Prairie Operating Co. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless noted, the statements cover the pre-merger company, formerly Creek Road Miners, Inc.; they do not include Prairie Operating Co., LLC. The merger and name change closed May 3, 2023.
Business context and financial performance
Before the merger, the company’s principal activity was Bitcoin mining; prior event, product and eCommerce businesses had been discontinued. Mining operations produced no meaningful cryptocurrency awards or revenue from June 30, 2022 onward.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $0 | $385,114 |
| Operating expenses | $817,290 | $3,530,411 |
| Operating loss | $817,290 | $3,145,297 |
| Net loss | $971,366 | $3,089,095 |
| Loss per common share, basic and diluted | $0.09 | $0.34 |
| Cash used in operating activities | $171,738 | $1,145,134 |
Margins are not meaningful for Q1 2023 because there was no revenue. Interest expense was $154,076. The filing reports no income tax provision and no cash interest paid in either period.
Liquidity, debt and assets
- At March 31, cash and cash equivalents were $27,020; current assets were $4.78 million, including $4.72 million in mining-equipment deposits. Total assets were $6.45 million.
- Current liabilities were $13.71 million and the working-capital deficit was $8.93 million, versus $8.12 million at December 31, 2022. Total liabilities were $13.86 million; stockholders’ deficit was $7.40 million.
- Current obligations included $4.99 million of related-party secured convertible debentures, $1.40 million of convertible notes and $3.26 million of accrued related-party interest and expenses. The company also reported a $149,900 SBA loan payable, non-current.
- Cash declined by $219,338 during the quarter. Investing cash use was $47,600, primarily for mining-equipment deposits; there were no financing cash flows.
- The filing gives two quarter-end cash figures: $27,020 in the financial statements and $27,030 in the MD&A. The text does not reconcile this difference.
Changes versus the prior period and subsequent transactions
Revenue fell 100% year over year, from $385,114 to zero. Operating expenses declined 77%, primarily due to lower stock-based compensation, mining costs and general and administrative expense. Net loss narrowed by 69%, largely reflecting lower expenses; Q1 2022 also included $197,662 of PPP loan forgiveness, while Q1 2023 recorded $154,076 of interest expense.
After quarter-end, the May 3 merger brought Prairie LLC into the company. The company also raised $17.3 million through a private placement, principally to fund its business and a $3 million purchase of undeveloped oil and gas leases covering approximately 3,157 net mineral acres in Weld County, Colorado. The Q1 financial statements do not include Prairie LLC or these transactions. Management said a majority of the PIPE proceeds remained with the company after the closing transactions.
Merger-related restructuring converted the former Series A, B and C preferred stock and accrued dividends into 76.3 million common shares; Prairie LLC members received rights to 65.6 million common shares. Certain notes and accrued amounts were converted or exchanged, while existing warrants and options were canceled before closing. The PIPE securities include Series D preferred stock convertible at $0.175 per share and warrants. Common shares outstanding were 167,828,942 as of May 9, 2023, compared with 12,246,036 at March 31 before the merger-related issuances.
Outlook, risks and unusual items
- Management reported a $62 million accumulated deficit and a history of losses and negative cash flow, but concluded that substantial doubt about going concern was not raised, citing the post-merger proceeds and spending assumptions. Management believed liquidity would be adequate for at least 12 months.
- The company had paid $4.02 million for 600 Bitmain S19XP miners, representing 84 PH/s, but none had been delivered by March 31. Delivery was pending payment of shipping fees. Separately, it reported 780 existing miners with 75.3 PH/s of capacity.
- Management identified Bitcoin-price volatility, mining competition, energy costs, the expected 2024 Bitcoin reward halving and evolving cryptocurrency regulation as material business risks. Bitcoin was reported at $28,478 on March 31, 2023, about 31% below the start of 2022.
- The filing provides no quantified operating guidance. Management said it could not predict when or whether the company would become profitable. It reported no material change to previously disclosed risk factors, no material pending litigation, and no off-balance-sheet arrangements.
- Management concluded disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Review post-merger filings for the final capitalization, debt exchanged or remaining, Series D terms, warrants and potential dilution; reconcile the May share count with the Q1 balance sheet.
- Confirm how much of the $17.3 million PIPE proceeds remained after the lease acquisition and other closing uses, and assess the company’s current liquidity and cash runway.
- Verify the status, remaining shipping fees and expected delivery of the 600 prepaid miners, and whether the company can operate them economically.
- Assess the acquired Colorado leases, including development plans, expected capital requirements, permitting and any projected production or cash flows.
- Clarify the $27,020 versus $27,030 cash disclosure and monitor whether mining activity resumes after a prolonged period of immaterial revenue.