Prairie Operating Co 8-K/A, filed Jun 16, 2023
Prairie Operating Co. (PROP)
About this 8-K/A
Prairie Operating Co filed this 8-K/A on June 16, 2023, reporting on events of December 31, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 3, 2023
(Exact name of registrant as specified in its charter)
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).
Emerging
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Introductory Note
As reported in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission by Prairie Operating Co. (the “Company”) on May 9, 2023 (the “Original Form 8-K”), on May 3, 2023, the Company completed its previously announced merger with Prairie Operating Co., LLC, a Delaware corporation (“Prairie LLC”), pursuant to the terms of that certain Amended and Restated Agreement and Plan of Merger, dated May 3, 2023 (the “Merger Agreement”), by and among the Company, Creek Road Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), and Prairie LLC, pursuant to which, among other things, Merger Sub merged with and into Prairie LLC, with Prairie LLC surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company (the “Merger”).
This Current Report on Form 8-K/A (this “Amendment”) amends and supplements the Original Form 8-K to provide the historical and pro forma financial statements described in Item 9.01 below. No other modifications to the Original Form 8-K are being made by this Amendment. This Amendment should be read in connection with the Original Form 8-K, which provides a more complete description of the Merger.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
The audited balance sheet of Prairie LLC as of December 31, 2022, and the related statement of operations, statement of members’ deficit and statement of cash flows for the period from June 7, 2022 (date of inception) through December 31, 2022, and the related notes thereto, are filed as Exhibit 99.1 hereto and incorporated herein by reference.
The unaudited balance sheet of Prairie LLC as of March 31, 2023, and the related statement of operations, statement of members’ deficit and statement of cash flows for the three months ended March 31, 2023, and the related notes thereto, are filed as Exhibit 99.2 hereto and incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined balance sheet of the Company as of March 31, 2023, the unaudited pro forma condensed combined statement of operations of the Company for the three months ended March 31, 2023 and the year ended December 31, 2022, and the notes related thereto are filed as Exhibit 99.3 hereto and incorporated herein by reference.
(d) Exhibits
| 2 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Prairie Operating Co. | ||
| Date: June 16, 2023 | ||
| By: | /s/ Edward Kovalik | |
| Edward Kovalik | ||
| Chief Executive Officer | ||
| 3 |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (Nos. 333-255445, 333-259729 and 333-262304) of Prairie Operating Co. (formally known as Creek Road Miners, Inc.) of our report dated June 16, 2023, with respect to the balance sheet of Prairie Operating Co., LLC as of December 31, 2022, and the related statements of operations, members’ deficit and cash flows for the period from June 7, 2022 (date of inception) through December 31, 2022 and the related notes, appearing in this Current Report (Form 8-K) dated June 16, 2023.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
June 16, 2023
Exhibit 99.1
Prairie Operating Co., LLC
Financial Statements
As of December 31, 2022 and for the period from June 7, 2022 (date of inception) through December 31, 2022
Table of Contents
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
Prairie Operating Co., LLC
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Prairie Operating Co., LLC (the Company) as of December 31, 2022, and the related statements of operations, members’ deficit, and cash flows for the period from June 7, 2022 (date of inception) to December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the period from June 7, 2022 (date of inception) to December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ham, Langston & Brezina, L.L.P.
We have served as the Company’s auditor since 2023.
Houston, TX
June 16, 2023
| F-2 |
Prairie Operating Co., LLC
Balance
Sheet
December 31, 2022
| ASSETS | ||||
| Current Assets | ||||
| Cash | $ | |||
| Total Current Assets | ||||
| Other Assets | ||||
| Deferred transaction costs | ||||
| Total Assets | $ | |||
| LIABILITIES AND MEMBERS’ DEFICIT | ||||
| Current Liabilities | ||||
| Accrued expenses | $ | |||
| Accrued expenses – related party | ||||
| Total Current Liabilities | ||||
| Total Long-Term Liabilities | ||||
| Total Liabilities | ||||
| Commitments and contingencies (Note 4) | ||||
| Members’ Deficit | ( | ) | ||
| Total Members’ Deficit | ( | ) | ||
| Total Liabilities and Members’ Deficit | $ |
The accompanying notes are an integral part of these financial statements.
| F-3 |
Prairie Operating Co., LLC
Statement
of Operations
for the period from June 7, 2022 (date of inception) through December 31, 2022
| Revenues | $ | |||
| Expenses | ||||
| Operating expenses | ||||
| General and administrative expenses | ||||
| Total Expenses | ||||
| Net Loss | $ | ( | ) |
The accompanying notes are an integral part of these financial statements.
| F-4 |
Prairie Operating Co., LLC
Statement
of Members’ Deficit
for the period from June 7, 2022 (date of inception) through December 31, 2022
| Members’ Deficit | ||||
| Balance - June 7, 2022 (date of inception) | $ | |||
| Capital contributions | ||||
| Net loss | ( | ) | ||
| Balance - December 31, 2022 | $ | ( | ) | |
The accompanying notes are an integral part of these financial statements.
| F-5 |
Prairie Operating Co., LLC
Statement
of Cash Flows
for the period from June 7, 2022 (date of inception) through December
31, 2022
| Cash Flows from Operating Activities | ||||
| Net loss | $ | ( | ) | |
| Changes in operating assets and liabilities: | ||||
| Increase in accounts payable and accrued expenses | ||||
| Cash used in operating activities | ( | ) | ||
| Cash Flows from Financing Activities | ||||
| Proceeds from sale of options | ||||
| Cash provided by investing activities | ||||
| Net increase in cash | $ | |||
| Cash – beginning of period | ||||
| Cash – end of period | $ | |||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest | $ | |||
| Cash paid for income taxes | ||||
| Supplemental disclosure of non-cash activity: | ||||
| Accrued deferred transaction costs associated with the Merger and Exok Transaction | ||||
| Accrued deferred transaction costs associated with the PIPE Transaction |
The accompanying notes are an integral part of these financial statements.
| F-6 |
Prairie Operating Co., LLC
Notes
to Financial Statements
Note 1 – Organization and Nature of Business
Organization and General
Prairie Operating Co., LLC (the “Company”) is a limited liability company formed under the laws of the State of Delaware on June 7, 2022. The Company was formed for the purpose of acquiring and operating oil and gas properties in the United States.
