Prairie Operating Co. / Creek Road Miners, Inc. — 2022 Form 10-K
Reporting-period and issuer note: This is Creek Road Miners, Inc.’s annual report for the year ended December 31, 2022, filed March 31, 2023—not a standalone Q4 report. Prairie Operating Co., LLC is identified as the proposed merger target; the filing reports Creek Road’s consolidated results, not Prairie’s standalone financials.
Business context and reporting period
Creek Road had shifted from legacy entertainment and e-commerce activities to Bitcoin mining, which began in October 2021. It discontinued its memorabilia e-commerce site in June 2022 and reported that mining generated no meaningful awards or revenue after June 30, 2022. At year-end, 780 existing Bitmain miners were not in service. The filing says a further 600 S19XP miners had not been delivered because shipping fees remained unpaid; $3.969 million of deposits on that purchase were recorded.
On October 24, 2022, Creek Road agreed to acquire Prairie in a merger, subject to closing conditions and planned restructuring transactions. The merger consideration includes Prairie members receiving the greater of 2 million shares or 33.33% of Creek Road’s post-restructuring shares, plus performance-based options for up to 8 million shares tied to production hurdles.
Financial results and position
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Revenue | $517,602 | $369,804 | Up 40%; 2021 mining began in October. Revenue was entirely from cryptocurrency mining. |
| Mining costs, excluding depreciation | $1,071,458 | $281,790 | Costs exceeded mining revenue by about $554,000 before depreciation and other operating costs. |
| Operating expenses | $8,124,435 | $18,575,165 | Down 56%, mainly because stock-based compensation and G&A declined. |
| Operating loss | $(7,606,833) | $(18,210,464) | Improved as operating expenses fell. |
| Net loss | $(13,418,814) | $(17,270,703) | Improved 22%; includes a $5.232 million fixed-asset impairment in 2022. |
| Operating cash flow | $(2,192,607) | $(6,969,723) | Cash used in operations decreased. |
| Investing cash flow | $(1,815,520) | $(9,928,726) | 2022 included $5.295 million of property and equipment purchases, partly offset by equipment-deposit movements. |
| Financing cash flow | $1,469,297 | $17,785,933 | 2022 mainly reflected warrant exercises and a $500,000 note; 2021 included substantial security issuances. |
Year-end cash was reported as $246,358 in the balance sheet and liquidity discussion (one cash-flow statement line shows $246,357). Current assets were $5.051 million and current liabilities $13.168 million, producing an $8.118 million working-capital deficit, versus $4.789 million of working capital at year-end 2021. Total assets were $6.793 million, total liabilities $13.318 million, and stockholders’ deficit $6.525 million. Accumulated deficit was approximately $60.7 million.
Current liabilities included $4.994 million of related-party secured convertible debentures, $1.4 million of convertible notes, $3.056 million of accrued related-party interest and expenses, and $3.233 million of accounts payable and accrued expenses. The balance sheet also included $149,900 of non-current SBA debt. The filing reports no income-tax provision and no cash interest paid.
Mining revenue was $517,602, representing 13.2 Bitcoin earned during 2022. The company sold 19.5 Bitcoin for $575,408 and recorded a $127,222 realized loss and $107,174 of cryptocurrency impairment; it ended the year with no cryptocurrency recorded as an asset. The company recorded $658,080 of depreciation and amortization and a $5,231,752 impairment of mining equipment and mobile data centers.
Material changes versus 2021
- Mining revenue rose because operations were active for more of 2022, but mining costs grew faster and the company said meaningful mining awards and revenue stopped after June 30.
- Net loss narrowed by $3.852 million, principally because stock-based compensation fell by $9.657 million and G&A fell by about $2.181 million. Those reductions were partly offset by higher mining costs and depreciation and the new fixed-asset impairment.
- Cash declined by about $2.539 million. Working capital moved from a $4.789 million surplus to an $8.118 million deficit, as current liabilities increased and cash and equipment deposits declined.
- Stockholders’ equity of $4.198 million at year-end 2021 became a $6.525 million deficit at year-end 2022. Common shares outstanding increased from 8.191 million to 12.246 million.
Outlook, risks, contingencies and unusual items
- Going concern: Management and the auditor stated that substantial doubt exists about the company’s ability to continue as a going concern. Management said that, absent merger completion or additional financing, existing cash could be depleted in early 2023. The audited statements assume continued operations and include no adjustments for the outcome of this uncertainty.
- Merger and financing: Closing depends on conditions that may not be met. Planned restructuring includes conversions of preferred stock, debentures, warrants, notes and certain accrued liabilities into common stock, followed by a proposed 1-for-23 to 1-for-30 reverse split. If the merger does not close, the company may need financing or asset sales; neither is assured.
- Potential dilution: The filing lists approximately 109.9 million potentially dilutive common shares excluded from diluted EPS as anti-dilutive, including securities associated with preferred stock, warrants, debentures and notes. Merger consideration and production-based options add further potential dilution.
- Market and operating risks: Creek Road cited Bitcoin-price volatility, Bitcoin’s expected 2024 reward halving, and higher natural-gas costs; it reported Bitcoin at $16,547 at year-end 2022, down about 60% from the beginning of the year, and natural-gas costs up as much as about 260%. It also identified power, hosting, supplier, regulatory, cybersecurity and equipment risks.
- Equipment and hosting: All 600 purchased S19XP miners remained undelivered at year-end pending shipping fees. A post-year-end March 2, 2023 agreement with Atlas Power Hosting provides for a two-year term and an initial electricity-linked hosting rate of $0.08 per kWh; Atlas is to deduct hosting fees from mined currency before remitting the balance.
- Contingency: Barlock Capital Management disputed the company’s position on an alleged default under a secured convertible debenture and demanded $5.005 million. Creek Road contested the alleged default and the notice’s authority. The filing describes potentially accelerated repayment obligations if a default is ultimately established.
- Other unusual items: The company sold its Highwire investment in December 2022, recognizing a $19,104 loss. It also reported related-party financing and expenses. The auditor issued an unmodified opinion on the financial statements, while emphasizing the going-concern uncertainty; it did not audit internal control effectiveness. Management reported disclosure controls and internal control over financial reporting effective at year-end.
Most important facts for investors to verify
- Whether the Prairie merger closed, its final restructuring, consideration, share count and dilution; this 10-K describes a proposed transaction, not a completed acquisition.
- Current cash, obligations, financing availability and the company’s ability to meet near-term liabilities, including the status of the going-concern issue.
- The status, remaining payment and delivery terms of the 600 S19XP miners, and whether the existing miners are operational and generating revenue.
- The outcome of the Barlock alleged-default dispute and the status and terms of convertible notes and related-party debentures.
- Whether the Atlas hosting arrangement is operational, its actual power and hosting economics, and whether mining produces positive cash flow.
- Reconcile the filing’s small cash-balance difference ($246,358 versus $246,357) and confirm post-year-end share counts and potential dilution.