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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2023
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies Principles of Consolidation The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with 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, estimates and assumptions made in valuing assets and debt instruments issued in the Merger, and realization of deferred tax assets. 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. All of the Company’s revenue is currently generated from its Cryptocurrency Mining business under a contract with Atlas (described below). We are wholly reliant on Atlas to operate our miners on a daily basis. If Atlas experiences difficulty providing the services we require, or if they experience disruptions or financial distress or cease operations temporarily or permanently, it will negatively affect our ability to operate our Cryptocurrency Mining business. The Company does not anticipate incurring any losses related to these credit risks. Cash and Cash Equivalents Cash and cash equivalents are defined by the Company as short-term, highly liquid investments that have an original maturity of three months or less and deposits in money market mutual funds that are readily convertible into cash. Management considers cash and cash equivalents to have minimal credit and market risk. The Company had $7.2 million and $79,845 in cash and cash equivalents as of September 30, 2023 and December 31, 2022, respectively. Accounts Receivable Accounts receivable represents revenue recognized, but for which payment has not yet been received. All of the Company’s accounts receivable at September 30, 2023 is from Atlas. No allowance for doubtful accounts was recorded as of September 30, 2023 and December 31, 2022. Property and equipment E&P: We follow the successful efforts method of accounting for our oil and natural gas properties. Under this method, exploration costs such as exploratory geological and geophysical costs, expiration of unproved leasehold, delay rentals and exploration overhead are expensed as incurred. All costs related to production, general corporate overhead and similar activities are also expensed as incurred. All property acquisition costs and development costs are capitalized when incurred. Exploratory drilling costs are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, drilling costs remain capitalized and are classified as proved properties. Costs of unsuccessful wells are charged to exploration expense. For exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized as suspended exploratory drilling costs if there have been sufficient reserves found to justify completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operational viability of the project. If we determine that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed. In some instances, this determination may take longer than one year. We review the status of all suspended exploratory drilling costs quarterly. Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of natural gas and oil, are capitalized. Costs of drilling and equipping successful wells, costs to construct or acquire facilities, and associated asset retirement costs are depreciated using the unit-of-production (“UOP”) method based on total estimated proved developed oil and natural gas reserves. Costs of acquiring proved properties, including leasehold acquisition costs transferred from unproved properties, are depleted using the UOP method based on total estimated proved developed and undeveloped reserves. Proceeds from the sales of individual oil and natural gas properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated depreciation, depletion and amortization, if doing so does not materially impact the depletion rate of an amortization base. Generally, no gain or loss is recognized until an entire amortization base is sold. However, a gain or loss is recognized from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion rate of the remaining properties in the amortization base. When circumstances indicate that the carrying value of proved oil and natural gas properties may not be recoverable, we compare unamortized capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on our estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized costs, the capitalized costs are reduced to fair value. Fair value is generally estimated using the income approach described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic (“ASC”) 820, Fair Value Measurements. If applicable, we utilize prices and other relevant information generated by market transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value measurements are typically based on judgmental assessments of commodity prices, pricing adjustments for differentials, operating costs, capital investment plans, future production volumes, and estimated proved reserves, considering all available information at the date of review. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a market-based weighted average cost of capital. Cryptocurrency Mining: Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 2 to 5 years. Leasehold improvements are amortized over the shorter of the useful lives of the related assets, or the lease term. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the consolidated statements of operations. Cryptocurrency Mining assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If there is an indication of impairment, 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 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. Warrant liabilities The Company evaluates all of its financial instruments, including issued private placement stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to GAAP. The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable GAAP. Management’s assessment considers whether the warrants are freestanding financial instruments, whether they meet the definition of a liability, and whether the warrants meet all of the requirements for equity classification. For warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the time of issuance. For warrants that are precluded from equity classification, they are recorded as a liability at their fair value on the date of such classification and subject to remeasurement on each balance sheet date with changes in the estimated fair value of the warrants to be recognized in the statements of operations. As of September 30, 2023, the Company had liability-classified warrants that allow the holders to purchase 5,695,387 shares of the Company’s Common Stock. See Note 11 for additional information. Fair value of financial instruments ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 valuations – Consist of o bservable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Level 2 valuations – Consist of observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable as of the reporting date. Level 3 valuations – Consist of unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value. The carrying amounts and estimated fair values of the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 were as follows: Schedule of Fair value Assets and Liabilities Measured on Recurring Basis
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | Carrying Amount |  |  | Fair Value |  |  | Carrying Amount |  |  | Fair Value |
Cash and cash equivalents |  | $ | 7,241,811 |  |  | $ | 7,241,811 |  |  | $ | 79,845 |  |  | $ | 79,845 |
Senior convertible debentures |  |  | 4,863,000 |  |  |  | 4,863,000 |  |  |  | — |  |  |  | — |
Warrant liabilities |  |  | 50,738,180 |  |  |  | 50,738,180 |  |  |  | — |  |  |  | — |
The carrying values of cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities on the consolidated balance sheets approximate fair value because of their short-term nature. For debt and warrant liabilities, the following methods and assumptions were used to estimate fair value: Debt: The fair value of the Company’s AR Debentures (as defined below) are based on a widely accepted valuation methodology that utilizes (i) the Company’s Common Stock price, (ii) value of the debt component, and (iii) the value of the equity component. The key unobservable inputs in the valuation model are the volatility that is appropriate to use in the Company stock price and the yield that is appropriate for the Company. These inputs could change significantly and result in significantly higher or lower fair values at different measurement dates. The Company considers the fair value of its debt to be a Level 3 measurement on the fair value hierarchy. Warrant liabilities: The fair value of the Company’s warrant liabilities is estimated using a Black-Scholes option pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected warrant life, and expected volatility in the market value of the underlying common stock. Assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 are summarized below. There were no assets and liabilities measured at fair value on a recurring basis as of December 31, 2022. Schedule of Assets And Liabilities Measured at Fair Value
|  | September 30, 2023 |
|  | Quoted Prices in Active Markets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs Not Corroborated by Market Data (Level 3) |  |  | Assets (Liabilities) at Fair Value |
Senior convertible debentures |  | $ | — |  |  | $ | — |  |  | $ | 4,863,000 |  |  | $ | 4,863,000 |
Warrant liabilities |  |  | — |  |  |  | — |  |  |  | 50,738,180 |  |  |  | 50,738,180 |
Senior convertible debentures The significant unobservable inputs used in the Level 3 fair value measurement of the senior convertible debentures as of May 3, 2023 (date of the Merger) and September 30, 2023 and their values are as follows: Schedule of Senior Convertible Debentures
|  | May 3, 2023 |  |  | September 30, 2023 |
Volatility |  |  | 75 | % |  |  | 75 | %
Yield |  |  | 20.00 | % |  |  | 19.60 | %
Fair value measurements of senior convertible debentures |  |  | 20.00 | % |  |  | 19.60 | %
Volatility was estimated using stock price volatility of the Company and a set of peer companies over a lookback period equal to the time to maturity. Yields were estimated using a range of 15.00% to 25.00% at May 3, 2023 and 14.60% to 24.60% at September 30, 2023. The table below provides a summary of changes in the fair value of the Company’s Level 3 senior convertible debentures for the three and nine months ended September 30, 2023. There were no Level 3 liabilities in the period from June 7, 2022 (date of inception) through September 30, 2022. Schedule of Fair Value For Level 3 Liabilities
|  | Three Months Ended September 30, 2023 |  |  | Nine Months Ended September 30, 2023 |
Balance at beginning of period |  | $ | 2,722,000 |  |  | $ | — |
Senior convertible debentures assumed in the Merger |  |  | — |  |  |  | 1,981,000 |
Losses reported in earnings |  |  | 2,141,000 |  |  |  | 2,882,000 |
Balance at September 30, 2023 |  | $ | 4,863,000 |  |  | $ | 4,863,000 |
Warrant liabilities The estimated fair value of the warrant liabilities on September 30, 2023 was determined using Level 3 inputs. Inherent in a Black-Scholes option-pricing model are assumptions used in calculating the estimated fair values which represent the Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different. The following table summarizes the Company’s assumptions used in the valuation of warrant liabilities for the three and nine months ended September 30, 2023: Schedule of Valuation of Warrant Liabilities