As of December 31, 2022, the Company had not commenced any operations. All activity for the period from June 7, 2022 (inception) to December 31, 2022, relates to the Company’s formation, the Merger (as defined below) and the Exok Acquisition (see Notes 1 and 6). As of December 31, 2022, the Company did not generate any operating revenues. The Company has selected December 31 as its fiscal year end.
Merger Agreement
On October 24, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Prairie Operating Co., a Delaware corporation (“PrairieCo”), and Creek Road Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), pursuant to which Merger Sub merged with and into the Company (the “Merger”), with the Company surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of PrairieCo. The Merger closed on May 3, 2023 (the “Closing Date”). See Note 6 for further discussion.
Acquisition of Oil and Gas Properties
Concurrently
with entering into the Merger Agreement, the Company entered into a purchase and sale agreement (the “PSA”) with Exok, Inc.
(“Exok”) to acquire certain oil and gas leasehold interests (the “Exok Assets”) covering
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. 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.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with an original maturity of three months or less.
| F-7 |
Accounts Receivable and Allowance for Doubtful Accounts
It
is the Company’s policy to record accounts receivable at the amount management expects to collect from outstanding balances. The
Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts
based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. The Company
determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by
management. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded,
which is the face amount of the receivable net of the allowance for doubtful accounts. As of December 31, 2022, there were
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.
A fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.
Level 3 – Unobservable inputs based on the Company’s assumptions.
The Company is required to use observable market data if such data is available without undue cost and effort. The carrying amount of the Company’s cash and cash equivalents approximates fair value as of December 31, 2022.
Transactions involving related parties typically cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist.
Deferred Transaction Costs
Deferred transaction costs are expenses directly related to the Merger and related transactions. These costs primarily consist of legal and accounting fees that the Company capitalized. On the date of the Merger, deferred transaction costs related to the PIPE Transaction will be reclassified to equity and the deferred transaction costs related directly to the Merger will be reclassified to the cost of the net assets acquired in the Merger.
Accrued Expenses
Accrued
expenses in our balance sheet consist of $
Income Taxes
The Company is a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the members. As such, no recognition of federal or state income taxes for the Company have been provided for in the accompanying financial statements. Any uncertain tax position taken by the member is not an uncertain position of the Company.
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); (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.
| F-8 |
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.
Note 3 – Going Concern
Since
its inception, the Company has incurred significant losses. The Company had a net loss of $
The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company can meet its obligations and has adequate liquidity to operate. Significant assumptions used in Company’s forecasted model of liquidity in the next 12 months include PrairieCo’s current cash position, inclusive of the impacts from the Merger and related transactions discussed above, its ability to obtain funding from PrairieCo, and its ability to manage spending. Based on an assessment of these factors, management believes that the Company will have adequate liquidity for its operations for at least the next 12 months.
The financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the matters discussed herein.
Note 4 – Commitments and Contingencies
The
Company reimbursed members and others for reasonable, documented and customary out-of-pocket expenses incurred in connection with services
provided related to the Company’s formation, the Merger and the Exok Acquisition (see Notes 1 and 6) upon closing. As of December
31, 2022, such expenses were approximately $
Note 5 – Sale of Options
On
August 31, 2022, the Company entered into agreements with its members whereby each member was provided non-compensatory options to purchase
a
| F-9 |
Note 6 – Subsequent Events
Non-Compensatory Options
On
May 3, 2023, prior to the closing of the Merger, the Company entered into a non-compensatory option purchase agreement with its members,
Bristol Capital LLC (“Bristol”) and a third party investor pursuant to which Bristol and such third party investor purchased
non-compensatory options for $
Amended and Restated Merger Agreement
On May 3, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “AR Merger Agreement”) with PrairieCo and Merger Sub to, among other things:
(i)
remove the reverse stock split of the shares of Common Stock, at a
(ii) amend the date by which the AR Merger Agreement may be terminated by either PrairieCo or the Company if the Merger has not been consummated to on or before September 30, 2023;
(iii) reflect the terms of the AR PSA (as defined below) and the PIPE Transaction; and
(iv) provide for the assumption of the Company’s long-term incentive plan by PrairieCo prior to the effective time of the Merger.
Amended Purchase and Sale Agreement
On May 3, 2023, the Company entered into an Amended and Restated Purchase and Sale Agreement (the “AR PSA”) with PrairieCo and Exok to, among other things:
(i)
reflect that the Exok Assets to be purchased by the Company for a total amount of $
(ii) amend the effective date of the conveyance of the Exok Assets to be the Closing Date;
(iii)
remove the issuance of $
(iv)
include an option of PrairieCo to purchase, from the Closing Date until the later of (x) the date that is ninety (90) days following
the Closing Date and (y) August 15, 2023, approximately
The Merger and Exok Acquisition both closed on May 3, 2023. At the effective time of the Merger, membership interests in the Company were converted into the right to receive each member’s pro rate share of shares of Common Stock and PrairieCo assumed and converted non-compensatory options to purchase membership interests of the Company into non-compensatory options to acquire shares of Common Stock for $ per share, which are only exercisable if specific production hurdles are achieved.
| F-10 |
Exhibit 99.2
Prairie Operating Co., LLC
Financial Statements
as of and for the three months ended March 31, 2023
| F-1 |
Prairie Operating Co., LLC
March 31, 2023
(unaudited)
| ASSETS | ||||
| Current Assets | ||||
| Cash | $ | 79,762 | ||
| Total Current Assets | 79,762 | |||
| Other Assets | ||||
| Deferred transaction costs | 1,973,058 | |||
| Total Assets | $ | 2,052,820 | ||
| LIABILITIES AND MEMBERS’ DEFICIT | ||||
| Current Liabilities | ||||
| Accrued expenses | $ | 2,496,648 | ||
| Accrued expenses – related party | 2,084 | |||
| Total Current Liabilities | 2,498,732 | |||
| Total Long-Term Liabilities | — | |||
| Total Liabilities | 2,498,732 | |||
| Commitments and contingencies (Note 3) | - | |||
| Members’ Deficit | (445,912 | ) | ||
| Total Members’ Deficit | (445,912 | ) | ||
| Total Liabilities and Members’ Deficit | $ | 2,052,820 |
The accompanying notes are an integral part of these financial statements.
