# Prairie Operating Co.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Prairie Operating Co.](/companies/prop.md) (CIK 1162896)
- Form: 10-Q
- Filed: 2024-11-08
- Accepted by EDGAR: Nov 8, 2024, 14:13 ET
- Period: 2024-09-30
- Accession: 0001493152-24-044178
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1162896/000149315224044178/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1162896/000149315224044178/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$8.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$25.4m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$11.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$29.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.68 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$2.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.68 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$2.24 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$5.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-09-30 | $40.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $57.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $107.2m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $45.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $45.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $61.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,412 characters.

### Cautionary Notice Regarding Forward–Looking Statements

*The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report, as well as our audited consolidated financial statements and related notes and the related “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in our most recent Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023. Except as otherwise indicated or required by the context, references to the “Company,” “we,” “us,” “our” or similar terms refer to Prairie Operating Co.*

*Our discussion includes forward–looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward–looking statements as a result of a number of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10–K/A for the fiscal year ended December 31, 2023.*

*We may use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward–looking statements. All forward–looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward–looking statements.*

### Overview

We are an independent oil and gas company focused on the acquisition and development of crude oil, natural gas, and NGLs. We currently hold attractive acreage in the DJ Basin of Colorado that our experienced management team intends to develop, deploying next–generation technology and techniques in an environmentally efficient manner. In addition to growing production through our drilling operations, we also seek to grow our business through accretive acquisitions, focusing on assets with the following criteria: (i) producing reserves, with opportunities to add accretive, undeveloped bolt–on acreage; (ii) ample, high rate–of–return inventory of drilling locations that can be developed with cash flow reinvestment; (iii) strong well–level economics; (iv) liquids–rich assets; and (v) accretive valuation.

As of September 30, 2024, all of our E&P assets, which we refer to as the “Genesis Assets,” were acquired in the Exok Transaction, the Exok Option Purchase, and the acquisition of the Genesis Bolt–on Assets. The Genesis Assets consist of certain oil and gas leasehold interests with no existing oil and gas production or revenue. In all, the total Genesis Assets include 24,351 net mineral acres in, on and under 37,985 gross acres. We commenced drilling wells on our Genesis Assets in the third quarter of 2024.

### Recent Developments

#### Development Program Launch

During the third quarter of 2024, we commenced our initial drilling program, starting with an 8-well pad on Shelduck South, part of the Genesis Bolt–on Assets acquired in February 2024. The Shelduck South development consists of eight two-mile lateral wells across 1,280 mineral acres, targeting the Niobrara B and C formations. We spud our first well on September 5, 2024 and completed the drilling of all 8 wells in October.

#### NRO Acquisition

On January 11, 2024, we entered into the NRO Agreement to acquire the Central Weld Assets, located in the DJ Basin in Weld County, Colorado. for total consideration of $94.5 million, subject to certain closing price adjustments and other customary closing conditions. The Purchase Price consisted of $83.0 million in cash and $11.5 million in deferred cash payments. Pursuant to the NRO Agreement, we deposited $9.0 million of the Purchase Price into an escrow account on January 11, 2024.

On August 15, 2024, we and NRO agreed to amend certain terms of the NRO Agreement, pursuant to which, total consideration of the NRO Acquisition was reduced to $84.5 million cash, subject to certain closing price adjustments and other customary closing conditions, and the parties agreed to remove the deferred cash payments. Additionally on August 15, 2024, $6.0 million of the Deposit was released to NRO and the remaining $3.0 million was returned to us.

On October 1, 2024, we closed the NRO Acquisition and paid $49.6 million to the sellers in cash, using cash on hand, the proceeds from the issuance of Common Stock, and a portion of the proceeds from the issuance of the Senior Convertible Note. Refer to *Note 4 – Acquisitions and Mergers* for a further discussion of the NRO Acquisition, *Note 8 – Debt* for a discussion of the Senior Convertible Note, and *Note 12 – Common Stock* for further discussion of the issuance of Common Stock.

