021 we put 156 Bitmain S19J Pro miners into production, and added another 84 into production in December 2021. As of December 31, 2021, we had 240 miners with 24 Ph/s of hashing capacity in production, and had deposits for an additional 1,140 miners with 135.3 Ph/s hashing capacity to be delivered in 2022 as follows: ● 270 Bitmain S19 (90 Th/s per miner, total 24.3 Ph/s hashing capacity); delivery expected March 2022 ● 270 Bitmain S19J Pro (100 Th/s per miner, total 27 Ph/s hashing capacity); delivery expected May 2022 ● 600 Bitmain S19XP (140 Th/s per miner, total 84 Ph/s hashing capacity); delivery expected July through December 2022 After the delivery of the miners above we will have a total of 1,380 miners with 159.3 Ph/s of hashing capacity. The purchase commitments for the miners total approximately $11.5 million, of which $7,089,000 was paid as a deposit during the year ending December 31. 2021. The remaining commitments of approximately $4.4 million are anticipated to be paid monthly from the proceeds of the sale of earned Bitcoin during the year ending December 31, 2022 or, if necessary or advisable, with earned Bitcoin to the extent that if the vendor accepts Bitcoin as a form of payment or from additional capital raising, which may be debt or equity, or a combination thereof pursuant to a private or public offering, with the last payment scheduled to occur on November 10, 2022. Mobile Data Centers We utilize mobile data centers to house our miners. Our mobile data centers are located close to natural gas wellheads. We use natural gas to power a mobile turbine that produces electricity that, in turn, is used to power our miners. 4 Mining Results The Company measures its operations by the number and U.S. Dollar (US$) 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 December 31, 2020 — $ — Revenue recognized from cryptocurrency mined 6.7 369,803 Mining pool operating fees (0.1 ) (7,396 ) Impairment of cryptocurrencies — (59,752 ) Balance December 31, 2021 6.6 $ 302,655 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. While we currently plan to hold our mined Bitcoin until the next halving event, we may use or sell our Bitcoin as necessary for operations or as dictated by market conditions. 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” herein. Intellectual Property We do not currently own any patents in connection with our existing and planned blockchain and cryptocurrency related operations. Liquidity and Ability to Continue as a Going Concern As of December 31, 2021, we had cash and cash equivalents of $2,785,187, compared to $1,897,703 as of December 31, 2020, an increase of $887,484. This increase was primarily due to cash provided by financing activities, and partially offset by cash used in operating and investing activities. 5 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 $19,078,727, and $2,901,741, for the years ended December 31, 2021 and 2020, respectively. On December 31, 2021, we had cash and cash equivalents of approximately $2.7 million and working capital of approximately $4.8 million. We have evaluated the significance of these conditions in relation to our ability to meet our obligations, which had previously raised doubts about the Company’s ability to continue as a going concern. However, the Company believes that the effects of the sale of its legacy operations during 2021, and the entrance into cryptocurrency mining operations that began in October 2021, will guide the Company in a positive direction as we continue to strive to attain profitability. Additionally, if necessary, management believes that both related parties (management and members of the Board of Directors of the Company) and potential external sources of debt and/or equity financing may be obtained based on management’s history of being able to raise capital from both internal and external sources. However, although there have been recent external source financings, there is no absolute certainty that any such external source or related party financing can be obtained in the future. Therefore, 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, generate sufficient revenue, and control costs, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to obtain debt and/or equity financing, generate sufficient revenues, and to control operating expenses. Strategic Initiatives Our objective is to mine and hold select cryptocurrencies. We seek to own multiple oil and natural gas producing assets, utilize the natural gas to power environmentally-friendly, state of the art cryptocurrency mining facilities. By directing income from oil and excess natural gas sales to cover operating expenses we will have the opportunity to retain our mined cryptocurrencies as assets. To achieve our objectives, we have developed and are implementing a Five Cornerstone Strategy comprised of: Cornerstone I – Vertical Integration Ensure continuity through ownership of fuel supply, eliminate middlemen and distributors, generate electricity independent of a stressed power grid and avoid any potential forthcoming governmental regulations. We expect this will enable us to: ● Maintain continuity and security – Control of our electrical generation insures and ensures uninterrupted service while insulating our operations from third party