| F-2 |
Prairie Operating Co., LLC
for the three months ended March 31, 2023
(unaudited)
| Revenues | $ | — | ||
| Expenses | ||||
| Operating expenses | — | |||
| General and administrative expenses | 64,392 | |||
| Total Expenses | 64,392 | |||
| Net Loss | $ | (64,392 | ) |
The accompanying notes are an integral part of these financial statements.
| F-3 |
Prairie Operating Co., LLC
Statement
of Members’ Deficit
for the three months ended March 31, 2023
(unaudited)
| Members’ Deficit | ||||
| Balance - December 31, 2022 | $ | (381,520 | ) | |
| Capital contributions | — | |||
| Net loss | (64,392 | ) | ||
| Balance - March 31, 2023 | $ | (445,912 | ) | |
The accompanying notes are an integral part of these financial statements.
| F-4 |
Prairie Operating Co., LLC
for the three months ended March 31, 2023
(unaudited)
| Cash Flows from Operating Activities | ||||
| Net loss | $ | (64,392 | ) | |
| Changes in operating assets and liabilities: | ||||
| Increase in accounts payable and accrued expenses | 64,309 | |||
| Cash used in operating activities | (83 | ) | ||
| Net decrease in cash | $ | (83 | ) | |
| Cash - beginning of period | 79,845 | |||
| Cash - end of period | $ | 79,762 | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest | $ | — | ||
| Cash paid for income taxes | $ | — | ||
| Supplemental disclosure of non-cash activity: | ||||
| Accrued deferred transaction costs associated with the Merger and Exok Transaction | 178,893 | |||
| Accrued deferred transaction costs associated with the PIPE Transaction | 33,501 |
The accompanying notes are an integral part of these financial statements.
| F-5 |
Notes to Financial Statements
Note 1 – Organization and Nature of Business
Organization and General
Prairie Operating Co., LLC (the “Company”) is a limited liability company formed under the laws of the State of Delaware on June 7, 2022. The Company was formed for the purpose of acquiring and operating oil and gas properties in the United States.
As of March 31, 2023, the Company had not commenced any operations. All activity for the period from June 7, 2022 (inception) to March 31, 2023, relates to the Company’s formation, the Merger (as defined below) and the Exok Acquisition (see Notes 1 and 5). As of March 31, 2023, the Company did not generate any operating revenues.
Merger Agreement
On October 24, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Prairie Operating Co., a Delaware corporation (“PrairieCo”), and Creek Road Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), pursuant to which Merger Sub merged with and into the Company (the “Merger”), with the Company surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of PrairieCo. The Merger closed on May 3, 2023 (the “Closing Date”). See Note 5 for further discussion.
Acquisition of Oil and Gas Properties
Concurrently with entering into the Merger Agreement, the Company entered into a purchase and sale agreement (the “PSA”) with Exok, Inc. (“Exok”) to acquire certain oil and gas leasehold interests (the “Exok Assets”) covering 23,485 net acres and 37,030 gross acres in Weld County, Colorado in exchange for $28,182,000 payable as (i) $24,000,000 in cash and (ii) $4,182,000 in shares of common stock of PrairieCo (“Common Stock”) and warrants to purchase shares of Common Stock (the “Exok Acquisition”). The Exok Acquisition closed on May 3, 2023. See Note 5 for further discussion.
Note 2 – Going Concern
Since
its inception, the Company has incurred significant losses. The Company had a net loss of $64,392 for the three months ended March 31,
2023. We cannot predict if we will be profitable. We may continue to incur losses for an indeterminate period of time and may be unable
to achieve profitability. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding
our business. We may be unable to achieve or sustain profitability on an ongoing basis. On March 31, 2023, we had cash of $79,762, a
working capital deficit of $2,418,970, and a members’ deficit of $445,912. Upon closing of the Merger and related transactions
on May 3, 2023, PrairieCo received proceeds from the issuance of preferred stock of $17.3 million. A majority of these proceeds remain
within PrairieCo after the Merger and related transactions for use in its business.
The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company can meet its obligations and has adequate liquidity to operate. Significant assumptions used in Company’s forecasted model of liquidity in the next 12 months include PrairieCo’s current cash position, inclusive of the impacts from the Merger and related transactions discussed above, its ability to obtain funding from PrairieCo, and its ability to manage spending. Based on an assessment of these factors, management believes that the Company will have adequate liquidity for its operations for at least the next 12 months.
The financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the matters discussed herein.
| F-6 |
Note 3 – Commitments and Contingencies
The Company reimbursed members and others for reasonable, documented and customary out-of-pocket expenses incurred in connection with services provided related to the Company’s formation, the Merger and the Exok Acquisition (see Notes 1 and 5) upon closing. As of March 31, 2023, such expenses were approximately $10,000 and were not included in the financial statements.
Note 4 – Sale of Options
On August 31, 2022, the Company entered into agreements with its members whereby each member was provided non-compensatory options to purchase a 40% membership interest in the Company for $1,000,000. The non-compensatory options were sold for $80,000 in total and expire on August 31, 2027. The restricted options only become exercisable in 25% increments upon the achievement of the following production milestones in barrels of oil equivalent per day (“BOE/D”): 2,500 BOE/D, 5,000 BOE/D, 7,500 BOE/D, and 10,000 BOE/D.
Note 5 – Subsequent Events
Non-Compensatory Options
On May 3, 2023, prior to the closing of the Merger, the Company entered into a non-compensatory option purchase agreement with its members, Bristol Capital LLC (“Bristol”) and a third party investor pursuant to which Bristol and such third party investor purchased non-compensatory options for $24,000 and $8,000, respectively, from the Company’s members. Following such purchase, each member of Prairie owns non-compensatory options to purchase a 30% membership interest in the Company, Bristol owns non-compensatory options to purchase a 30% membership interest in the Company and a third party investors owns non-compensatory options to purchase a 10% membership interest in the Company.