#### Consent and Agreement

On August 15, 2024, we entered into the Consent and Agreement with the O’Neill Trust, pursuant to which the O’Neill Trust (a) consented to, and waived any and all negative covenants with respect to, any and all transactions the we may consummate in connection with the funding of the NRO Acquisition and our ongoing operations; (b) released its mortgage on certain of our property, which was established in favor of the O’Neill Trust securing our obligations under the Series E Certificate; and (c) agreed to (i) amend Section 6(d) of the Series E Certificate to increase the Beneficial Ownership Limitation Ceiling from 9.99% to 49.9%, (ii) increase the Beneficial Ownership Limitation from 9.99% to 49.9% and (iii) amend Section 2(e) of each of the O’Neill Trust’s Series D A Warrant and Series E A Warrant and Section 2(d) of the O’Neill Trust’s Series E B Warrant to increase the Beneficial Ownership Limitation Ceiling from 25% to 49.9%.

In connection with the increase to the Beneficial Ownership Limitation Ceiling, the O’Neill Trust agreed pursuant to the Consent and Agreement that (i) until its remaining Series D Preferred Stock, Series D PIPE Warrants, and Series E PIPE Warrants are exercised or converted, as applicable, it will not acquire any other shares of our Common Stock, and (ii) for a period of ten years following the date of the Consent and Agreement, it will not, directly or indirectly, acquire by means of public equity trading markets, any Common Stock or other securities with underlying Common Stock, to the extent the O’Neill Trust would beneficially own the voting, investment or economic control over 49.9% of our Common Stock.

The O’Neill Trust further agreed that if at any time it beneficially owns, or exercises control over, shares of Common Stock with voting rights that exceed the Voting Threshold, we shall exercise the voting rights with respect to such shares of Common Stock beneficially owned in excess of the Voting Threshold in the same proportion as the outstanding Common Stock (excluding Common Stock beneficially owned, directly or indirectly, by the O’Neill Trust or any Affiliate of the O’Neill Trust, but including any of our securities eligible to vote with the Common Stock on an as-converted basis) voted on all matters submitted to a vote of the holders of our Common Stock.

#### Standby Equity Purchase Agreement

On September 30, 2024, we entered into the SEPA with Yorkville, whereby, subject to certain conditions, we have the right, not the obligation, to sell to Yorkville up to $40.0 million shares of Common Stock, at any time and in the amount as set forth in the applicable Advance Notice, during the commitment period commencing on the SEPA Effective Date and terminating on September 30, 2026. Each Advance by us under the SEPA is subject to a maximum limit equal to 100% of the aggregate volume traded of our Common Stock on the Nasdaq Stock Market during the five trading days immediately prior to the date of the Advance Notice. The shares will be issued and sold to Yorkville at a per share price equal to 97% of the lowest daily volume weighted average price of Common Stock for three consecutive trading days commencing on the trading day immediately following the Yorkville’s receipt of an Advance Notice. On September 30, 2024, pursuant to the SEPA, we paid Yorkville a structuring fee of $25,000 and a Commitment Fee by issuing Yorkville 100,000 shares of Common Stock.

Any purchases under an Advance will be subject to certain limitations, including that Yorkville cannot acquire (i) any shares that would result in the Yorkville, including its affiliates, beneficially owning more than 4.99% of our outstanding Common Stock at the time of an Advance or (ii) more than the Exchange Cap, subject to limited exceptions.

We have determined that the SEPA represents a derivative instrument pursuant to ASC 815, which should be recorded at fair value at inception and remeasured at fair value each reporting period with changes in the fair value recognized in earnings. Additionally, the Commitment Fees and any issuance costs associated with the SEPA have been expensed to general and administrative expenses.

Our right to sell shares to Yorkville under the SEPA is contingent upon us having an effective registration statement, which had not been filed or deemed effective as of September 30, 2024. Therefore, we have concluded that the fair value of the SEPA is zero as of September 30, 2024, because Yorkville does not have the right to exercise its put option under the SEPA.

#### Senior Convertible Note

On September 30, 2024, Yorkville advanced the Pre-Paid Advance of $15.0 million to us and we issued the Senior Convertible Note, with an interest rate of 8.00% and a maturity date of September 30, 2025. Our obligations with respect to the Pre-Paid Advance and under the Senior Convertible Note are guaranteed by Prairie LLC, a subsidiary of the Company, and Prairie Holdco, a subsidiary of the Company, pursuant to a global guaranty agreement entered into by Prairie LLC and Prairie Holdco in favor of Yorkville on September 30, 2024. Yorkville may convert the Pre-Paid Advance into shares of Common Stock at any time at the Conversion Price. We may, at any time, redeem all or a portion or the amounts outstanding under the Senior Convertible Note at 105% of the principal amount thereof, plus accrued and unpaid interest.

