Prairie Operating Co. quarterly report, Q3 FY2022

Business context and reporting period

This is Creek Road Miners, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022—not a standalone Prairie Operating Co. filing. Creek Road’s cryptocurrency-mining operations began in October 2021; its legacy businesses were discontinued or sold. The reported results therefore do not describe Prairie’s standalone financial performance.

After quarter-end, on October 24, 2022, Creek Road entered into a merger agreement with Prairie Operating Co., LLC. The filing was signed November 14, 2022.

Key financial metrics

For the nine months, operating cash use was $1.887 million, investing cash use was $1.917 million, and financing provided $1.469 million. Cash declined $2.334 million. The filing reports no income-tax or interest cash payments in the supplemental cash-flow disclosure. No meaningful operating margin is evident given minimal Q3 mining revenue and substantial costs; the filing does not provide a useful positive margin measure.

Material changes versus prior comparable periods

• Q3 operating expenses fell 11%, mainly as stock-based compensation and general and administrative expense declined. However, the prior-year quarter included a $1.853 million gain from discontinued operations; without that gain, year-over-year net loss increased to $1.790 million from $602,077.
• Nine-month operating expenses rose 13%, reflecting $1.071 million of mining costs, higher depreciation and cryptocurrency impairment, partly offset by lower general and administrative costs. Continuing-operations loss was broadly similar year over year, but the absence of prior-year discontinued-operation gains increased total net loss.
• Liquidity weakened materially: current assets declined and current liabilities increased, producing a swing from positive working capital to a $4.817 million deficit.
• Mining assets expanded, but the company reported that none of its 780 existing miners were in service at September 30. It said gas-supply start-up and other operational issues at the Highwire site had stopped meaningful mining awards and revenue since June 30.

Outlook, risks, contingencies and unusual items

• Going concern: Management said substantial doubt exists about the company’s ability to continue as a going concern. Without closing the Prairie merger or obtaining debt or equity financing, cash could be depleted in late 2022 or early 2023. Management said asset sales might help but would not cover total liabilities; neither financing nor merger completion is assured.
• Merger and dilution: Under the October 24 agreement, Prairie members are to receive the greater of 2 million Creek Road shares or 33.33% of the common shares outstanding after specified restructuring transactions. Prairie-related options may convert into performance-based options for up to 8 million shares at $0.25, subject to production hurdles. Planned restructuring includes conversions of preferred stock, debentures, notes, warrants and certain liabilities into common shares, followed by a proposed 1-for-23 to 1-for-30 reverse split. Completion and benefits are uncertain.
• Mining economics: Bitcoin was reported at $19,432 on September 30, down about 60% from the start of 2022; U.S. natural-gas costs had risen as much as about 260%. Management said these moves adversely affect revenue and costs. Bitcoin-price volatility, a projected 2024 reward halving, energy costs, competition and evolving regulation are material risks.
• Debt and related parties: The balance sheet includes $1.4 million of convertible notes, $4.994 million of secured convertible debentures with related parties, and $2.847 million of accrued related-party interest and expenses. The company disclosed a disputed September 2022 default notice relating to a $2.497 million Barlock debenture and a demand for approximately $5.005 million. Creek Road denied that a default occurred; an adverse determination could accelerate amounts due and add charges.
• Equipment commitment: The Bitmain purchase agreement covers 600 miners. The company estimated $47,600 remaining due using then-current miner prices, but that estimate assumes no contract dispute, liquidated damages or penalties; the stated initial reference-price balance was $2.793 million.
• Other items: Creek Road exchanged 600,000 warrant shares for a $900,000 convertible Alpha note; the remaining 20,699 shares were returned after quarter-end. Informa’s lawsuit was settled and dismissed with prejudice. Management concluded disclosure controls were effective at a reasonable-assurance level.

Most important facts for investors to verify

• Confirm the filing and entity being analyzed: the registrant is Creek Road Miners, not Prairie, and Prairie’s standalone financial statements are not presented here.
• Check whether the Prairie merger and restructuring closed, the final consideration and dilution, and whether the transaction supplied adequate liquidity.
• Verify current cash, debt maturities, financing access and the going-concern status.
• Determine whether the miners were brought into service, whether Highwire energy arrangements became operational, and whether meaningful mining revenue resumed.
• Review the resolution and potential financial effect of the disputed Barlock default demand and the Bitmain contract balance or penalties.
• Reconcile reported cash figures: the balance sheet shows $451,212 at September 30, while MD&A gives $451,214; the cash-flow statements also show small differences between figures in the statements and MD&A.