Amended and Restated Merger Agreement
On May 3, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “AR Merger Agreement”) with PrairieCo and Merger Sub to, among other things:
(i) remove the reverse stock split of the shares of Common Stock, at a ratio between 1-23 and 1-30 that was contemplated to occur as part of a series of restructuring transactions prior to the consummation of a contemplated sale of PrairieCo’s securities to certain investors in a private placement (the “PIPE Transaction”);
(ii) amend the date by which the AR Merger Agreement may be terminated by either PrairieCo or the Company if the Merger has not been consummated to on or before September 30, 2023;
(iii) reflect the terms of the AR PSA (as defined below) and the PIPE Transaction; and
(iv) provide for the assumption of the Company’s long-term incentive plan by PrairieCo prior to the effective time of the Merger.
Amended Purchase and Sale Agreement
On May 3, 2023, the Company entered into an Amended and Restated Purchase and Sale Agreement (the “AR PSA”) with PrairieCo and Exok to, among other things:
(i) reflect that the Exok Assets to be purchased by the Company for a total amount of $3,000,000 will consist of approximately 3,157 net mineral acres in, on and under approximately 4,494 gross acres;
(ii) amend the effective date of the conveyance of the Exok Assets to be the Closing Date;
(iii) remove the issuance of $4,182,000 in total equity consideration to Exok, which consisted of (a) 836,4000 shares of Common Stock and (b) 836,400 warrants to purchase 836,400 shares of Common Stock at an exercise price of $6.00 per share; and
(iv) include an option of PrairieCo to purchase, from the Closing Date until the later of (x) the date that is ninety (90) days following the Closing Date and (y) August 15, 2023, approximately 20,327 net mineral acres in, on and under approximately 32,695 additional gross acres from Exok for a purchase price of $22,182,000, payable in (a) $18,000,000 in cash and (b) $4,182,000 in total equity consideration, consisting of (1) a number of shares of Common Stock equal to the quotient of $4,182,000 divided by the volume weighted average price for shares of Common Stock for twenty (20) consecutive trading days ending on the date such option is exercised by the Company and (2) an equal number of warrants to purchase shares of Common Stock.
The Merger and Exok Acquisition both closed on May 3, 2023. At the effective time of the Merger, membership interests in the Company were converted into the right to receive each member’s pro rate share of 65,647,676 shares of Common Stock and PrairieCo assumed and converted non-compensatory options to purchase membership interests of the Company into non-compensatory options to acquire 8,000,000 shares of Common Stock for $0.25 per share, which are only exercisable if specific production hurdles are achieved.
| F-7 |
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Unless otherwise specified, capitalized terms used herein but not defined herein have the meanings given to such terms in the Company’s registration statement on Form S-1, as amended, initially filed with the U.S. Securities and Exchange Commission on June 16, 2023 (the “Registration Statement”).
The Company is providing the following unaudited pro forma condensed combined financial information to aid in the analysis of the financial aspects of the Merger, PIPE and Exok Transaction (collectively, the “Transactions”). The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” and presents the combination of historical financial information of the Company and Prairie LLC, adjusted to give effect to the Transactions. The unaudited pro forma condensed combined balance sheet as of March 31, 2023 combines the historical balance sheet of Prairie LLC as of March 31, 2023 with the historical balance sheet of the Company as of March 31, 2023 on a pro forma basis as if the Transactions, summarized below, had been consummated on March 31, 2023.
The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2023 and the year ended December 31, 2022 combine the historical statements of operations of Prairie LLC and the historical statements of operations of the Company for such periods on a pro forma basis as if the Transactions, summarized below, had been consummated on January 1, 2022, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with, (a) the Company’s audited historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended 2022, filed with the SEC on March 31, 2023, (b) the Company’s unaudited historical condensed consolidated financial statements and related notes included in its Quarterly Report on Form 10-Q/A for the three months ended March 31, 2023, filed with the SEC on June 16, 2023, (c) Prairie LLC’s audited financial statements for the period from June 7, 2022 (date of inception) to December 31, 2022 and related notes included in the Form 8-K/A, dated June 16, 2023, to which this Exhibit 99.3 is attached (the “Proforma 8-K”), (d) Prairie LLC’s unaudited condensed financial statements and related note included in the Proforma 8-K and (e) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prairie Operating Co.” included in the Registration Statement.
The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily reflect what the financial condition or results of operations would have been had the Transactions occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of this filing and are subject to change as additional information becomes available and analyses are performed.
Description of the Merger and Related Transactions
On May 3, 2023, the Company completed its previously announced Merger with Prairie LLC pursuant to the terms of the Merger Agreement, pursuant to which, among other things, Merger Sub merged with and into Prairie LLC, with Prairie LLC surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company.
Upon consummation of the Merger, the Company changed its name from “Creek Road Miners, Inc.” to “Prairie Operating Co.” The Company continues to trade under the current name and ticker symbol “CRKR” and expects to commence trading on the OTCQB under the new name and ticker symbol “PROP” once FINRA processes the Company’s pending Rule 10b-17 action request pursuant to FINRA Rule 6490.
Prior to the consummation of the Merger, the Company effectuated the Restructuring Transactions in the following order and issued an aggregate of 96,436,808 shares of Common Stock (excluding shares reserved for issuance and unissued subject to certain beneficial ownership limitations) and 4,423 shares of Series D Preferred Stock:
(i) the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, plus accrued dividends, were converted, in the aggregate, into shares of Common Stock;
(ii) the Original Debentures, plus accrued but unpaid interest and a 30% premium, were exchanged, in the aggregate, for (a) the AR Debentures in the principal amount of $1,000,000 in substantially the same form as their respective Original Debentures, (b) shares of Common Stock and (c) shares of Series D Preferred Stock, and such Series D Preferred Stock shall automatically convert into shares of Common Stock at a price of $0.175 per share immediately after the Uplisting;
(iii) accrued fees payable to the Board in the amount of $110,250 were converted into shares of Common Stock;
(iv) accrued consulting fees of the Company in the amount of $318,750 payable to Bristol Capital were converted into shares of Common Stock; and
(v) all amounts payable pursuant to certain convertible promissory notes were converted into shares of Common Stock.