We did not receive the proceeds from the Senior Convertible Note until October 1, 2024; therefore, we have recorded a $14.3 million short-term financing receivable related to the Senior Convertible Note as of September 30, 2024.

We have determined that certain features of the Senior Convertible Note require bifurcation and separate accounting as embedded derivatives. As such, we have elected the fair value option to account for the Senior Convertible Note; therefore, in accordance with ASC 815, we have recorded the Senior Convertible Note at fair value and will remeasure the fair value each reporting period with changes in fair value recognized in earnings. Due to the short-term nature of the Senior Convertible Note, we have determined that its fair value as of September 30, 2024 is $14.3 million, which is equal to the face value of $15.0 million less the 5% original issuance discount.

In connection with the SEPA, we entered into the SEPA Registration Rights Agreement with Yorkville pursuant to which we agreed to file a registration statement registering the resale of the Common Stock underlying the SEPA, the Pre-Paid Advance, and the Commitment Fee.

#### Subordinated Promissory Note and Subordinated Note Warrants

On September 30, 2024, we entered into the Subordinated Note with the Noteholders, First Idea Ventures LLC and The Hideaway Entertainment LLC, in a principal amount of $5.0 million, with a maturity of September 30, 2025. The Subordinated Note has an interest rate of 10.00% and the Noteholders are entitled to a minimum return on capital of up to 2.0x upon the repayment, prepayment or acceleration of the obligations, or the occurrence of certain other triggering events under the Subordinated Note. Pursuant to the terms of the Subordinated Note, we issued the Subordinated Note Warrants to purchase up to 1,141,552 shares of Common Stock to the Noteholders, vesting in tranches based on the date of repayment of the Subordinated Note.

We did not receive a portion of the proceeds from the Subordinated Note until October 1, 2024; therefore, we have recorded a $2.0 million short-term financing receivable related to the Subordinated Note as of September 30, 2024.

We have determined that certain features of the Subordinated Note require bifurcation and separate accounting as embedded derivatives. As such, we have elected the fair value option to account for the Subordinated Note; therefore, in accordance with ASC 815, we have recorded the Subordinated Note at fair value and will remeasure the fair value each reporting period with changes in fair value recognized in earnings. As of September 30, 2024, the fair value of the Subordinated Note is $5.3 million. Additionally, we have determined that the Subordinated Note Warrants should be accounted for as a liability pursuant to ASC 480. In accordance with ASC 815, we have recorded the Subordinated Note Warrants at fair value and will remeasure the fair value each reporting period with changes in fair value recognized in earnings. As of September 30, 2024, the fair value of the Subordinated Note Warrants is $2.8 million and was determined using a Monte Carlo simulation model. The total fair value of the Subordinated Note and the Subordinated Note Warrants exceeded the proceeds of $5.0 million, as a result, we have recognized a loss on debt issuance of $3.0 million on our condensed consolidated statements of operations for the three and nine months ended September 30, 2024.

Pursuant to the Subordinated Note, we entered into the SPA Registration Rights Agreement with the Noteholders pursuant to which we have agreed to file a registration statement registering the resale of the Common Stock underlying the Subordinated Note Warrants.

### Factors Affecting the Comparability of Financial Results

#### Crypto Sale

As discussed in *Note 4 – Acquisitions and Merger*, we acquired our cryptocurrency mining operations in May 2023, concurrent with the Merger. On January 23, 2024, we sold all of our Mining Equipment for consideration consisting of (i) $1.0 million in cash and (ii) $1.0 million in deferred cash payments, to be paid out of (a) 20% of the monthly net revenues received by the buyer associated with or otherwise attributable to the Mining Equipment until the aggregate amount of such payments equals $250,000 and (b) thereafter, 50% of the monthly net revenues received by the buyer associated with or otherwise attributable to the Mining Equipment until the aggregate amount of such payments equals the Deferred Purchase Price, plus accrued interest. As of September 30, 2024, we have received $0.2 million of the Deferred Purchase Price.

