Business context and reporting period
The supplied filing is Creek Road Miners, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022—not a filing under the name Prairie Operating Co. The company was transitioning from legacy businesses to Bitcoin mining; it discontinued its memorabilia e-commerce operation on June 30, 2022.
In May 2022, Creek Road entered a nonbinding arrangement with Highwire Energy Partners concerning energy assets and mining sites. A separate nonbinding term sheet with Prairie Operating Co., LLC was signed July 13, 2022, after quarter-end, for a proposed business combination and financing to acquire oil and gas properties. Neither proposed transaction is presented as completed in this filing.
Financial and operating performance
- Revenue: Q2 2022 cryptocurrency-mining revenue was $166,592 in the financial statements, versus none in Q2 2021. Six-month 2022 revenue was $509,647, versus none in the prior-year period. The MD&A gives a different Q2 revenue figure of $165,592.
- Mining economics: Q2 mining costs, before depreciation and amortization, were $400,416; depreciation and amortization was another $164,520. For the six months, those costs were $786,758 and $329,040, respectively. Mining costs exceeded mining revenue. Operations at the relocated Colorado site could not run because available natural gas was insufficient; the company reported no mining awards or mining revenue as of June 30.
- Losses: Q2 net loss was $2.05 million, versus $1.85 million in Q2 2021; loss attributable to common stockholders was $2.14 million, or $0.18 per share. Six-month net loss was $5.14 million, versus $4.32 million; loss attributable to common stockholders was $5.33 million, or $0.49 per share. Six-month continuing-operations loss was $5.12 million.
- Cash flow: Six-month operating cash use was $1.44 million, investing cash use was $1.92 million, and financing provided $1.39 million. Cash declined $1.97 million to $816,146 from $2.79 million at year-end 2021. Financing included $900,000 from warrant exercises and $500,000 received under a note arrangement.
- Balance sheet and liquidity: At June 30, total assets were $13.17 million, total liabilities $10.75 million, and stockholders’ equity $2.42 million. Working capital was negative $2.46 million, versus positive $4.79 million at December 31, 2021.
- Debt and obligations: The company reported $4.99 million of related-party secured convertible debentures, split between current and noncurrent liabilities, plus $2.64 million of accrued related-party interest and expenses. It also reported a $588,643 note payable carrying amount (including original issue discount) and $149,900 of SBA debt. The debentures bear 12% interest and are convertible at $0.175 per share.
- Capital and dilution: Common shares outstanding were 12,524,209 at June 30 (12,709,376 reported as outstanding August 8). The filing lists approximately 90.4 million potentially dilutive common shares from options, warrants, preferred stock and convertible debentures, excluded from diluted loss per share as antidilutive.
Material changes, outlook and risks
- Compared with Q2 2021, Q2 operating expenses increased 34% to $1.80 million and continuing-operations loss increased 26%. For the first half, operating expenses rose 25% to $5.31 million and continuing-operations loss rose 8%. Increased mining costs, depreciation and stock compensation contributed; lower general and administrative expenses partly offset the increases.
- The company sold about 18.9 Bitcoin in May and June for $564,205 and recorded a $131,075 realized loss. It reported $586 of cryptocurrency remaining at quarter-end and $106,139 of cryptocurrency impairment for the six-month period.
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It cited cash of $816,146, a working-capital deficit of about $2.5 million, recurring losses and negative cash flow. Management said continued operations depend on obtaining debt or equity financing and/or selling miners; it gave no assurance either action will succeed.
- The company had paid Bitmain $3.969 million toward 600 S19XP miners. The initial reference-price commitment was $6.762 million, with $2.793 million remaining under that reference price. The company was negotiating to cancel future payment obligations and receive miners based on amounts paid and then-current market pricing; delivery was expected in late 2022 or early 2023.
- Bitcoin price volatility, rising natural-gas costs, mining-site power availability, competition, financing access and evolving cryptocurrency regulation are material risks. The filing cites Bitcoin at $19,785 on June 30, down about 60% from the start of 2022, and U.S. natural-gas costs up as much as about 235% over that period.
- No quantitative earnings or operating guidance is provided. Management reported disclosure controls and procedures were effective at a reasonable-assurance level.
- Subsequent events include the July 13 nonbinding Prairie term sheet and a July 29 settlement of Informa’s lawsuit: Creek Road agreed to transfer certain social-media accounts and a domain, and Informa agreed to dismiss the case with prejudice.
Important facts to verify
- Confirm the intended issuer: the filing identifies Creek Road Miners, Inc., while the request names Prairie Operating Co.; verify the status and terms of the proposed Prairie transaction.
- Reconcile Q2 mining revenue: the statements report $166,592, while MD&A reports $165,592.
- Check whether Highwire resolved the natural-gas supply and operating issues, and whether mining resumed after June 30.
- Review the going-concern disclosures, near-term cash needs, financing availability and any planned miner sales.
- Confirm the final Bitmain contract obligations and miner deliveries, and assess dilution and control implications of the convertible securities, preferred stock and warrants.