Prior to the Closing, the Company’s then existing warrants to purchase shares of Common Stock and Series B Preferred Stock and options to purchase shares of Common Stock were cancelled and retired and ceased to exist without the payment of any consideration to the holders thereof (other than warrants to purchase approximately 1.54 million shares of Common Stock).
At the Effective Time, all membership interests in Prairie LLC were converted into the right to receive each member’s pro rata share of 65,647,676 shares of Common Stock.
At the Effective Time, the Company assumed and converted options to purchase membership interests of Prairie LLC outstanding and unexercised as of immediately prior to the Effective Time into Options to acquire 8,000,000 shares of Common Stock for $0.25 per share, which are only exercisable if specific production hurdles are achieved, and the Company entered into the Option Agreements with each of Gary C. Hanna, Edward Kovalik, Paul Kessler and a third-party investor. An aggregate of 2,000,000 Options are subject to be transferred to the PIPE Investors, based on their then percentage ownership of PIPE Preferred Stock to the aggregate PIPE Preferred Stock outstanding and held by all PIPE Investors as of the Closing Date, if the Company does not meet certain performance metrics by May 3, 2026.
In addition, the Company consummated the previously announced purchase of oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 3,157 net mineral acres in, on and under approximately 4,494 gross acres from Exok for $3,000,000 pursuant to the Exok Agreement.
To fund the Exok Transaction, the Company received an aggregate of approximately $17.38 million in proceeds from the PIPE Investors, and the PIPE Investors were issued PIPE Preferred Stock, with a stated value of $1,000 per share and convertible into shares of Common Stock at a price of $0.175 per share, and 100% warrant coverage for each of the Series A Warrants and Series B Warrants in the PIPE pursuant to the Securities Purchase Agreement entered into with each PIPE Investor.
The Merger has been accounted for as a reverse asset acquisition under existing GAAP. For accounting purposes, Prairie LLC was treated as acquiring Merger Sub in the Merger.
Accordingly, for accounting purposes, the financial statements of the Company are expected to represent a continuation of the financial statements of Prairie LLC with the acquisition being treated as the equivalent of Prairie LLC issuing stock for the net assets of the Company. The net assets of the Company are expected to be stated at fair value, with no goodwill or other intangible assets recorded.
The unaudited pro forma adjustments are based on information currently available, and assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information. The pro forma adjustments do not consider borrowings and financings that may have occurred subsequent to May 3, 2023, nor do they reflect anticipated financings that may occur in the normal course of business.
Unaudited Pro Forma Condensed Combined Balance Sheet
as of March 31, 2023
| |
|
Prairie Operating Co. (Historical) |
|
|
Prairie
Operating Co., LLC (Historical) |
|
|
Pro
Forma Transaction Adjustments |
|
|
Note 4 |
|
|
Combined Pro Forma |
|
||||
| Assets | |||||||||||||||||||
| Current assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 27,020 | $ | 79,762 | $ | 17,376,250 | (a) | $ | 14,483,032 | ||||||||||
| (3,000,000 | ) | (b) | |||||||||||||||||
| Prepaid expenses | 26,799 | - | - | 26,799 | |||||||||||||||
| Deferred transaction costs | - | - | - | - | |||||||||||||||
| Total current assets | 53,819 | 79,762 | 14,376,250 | 14,509,831 | |||||||||||||||
| Other assets: | |||||||||||||||||||
| Property and equipment, net of accumulated depreciation | 1,567,431 | - | 1,529,636 | (b) | 1,567,431 | ||||||||||||||
| 8,844,405 | (s) | ||||||||||||||||||
| (10,374,041 | ) | (s) | |||||||||||||||||
| Oil and natural gas properties | - | - | 3,000,000 | (b) | 3,000,000 | ||||||||||||||
| Deposits on mining equipment | 4,721,280 | - | - | 4,721,280 | |||||||||||||||
| Deposits and other assets | 110,350 | - | - | 110,350 | |||||||||||||||
| Deferred transaction costs | - | 1,973,058 | (1,529,636 | ) | (b) | - | |||||||||||||
| (443,422 | ) | (c) | |||||||||||||||||
| Total assets | $ | 6,452,880 | $ | 2,052,820 | $ | 15,403,192 | $ | 23,908,892 | |||||||||||
| Liabilities and Stockholders’ Deficit | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Accounts payable and accrued expenses | $ | 3,565,924 | $ | 2,496,648 | $ | (689,397 | ) | (d) | $ | 5,230,059 | |||||||||
| (112,250 | ) | (e) | |||||||||||||||||
| (19,688 | ) | (f) | |||||||||||||||||
| (11,178 | ) | (i) | |||||||||||||||||
| Accrued interest and expenses – related parties | 3,259,997 | 2,084 | (2,884,997 | ) | (g) | 2,084 | |||||||||||||
| (375,000 | ) | (h) | |||||||||||||||||
| Convertible notes payable | 1,400,000 | - | (1,400,000 | ) | (i) | - | |||||||||||||
| Secured convertible debenture – related parties | 4,993,700 | - | (2,993,700 | ) | (j) | 2,000,000 | |||||||||||||
| Current liabilities associated with discontinued operations | 485,712 | - | - | 485,712 | |||||||||||||||
| Total current liabilities | 13,705,333 | 2,498,732 | (8,486,210 | ) | 7,717,855 | ||||||||||||||
| Non-current liabilities: | |||||||||||||||||||
| SBA loans payable | 149,900 | - | - | 149,900 | |||||||||||||||
| Other | - | - | 529,638 | (k) | 529,638 | ||||||||||||||
| Total non-current liabilities | 149,900 | - | 529,638 | 679,538 | |||||||||||||||
| Total liabilities | 13,855,233 | 2,498,732 | (7,956,572 | ) | 8,397,393 | ||||||||||||||
| Commitments and contingencies | |||||||||||||||||||
| Stockholders’ equity: | |||||||||||||||||||
| Preferred stock; 50,000 shares authorized: | |||||||||||||||||||
| Series A convertible preferred stock; $0.0001 par value; zero shares authorized at March 31, 2023 | 27 | - | (27 | ) | (l) | - | |||||||||||||
| Series B convertible preferred stock; $0.0001 par value; zero shares authorized at March 31, 2023 | - | - | - | (m) | - | ||||||||||||||