### Results of Operations

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $— | $— | $— | $— |
| Operating costs and expenses | (8,816,399) | (6,314,951) | (25,429,837) | (9,236,815) |
| Loss from operations | $(8,816,399) | $(6,314,951) | $(25,429,837) | $(9,236,815) |

#### Loss from operations

For the three and nine months ended September 30, 2024, loss from operations increased $2.5 million and $16.2 million, respectively, compared to the three and nine months ended September 30, 2023. These increases were entirely related to incremental operating costs and expenses recognized during the current periods, as discussed below.

The cryptocurrency mining revenue earned and cryptocurrency mining operating costs and expenses incurred during the nine months ended September 30, 2024 and prior to the Crypto Sale have been classified as discontinued operations.

#### Operating costs and expenses

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Depreciation, depletion, and amortization | $711 | $— | $711 | $— |
| General and administrative expenses | 8,790,368 | 6,314,951 | 24,905,341 | 9,236,815 |
| Exploration expenses | 25,320 | — | 523,785 | — |
| Total operating costs and expenses | $8,816,399 | $6,314,951 | $25,429,837 | $9,236,815 |

For the three and nine months ended September 30, 2024, operating costs and expenses increased $2.5 million and $16.2 million, respectively, compared to the three and nine months ended September 30, 2023.

The operating costs and expenses incurred and related to the cryptocurrency mining assets during the nine months ended September 30, 2024 and prior to the Crypto Sale have been classified as discontinued operations.

*Depreciation, depletion, and amortization*. For the three and nine months ended September 30, 2024, DD&A increased $711 compared to the three and nine months ended September 30, 2023. This increase was driven by depreciation recognized for office furniture purchased in the third quarter of 2024, which was not recognized during the same periods of 2023.

*General and administrative expenses.* For the three months ended September 30, 2024, general and administrative expenses increased $2.5 million compared to the three months ended September 30, 2023. The increase was primarily driven by incremental stock–based compensation of $1.5 million, legal and accounting costs of $1.6 million, and financing commitment fees of $0.6 million, partially offset by a decrease in investor relations costs of $1.6 million.

For the nine months ended September 30, 2024, general and administrative expenses increased $15.7 million compared to the nine months ended September 30, 2023. This increase was driven by incremental stock–based compensation of $5.1 million, employee and benefit expenses of $4.9 million, legal and accounting costs of $2.4 million, investor relations costs of $1.3 million, financing commitment fees of $0.6 million, and other professional services of $0.5 million.

*Exploration expenses*. For the three and nine months ended September 30, 2024, exploration expenses increased less than $0.1 million and $0.5 million, respectively, compared to the three and nine months ended September 30, 2023. These increases were driven by delay rental costs incurred on oil and gas leases during the three and nine months ended September 30, 2024, which were not incurred during the same periods of 2023.

#### Other income and expenses

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $431,593 | $85,166 | $538,833 | $128,202 |
| Interest expense | — | (67,744) | — | (111,463) |
| Loss on issuance of debt | (3,039,347) | — | (3,039,347) | — |
| Loss on adjustment to fair value – Warrant Liabilities | — | (24,855,085) | — | (24,855,085) |
| Loss on adjustment to fair value – AR Debentures | — | (2,141,000) | — | (2,882,000) |
| Loss on adjustment to fair value – Obligation Shares | — | (770,918) | — | (1,477,103) |
| Liquidated damages | — | (173,763) | — | (173,763) |
| Total other expenses | $(2,607,754) | $(27,923,344) | $(2,500,514) | $(29,371,212) |

*Interest income.* For the three and nine months ended September 30, 2024, interest income increased $0.3 million and $0.4 million, respectively, compared to the three and nine months ended September 30, 2023. These increases were largely due to higher average cash balances in the current periods.

*Interest expense.* For the three and nine months ended September 30, 2023, interest expense reflected our accrued interest on the AR Debentures and SBA Loan, both connected with the Merger, and certain financing costs incurred in the periods. We did not have any debt outstanding during the three and nine months ended September 30, 2024 and therefore did not incur any interest expense during the current periods. Refer to *Note 8 – Debt* for a discussion of the AR Debentures and SBA Loan.