|  | At Initial Warrant Liability Classification |  |  | September 30, 2023 |
Stock price |  | $ | 6.71 – 14.57 |  |  | $ | 11.86 |
Option exercise price |  | $ | 6.00 |  |  | $ | 6.00 |
Expected term (years) |  |  | 4.65 – 5.00 |  |  |  | 4.59 – 4.88 |
Volatility |  |  | 75.0 | % |  |  | 75.0 | %
Discount rate |  |  | 4.27% - 4.39 | % |  |  | 4.51% - 4.54 | %
The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three and nine months ended September 30, 2023. There were no Level 3 liabilities in the period from June 7, 2022 (date of inception) through September 30, 2022. Schedule of Changes in Fair Value in Warrant Liabilities
|  | Three Months Ended September 30, 2023 |  |  | Nine Months Ended September 30, 2023 |
Balance at beginning of period |  | $ | — |  |  | $ | — |
Reclassification to warrant liabilities |  |  | 25,883,095 |  |  |  | 25,883,095 |
Change in estimate fair value |  |  | 24,855,085 |  |  |  | 24,855,085 |
Balance at September 30, 2023 |  | $ | 50,738,180 |  |  | $ | 50,738,180 |
Commitments and Contingencies The Company recognizes a liability for loss contingencies when it believes it is probable a liability has been incurred, and the amount can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount. When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range. The Company has not recorded any such liabilities as of September 30, 2023 and December 31, 2022. 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’s Cryptocurrency Mining assets that are in service are operating under a contract with Atlas Power Hosting, LLC (“Atlas”) whereby Atlas hosts, operates, and manages the Company’s assets. The Company receives payment in U.S. dollars for the daily net mining revenue representing the dollar value of the cryptocurrency award generated less power and other costs. The Company does not currently receive or own cryptocurrencies under this contract. Fair value of any 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 under the Atlas contract described above, but exclude depreciation and amortization, which are separately stated in the Company’s consolidated 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 respective tax basis. 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. At September 30, 2023, the Company had a full valuation allowance to offset its net deferred tax assets. Earnings (Loss) Per Common Share The two-class method of computing earnings per share is required for entities that have participating securities. The two-class method is an earnings allocation formula that determines earnings per share for participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. Our Series D Preferred Stock, Series E Preferred Stock and AR Debentures are participating securities. Basic earnings (loss) per common share (“EPS”) is calculated by dividing net income (loss) attributable to common stock holders by the weighted average number of shares of common stock outstanding each period. Dilutive EPS is calculated by dividing adjusted net income (loss) attributable to common stock holders by the weighted average number of shares of common stock outstanding each period, which includes the effect of potentially dilutive securities. Potentially dilutive securities for the diluted EPS calculation consists of (i) AR Debentures, (ii) Series D Preferred Stock, (iii) Series E Preferred Stock (iv) warrants for Common Stock and (v) exercisable Common Stock options. Basic and diluted earnings (loss) attributable to common stockholders is the same for the three months and nine months ended September 30, 2023 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 September 30, 2023 because their inclusion would be anti-dilutive are as follows: Schedule of Anti-dilutive Securities Excluded from Earnings Per Share
Potentially Dilutive Security |  | Quantity |  |  | Stated Value Per Share |  |  | Total Value or Stated Value |  |  | Assumed Conversion Price |  |  | Resulting Common Shares |
Merger Options and restricted stock units(1) |  |  | 8,641,176 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  | 641,176 |
Common stock warrants |  |  | 447,855,367 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 15,674,938 |
AR Debentures |  |  | — |  |  |  | — |  |  |  | 2,000,000 |  |  |  | 5.00 |  |  |  | 400,000 |
Series D preferred stock |  |  | 21,799 |  |  |  | 1,000 |  |  |  | 21,799,250 |  |  |  | 5.00 |  |  |  | 4,359,850 |
Series E preferred stock |  |  | 20,000 |  |  |  | 1,000 |  |  |  | 20,000,000 |  |  |  | 5.00 |  |  |  | 4,000,000 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 25,075,964 |
(1) | Not exercisable or vested as of September 30, 2023 (see Notes 12 and 13).
Share sequencing At September 30, 2023, the Company had 500,000,000 common shares authorized and 7,074,742 common shares issued and outstanding as adjusted for the Reverse Stock Split (as defined below) (see Note 15). At September 30, 2023 and without consideration of the Reverse Stock Split, there were insufficient authorized and unissued shares for the Company to satisfy all of its commitments to deliver shares. The Company has adopted a sequencing policy to determine how to allocate authorized and unissued shares among commitments to deliver shares pursuant to ASC 815-40. The sequence is based upon reclassifying securities with the latest maturity date first. The sequencing order at September 30, 2023 and its effects are further described in Note 11. Related Parties The Company follows ASC 850-10, Related Parties, for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”)); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. Recently Issued Accounting Pronouncements Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

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