| Series C convertible preferred stock; $0.0001 par value; zero shares authorized at March 31, 2023 | 1 | - | (1 | ) | (n) | - | |||||||||||||
| Series D convertible preferred stock; $0.01 par value; 50,000 shares authorized at March 31, 2023 | - | - | 174 | (a) | 174 | ||||||||||||||
| Common stock; $0.01 par value; 500,000,000 shares authorized at March 31, 2023 | 1,224 | - | 1,758,393 | (o) | 1,759,617 | ||||||||||||||
| Additional paid-in capital | 54,296,425 | 17,376,076 | (a) | 14,197,620 | |||||||||||||||
| (443,422 | ) | (c) | |||||||||||||||||
| 689,397 | (d) | ||||||||||||||||||
| 112,250 | (e) | ||||||||||||||||||
| 19,688 | (f) | ||||||||||||||||||
| 2,884,997 | (g) | ||||||||||||||||||
| 375,000 | (h) | ||||||||||||||||||
| 1,411,178 | (i) | ||||||||||||||||||
| 2,993,700 | (j) | ||||||||||||||||||
| (529,638 | ) | (k) | |||||||||||||||||
| 27 | (l) | ||||||||||||||||||
| 1 | (n) | ||||||||||||||||||
| (1,758,393 | ) | (o) | |||||||||||||||||
| (10,374,041 | ) | (s) | |||||||||||||||||
| (52,855,625 | ) | (q) | |||||||||||||||||
| Accumulated deficit | (61,700,030 | ) | (445,912 | ) | 61,700,030 | (p) | (445,912 | ) | |||||||||||
| Total stockholders’ equity (deficit) | (7,402,353 | ) | (445,912 | ) | 23,359,764 | 15,511,499 | |||||||||||||
| Total liabilities and stockholders’ equity | $ | 6,452,880 | $ | 2,052,820 | $ | 15,403,192 | $ | 23,908,892 | |||||||||||
Unaudited Pro Forma Condensed Combined Statement of Operations
Three Months Ended March 31, 2023
| |
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Prairie Operating Co. (Historical) |
|
|
Prairie Operating Co., LLC (Historical) |
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|
Pro Forma Transaction Adjustments |
|
|
Note 4 |
|
Combined Pro Forma |
|
||||
| Revenue: | ||||||||||||||||||
| Cryptocurrency mining | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Operating costs and expenses: | ||||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | 6,305 | - | - | 6,305 | ||||||||||||||
| Depreciation and amortization | 64,576 | - | - | 64,576 | ||||||||||||||
| Stock based compensation | 170,120 | - | - | 170,120 | ||||||||||||||
| General and administrative | 576,289 | 64,392 | - | 640,681 | ||||||||||||||
| Total operating expenses | 817,290 | 64,392 | - | 881,682 | ||||||||||||||
| Loss from operations | (817,290 | ) | (64,392 | ) | - | (881,682 | ) | |||||||||||
| Other income (expense): | ||||||||||||||||||
| Interest expense | (154,076 | ) | - | 94,898 | (r) | (59,178 | ) | |||||||||||
| Total other income (expense) | (154,076 | ) | - | 94,898 | (59,178 | ) | ||||||||||||
| Loss from operations before provision for income taxes | (971,366 | ) | (64,392 | ) | 94,898 | (940,860 | ) | |||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||||
| Net loss | $ | (971,366 | ) | $ | (64,392 | ) | $ | 94,898 | $ | (940,860 | ) | |||||||
| Dividends on preferred stock | (95,472 | ) | - | 95,472 | (u) | - | ||||||||||||
| Net loss attributable to common stockholders | $ | (1,066,838 | ) | $ | (64,392 | ) | $ | 190,370 | $ | (940,860 | ) | |||||||
| Income (loss) per common share: | ||||||||||||||||||
| Loss per share, basic and diluted | $ | (0.09 | ) | $ | (0.01 | ) | ||||||||||||
| Weighted average common shares outstanding, basic and diluted - Note 4(v) | 12,246,036 | 175,961,698 | ||||||||||||||||
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2022
| |
|
Prairie Operating Co. (Historical) |
|
|
Prairie Operating Co., LLC (Historical) |
|
|
Pro Forma Transaction Adjustments |
|
|
Note 4 |
|
Combined Pro Forma |
|
||||
| Revenue: | ||||||||||||||||||
| Cryptocurrency mining | $ | 517,602 | $ | - | $ | - | $ | 517,602 | ||||||||||
| Operating costs and expenses: | ||||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | 1,071,458 | - | - | 1,071,458 | ||||||||||||||
| Depreciation and amortization | 658,080 | - | - | 658,080 | ||||||||||||||
| Stock based compensation | 2,681,201 | - | - | 2,681,201 | ||||||||||||||
| General and administrative | 3,606,522 | 461,520 | - | 4,068,042 | ||||||||||||||
| Impairment of fixed assets | - | - | 10,374,041 | (s) | 10,374,041 | |||||||||||||
| Impairment of mined cryptocurrency | 107,174 | - | - | 107,174 | ||||||||||||||
| Total operating expenses | 8,124,435 | 461,520 | 10,374,041 | 18,959,996 | ||||||||||||||
| Loss from operations | (7,606,833 | ) | (461,520 | ) | (10,374,041 | ) | (18,442,394 | ) | ||||||||||
| Other income (expense): | ||||||||||||||||||
| Realized loss on sale of cryptocurrency | (127,222 | ) | - | - | (127,222 | ) | ||||||||||||
| Impairment on fixed assets | (5,231,752 | ) | - | - | (5,231,752 | ) | ||||||||||||
| Loss on sale of investment | (19,104 | ) | - | - | (19,104 | ) | ||||||||||||
| PPP loan forgiveness | 197,662 | - | - | 197,662 | ||||||||||||||
| Loss on conversion of notes payable | - | - | (340,422 | ) | (t) | (340,422 | ) | |||||||||||
| Interest expense | (613,827 | ) | - | 373,827 | (r) | (240,000 | ) | |||||||||||
| Total other income (expense) | (5,794,243 | ) | - | 33,405 | (5,760,838 | ) | ||||||||||||
| Loss from operations before provision for income taxes | (13,401,076 | ) | (461,520 | ) | (10,340,636 | ) | (s) | (24,203,232 | ) | |||||||||
| Provision for income taxes | - | - | ||||||||||||||||
| Loss from continuing operations | (13,401,076 | ) | (461,520 | ) | (10,340,636 | ) | (24,203,232 | ) | ||||||||||
| Discontinued operations: | ||||||||||||||||||
| Income (loss) from discontinued operations | (17,738 | ) | - | - | (17,738 | ) | ||||||||||||
| Net income from discontinued operations | (17,738 | ) | - | - | (17,738 | ) | ||||||||||||
| Net loss | $ | (13,418,814 | ) | $ | (461,520 | ) | (10,340,636 | ) | $ | (24,220,970 | ) | |||||||
| Dividends on preferred stock | (364,384 | ) | - | 364,384 | (u) | - | ||||||||||||
| Net loss attributable to common stockholders | $ | (13,783,198 | ) | $ | (461,520 | ) | (9,976,252 | ) | $ | (24,220,970 | ) | |||||||
| Income (loss) per common share: | ||||||||||||||||||