*Loss on debt issuance.* For the three and nine months ended September 30, 2024, the loss on debt issuance of $3.0 million reflects the loss recognized for the issuance of the Subordinated Note and the Subordinated Note Warrants. As discussed above, we have elected the fair value option to account for both the Subordinated Note and the Subordinated Note Warrants and engaged a third-party to determine the fair value of both instruments at issuance. As of September 30, 2024, the total fair value of the Subordinated Note and the Subordinated Note Warrants exceeded the proceeds of $5.0 million, as a result, we have recognized a loss on debt issuance of $3.0 million on our condensed consolidated statements of operations for the three and nine months ended September 30, 2024. Refer to *Note 5 – Fair Value Measurements, Note 8 – Debt,* and *Note 13 – Common Stock Options and Warrants* for a further discussion of the Subordinated Note and the Subordinated Note Warrants.

*Loss on adjustment to fair value – Warrant Liabilities.* For the three and nine months ended September 30, 2023, the loss on the adjustment to fair value – Warrant Liabilities of $24.9 million reflected the change in fair value of the portion of the Series D A Warrants, all of the Series E A Warrants, and all of the Exok Warrants which were classified as liabilities as of September 30, 2023. The warrant liabilities were reclassified to equity in October 2023; therefore, we did not record a loss on the adjustment to fair value for the warrant liabilities during the three and nine months ended September 30, 2024. Refer to *Note 5 – Fair Value Measurements* and *Note 13 – Common Stock Options and Warrants* for a further discussion of the Series D A Warrants, the Series E A Warrants, and the Exok Warrants.

*Loss on adjustment to fair value – AR Debentures.* For the three and nine months ended September 30, 2023, the loss on the adjustment to fair value – AR Debentures of $2.1 million and $2.9 million, respectively, reflected the change in fair value of the AR Debentures since the Merger until September 30, 2023. The AR Debentures were converted into Common Stock in October 2023; therefore, we did not record a loss on the adjustment to fair value for the AR Debentures during the three and nine months ended September 30, 2024. Refer to *Note 5 – Fair Value Measurements* and *Note 8 – Debt* for a further discussion of the AR Debentures.

*Loss on adjustment to fair value – Obligation Shares.* For the three and nine months ended September 30, 2023, the loss on the adjustment to fair value for the obligation shares of $0.8 million and $1.5 million respectively, reflected the change in fair value of the Obligation Shares liability since the Merger until September 7, 2023. The underlying shares were fully issued on September 7, 2023; therefore, we did not record a loss on the adjustment to fair value for the obligation during the three and nine months ended September 30, 2024. Refer to *Note 5 – Fair Value Measurements* and *Note 12 – Common Stock* for a further discussion of the Obligation Shares.

*Liquidated damages.* For the three and nine months ended September 30, 2023, we recognized liquidated damages expense of $0.2 million due to the registration statement registering the resale of certain shares of our Common Stock and the shares of Common Stock underlying the Series D Preferred Stock and Series D PIPE Warrants not being declared effective within the timeframe required under the related registration rights agreement. We did not recognize any liquidated damage expense during the three and nine months ended September 30, 2024. Refer to *Note 15 – Related Party Transactions* for a further discussion.

#### Discontinued operations

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Cryptocurrency mining revenue | $— | $457,951 | $192,625 | $637,269 |
| Cryptocurrency mining costs | — | (209,929) | (55,063) | (303,172) |
| Depreciation and amortization | — | (425,468) | (102,210) | (558,319) |
| Impairment of cryptocurrency mining equipment | — | — | — | (16,794,688) |
| Loss from sale of cryptocurrency mining equipment | — | — | (1,080,097) | — |
| Loss from discontinued operations before income taxes | — | (177,446) | (1,044,745) | (17,018,910) |
| Provision for income taxes | — | — | — | — |
| Net loss from discontinued operations | $— | $(177,446) | $(1,044,745) | $(17,018,910) |

During the three months ended September 30, 2024, we did not have any cryptocurrency mining revenue or related expenses, as a result of the Crypto Sale completed in January 2024, and therefore we did not have a net loss from discontinued operations. For the three months ended September 30, 2023, the net loss from discontinued operations reflects the cryptocurrency mining revenue and related expenses for the period.