controls, the regulated utility grid, and unforeseen failures. ● Optimize profitability – Vertical integration, beginning at the well head and ending in our crypto wallet, eliminates middlemen and distributors optimizing profits across the entire operation. ● Keep grid independence - Utility grids are struggling to deliver reliability as they attempt to balance base load with increasing numbers of renewable generators. We believe this will only get more difficult in the future as society undergoes the transition to “electrify everything” thereby increasing grid instability, blackouts and disgruntled consumers. By us not having any energy produced touching infrastructure or the utility grid, this risk is muted. ● Deploy regulatory buffers - The sector may experience increased governmental oversight and regulation of power producers that provide energy to the grid, only exacerbating continuity problems. By us not having any energy produced touching infrastructure or the utility grid, this risk is muted. ● Maintain control of its ESG Strategy – We believe that a vertical integration strategy enables us to have full control of our ESG strategy (Described below). Cornerstone II – Energy Source Diversity Each development will be sized and engineered to work in harmony with the inherent diversity found within its owned oil and gas operating environment. Our modular approach to both power and server implementation allows a customized, fit-for-purpose design to be implemented for each situation. We expect this will enable us to: ● Reduce the concentration risk of reliance on any single energy production source. We would rather have 100 natural gas wells feeding five 20 MW systems as compared to siting a much larger single 100 MW system next to a substation that is sourced by a single hydro facility or coal fired plant connected to the utility grid. ● Maintain continuity of operations – maximize number of miners online 24/7. Multiple energy sources mitigate interruption risk and if problems do occur, the impact of any downtime is limited to a small percentage of operating miners. 6 Cornerstone III – Geographic Diversity We look to deploy facilities at geographically diverse locations that will mitigate concentration risk due to weather and market- related disruptions, and minimize the impact of an ever changing regulatory and political complications. We expect this will enable us to: ● Mitigate risks associated with interruptions and outages, whether due to weather, disasters, or lost connectivity. ● Exploit differentials in energy pricing across geographic regions Cornerstone IV – Cryptocurrency Diversity By utilizing remotely accessible UL certified data centers capable of handling AICS and GPUs, in the coming years we expect this will enable us to: ● Be nimble and a first mover in this ever changing and young cryptocurrency market ● Mitigate cryptocurrency volatility. ● Quickly pivot to the most profitable currency. Cornerstone V – Revenue Diversity Through our vertical integration and potential ownership of oil and gas operations, we realize the benefit of having multiple non-correlated revenue streams derived from both conventional oil and gas sales, as well as converting gas molecules into crypto currency via our digital pipeline. We expect this will enable us to: Cover all operating expenses utilizing revenue generated from other commodity sales. ● Retain treasury status of mined cryptocurrencies; offering control over when to sell and hedge. ● Diversify revenue risk across multiple commodities. Environmental, Social and Governance (“ESG”) While deploying our Five Cornerstone Strategy and achieving its objectives, we expect to have a constant focus on ESG. Divided into three phases, we have begun implanting Phase 1 and Phase II. Phase I ● Utilize natural gas as opposed to coal assets. ● Locate data centers near natural gas production thereby reducing the energy required to transport molecules and electrons to cryptocurrency data centers. Phase II ● Stranded gas opportunities – locate mining facilities near these natural gas production sites. ● Renewable energy (wind or solar) – identify geographical locations where renewable energy possibilities exist and can supplement the natural gas requirements while generating renewable electricity credits. Phase III ● Carbon capture / Carbon credits – possibility of creating carbon credits ● Integrate with recycling efforts and use syngas (synthetic gas) 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. 7 Employees As of March 24, 2022, we had 5 full time employees. Corporate Information and History 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 (known collectively as “legacy operations”). All legacy operations were discontinued during 2021. The Company operates an eCommerce site selling pop culture memorabilia and will evaluate whether to continue the eCommerce operations in 2022. 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. 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. Where You Can Find More Information Our website address is www.creekroadminers.com. We do not intend our website address to be an active link or to otherwise incorporate by reference the contents of the website into this Report. The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 8