| Loss per share from continuing operations, basic and diluted | $ | (1.18 | ) | $ | (0.14 | ) | ||||||||||||
| Loss per share from discontinued operations, basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||
| Loss per share, basic and diluted | $ | (1.18 | ) | $ | (0.14 | ) | ||||||||||||
| Weighted average common shares outstanding, basic and diluted - Note 4(v) | 11,648,878 | 175,364,540 | ||||||||||||||||
Note 1. Basis of Pro Forma Presentation
The Merger has been accounted for as a reverse asset acquisition under existing GAAP. For accounting purposes, Prairie LLC was treated as acquiring Merger Sub in the Merger.
Accordingly, for accounting purposes, the financial statements of the Company will represent a continuation of the financial statements of Prairie LLC with the acquisition being treated as the equivalent of Prairie LLC issuing stock for the net assets of the Company. The net assets of the Company will be stated at fair value, with no goodwill or other intangible assets recorded.
The unaudited pro forma condensed combined balance sheet as of March 31, 2023 combines the historical balance sheet of Prairie LLC and the historical balance sheet of the Company on a pro forma basis as if the Transactions had been consummated on March 31, 2023.
The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2023 and year ended December 31, 2022 combine the historical statements of operations of Prairie LLC and the historical statements of operations of the Company for such periods on a pro forma basis as if the Transactions had been consummated on January 1, 2022, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with, the audited historical financial statements of each of Prairie LLC and the Company and the notes thereto, as well as the disclosures contained in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prairie Operating Co.” contained elsewhere in the Registration Statement.
The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily reflect what the financial condition or results of operations would have been had the Transactions occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of this filing and are subject to change as additional information becomes available and analyses are performed.
Note 2. Accounting Policies
Upon consummation of the Transactions, management is in the process of performing a comprehensive review of the two entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of the post-combination company. Based on its initial analysis, management has not identified differences that would have an impact on the unaudited pro forma condensed combined financial information.
The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of shares of Common Stock outstanding, assuming the Transactions occurred on January 1, 2022.
Note 3. Preliminary Purchase Price
Under the terms of the Merger, the Company issued 65,647,676 shares of Common Stock to the members of Prairie LLC in exchange for all of the membership interests of Prairie LLC. The accompanying unaudited pro forma combined financial statements reflect an estimated reverse asset acquisition price of approximately $11.5 million, including estimated transaction costs incurred by Prairie LLC.
The estimated preliminary purchase price is calculated based on the fair value of the Common Stock that the Company’s stockholders immediately prior to the Merger own after the Merger because, with no active trading market for membership interests of Prairie LLC, the fair value of the Common Stock represents a more reliable measure of the fair value of consideration transferred in the Merger. The total purchase price and allocated purchase price is summarized as follows:
| Number of shares of Common Stock of the combined company owned by the Company’s stockholders immediately prior to the merger (1) | 110,314,022 | |||
| Multiplied by the fair value per share of Common Stock (2) | $ | 0.09 | ||
| Fair value of the Company’s pre-Merger Common Stock | 9,928,262 | |||
| Prairie LLC Transaction costs (3) | 1,529,636 | |||
| Purchase price | $ | 11,457,898 |
| (1) | For purposes of this unaudited pro forma combined financial information, 110,314,022 represents the historical shares of the Common Stock outstanding immediately prior to the closing of the Merger on May 3, 2023, adjusted for the conversions described herein. |
| (2) | Based on the last reported sale price of the Common Stock on OTC Capital Markets on May 3, 2023, the closing date of the Merger. |
| (3) | Prairie LLC transaction costs consist primarily of legal expenses incurred by Prairie LLC. The transaction costs have been reflected as an increase in the purchase price. |
For purposes of this pro forma analysis, the purchase price for the Merger was allocated to the net assets acquired on the basis of relative fair values. The following summarizes the allocation of the purchase price to the net assets acquired.
| Preliminary Purchase Price Allocation: | March 31, 2023 Pro Forma | |||
| Cash and cash equivalents | $ | 27,020 | ||
| Prepaid expenses | 26,799 | |||
| Deposits on mining equipment | 4,721,280 | |||
| Property and equipment, net | 11,941,472 | |||
| Deposits and other assets | 110,350 | |||
| Accounts payable and accrued expenses | (2,733,411 | ) | ||
| Secured convertible debenture – related parties | (2,000,000 | ) | ||
| Current liabilities associated with discontinued operations | (485,712 | ) | ||
| SBA loans payable | (149,900 | ) | ||
| Net assets acquired | $ | 11,457,898 | ||
Consequently, the financial statements of the Company reflect the operations of the Prairie LLC for accounting purposes, together with a deemed issuance of shares, equivalent to the shares held immediately prior to the Merger by the stockholders of the Company. The accompanying unaudited pro forma combined financial information is derived from the historical financial statements of the Company and Prairie LLC, and include adjustments to give pro forma effect to reflect the accounting for the transaction in accordance with GAAP.
Note 4. Unaudited Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet as of March 31, 2023 are as follows:
| a) | Reflects gross proceeds from the PIPE of $17.38 million and issuance of Series D Preferred Stock. |
| b) | Reflects payment to Exok in the amount of $3.0 million for leasehold acquisition of the Exok Assets and reclassification of certain deferred asset acquisition costs incurred prior to the Merger to the Company’s property and equipment. |
| c) | Reflects the reclassification of certain deferred financing costs incurred prior to the Merger related to financing. |
| d) | Reflects the conversion into shares of Common Stock of $689,397 of accrued dividends on Series A Preferred Stock. |
| e) | Reflects the conversion into shares of Common Stock of $112,250 of accrued Board fees. |
| f) | Reflects the conversion into shares of Common Stock of $19,688 of accrued dividends on Series B Preferred Stock. |
| g) | Reflects the conversion into shares of Common Stock of $2,884,997 in accrued interest on the Original Debentures. |
| h) | Reflects the conversion into shares of Common Stock of $375,000 in accrued consulting fees to a related party. |
| i) | Reflects the conversion into shares of Common Stock of notes payable amounting to $1,411,178 in outstanding principal and interest. |
| j) | Reflects the conversion into shares of Common Stock of $2,993,700 in aggregate outstanding principal amount of the Original Debentures. |
| k) | Reflects the obligation to issue 5,884,872 shares of Common Stock partially resulting from the conversion of notes payable and Series C Preferred Stock (see Notes 3i and 3n). |
| l) | Reflects the conversion into shares of Common Stock of 276,749 (all outstanding) Series A Preferred Stock. |
| m) | Reflects the conversion into shares of Common Stock of 1,484 (all outstanding) Series B Preferred Stock. |
| n) | Reflects the conversion into shares of Common Stock of 7,630 (all outstanding) Series C Preferred Stock. |
| o) | Reflects the net adjustment upon consummation of the Transactions to Common Stock par value of the Company that will net 175,961,698 shares of Common Stock at $0.01 and summarized as follows: |
| Shares | ||||||||
| Shares outstanding immediately prior to the Merger | 12,246,036 | |||||||
| Merger consideration | 65,647,676 | |||||||
| Conversions | ||||||||
| Series A Preferred Stock and dividends | 19,920,017 | |||||||
| Series B Preferred Stock | 9,161,116 | |||||||
| Series C Preferred Stock and dividends | 46,269,157 | |||||||
| Secured convertible debentures | 17,169,726 | |||||||
| Convertible notes payable | 1,465,726 | |||||||
| Accrued board fees | 630,000 | |||||||
| Accrued consulting fees | 1,821,429 | |||||||
| 96,436,808 | ||||||||
| Shares issued to ANEC pursuant to Support Agreement | 942,858 | |||||||
| Other settlements and cancellations unrelated to Merger | 688,320 | |||||||
| Shares outstanding immediately after the Merger | 175,961,698 | |||||||
| p) | Reflects the net adjustment required to reflect accumulated deficit as that of Prairie LLC pursuant to accounting for the Merger as reverse asset acquisition. |
| q) | Reflects the elimination of the historical Common Stock and additional paid-in-capital, net of the fair value of the Common Stock held immediately prior to the Merger by the stockholders of the Company. |
| Elimination of the Company’s historical equity after adjustment for conversions | $ | (62,783,887 | ) | |
| Fair value of the Common Stock retained by Company shareholders | 9,928,262 | |||
| $ | (52,855,625 | ) |
The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2023 and year ended December 31, 2022 are as follows:
| r) | Reflects the adjustment to interest expense from conversion of notes payable (see Note 3i) and the Original Debentures (see Note 3i). |
| s) | Reflects the adjustment to record the excess of the preliminary purchase price over the fair value of the acquired assets of $8,844,405. Acquired property and equipment were written down to their estimated fair value with the remaining amount of $10,374,041 expensed and recorded within accumulated deficit. The pro forma adjustment is reflected in the unaudited pro forma combined statement of operations and the related assets are recorded in the unaudited pro forma balance sheet. |
| t) | Reflects the loss on conversion of the notes payable. | |
| u) | Reflects the adjustment to dividends due to the conversion of preferred stock. |
| v) | Reflects weighted average shares of Common Stock after the impact of the Transactions. Shares of Common Stock issuable upon conversion of AR Debentures, Series D Preferred Stock, Series A Warrants and Series B Warrants were excluded in the calculation of diluted net earnings per share as inclusion would have been anti-dilutive. The following table sets forth the computation of pro forma weighted average shares of Common Stock for the three months ended March 31, 2023 and year ended December 31, 2022: |
| Three months ended March 31, 2023 | Year ended December 31, 2022 | |||||||
| Weighted average shares of Common Stock outstanding, basic and diluted (prior to the Transactions) | 12,246,036 | 11,648,878 | ||||||
| Net adjustment upon consummation of the Transactions to reflect the issuance of shares of Common Stock | 163,715,662 | 163,715,662 | ||||||
| Weighted average shares of Common Stock outstanding, basic and diluted (Pro Forma) | 175,961,698 | 175,364,540 | ||||||
Note 5. PIPE Transaction
The gross cash proceeds of $17.38 million from the PIPE are included as a pro forma transaction adjustment in the unaudited condensed combined pro forma balance sheet. The anticipated use of funds from the PIPE is presented below:
| Amount | ||||
| Use of Funds: | ||||
| Leasehold acquisition (Exok Assets) | $ | 3,000,000 | ||
| Working capital | 14,376,250 | |||
| Total Use of Funds | $ | 17,376,250 | ||