For the nine months ended September 30, 2024, the net loss from discontinued operations decreased $16.0 million compared to the nine months ended September 30, 2023. As discussed above, we completed the Crypto Sale in January 2024; therefore, we did not have any cryptocurrency mining revenue or related expenses during the majority of the nine months ended September 30, 2024. However, we did recognize a $1.1 million loss on the sale of cryptocurrency mining equipment. Additionally, during the nine months ended September 30, 2023, we recognized $16.8 million of impairment of cryptocurrency mining equipment to write off the excess of the allocated purchase price to the cryptocurrency assets which were over the fair value of the acquired net assets and to subsequently write off shipping and customs fees incurred on miners after the Merger.

### Liquidity and Capital Resources

#### Overview

Our E&P activities will require us to make significant operating and capital expenditures. In 2023, our primary sources of liquidity were the proceeds from the Series D PIPE and the Series E PIPE, which funded the purchase of the initial Genesis Assets and working capital, as well as proceeds from the exercise of warrants, which funded, among other things, working capital and the deposit for the NRO Acquisition in 2024. We commenced drilling wells on our Genesis Assets in the third quarter of 2024 and expect those wells to start producing by the end of the year.

Additionally, during the third quarter of 2024, we raised approximately $35.0 million in cash by issuing Common Stock, the Senior Convertible Note, and the Subordinated Note. On October 1, 2024, we used cash on hand, the proceeds from the issuance of Common Stock, and a portion of the proceeds from the issuance of the Senior Convertible Note to fund the closing of the NRO Acquisition. We expect to use the remainder of the Senior Convertible Note proceeds and the Subordinated Note proceeds to fund our drilling program and other working capital requirements. We expect the producing assets acquired from NRO to provide cash flow going forward, however, we expect that our cash balance and expected revenues from our existing producing wells will not be sufficient to fund our development program and operations. We plan to obtain additional financing through public or private capital markets, including potentially through reserve-based lending arrangements and/or issuing additional Common Stock in public or private transactions, to supplement proceeds resulting from the exercise of our outstanding Common Stock warrants and issuances of Common Stock in connection with the SEPA.

Our development program is dependent upon our ability to obtain additional financial through public and private capital markets. The availability of such additional capital is subject to numerous factors outside of our control including prices of oil and natural gas and the overall health of the U.S. and global economic environments. There can be no assurance that we will be able to obtain such additional capital. The amount and allocation of future capital expenditures will depend upon a number of factors, including the amount and timing of cash flows from operations, investing and financing activities, and the timing and cost of additional capital sources.

We currently plan to be the operator of all of our acreage. As a result, we anticipate that the timing and level of our capital spending will largely be discretionary and within our control. We could choose to defer a portion of our planned capital expenditures depending on a variety of factors, including, but not limited to, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs, the level of participation by other working interest owners, the success of our drilling activities, prevailing and anticipated prices for oil, natural gas, and NGLs, the availability of necessary equipment, infrastructure and capital.

#### Working Capital

We define working capital as current assets less current liabilities. As of September 30, 2024 and December 31, 2023, we had working capital of $12.1 million and $8.1 million, respectively, and cash and cash equivalents of $40.1 million and $13.0 million, respectively. Our cash and cash equivalents, and corresponding working capital, as of September 30, 2024, will decrease, as we paid $49.6 million to close the NRO Acquisition on October 1, 2024. Refer to *Note 4 – Acquisitions and Mergers* for further discussion of the NRO Acquisition. Even though we will begin to recognize revenues from the producing wells acquired in the NRO Acquisition, we expect our cash balance and working capital will decrease in the future as we continue to incur expenses in connection with our business unless we are able to obtain additional financing through public or private capital markets.

#### Cash Flows from Operating, Investing, and Financing Activities

The following table summarizes our cash flows for the periods indicated:

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(5,656,390) | $(7,937,926) |
| Net cash used in investing activities | (13,982,228) | (21,551,717) |
| Net cash provided by financing activities | 46,654,030 | 36,651,609 |
| Net increase in cash and cash equivalents | 27,015,412 | 7,161,966 |
| Cash and cash equivalents, beginning of period | 13,036,950 | 79,845 |
| Cash and cash equivalents, end of period | $40,052,362 | $7,241,811 |

*Operating activities.* Net cash used in operating activities totaled $5.7 million and $7.9 million during the nine months ended September 30, 2024 and 2023, respectively. The $2.3 million change in our net cash used in operating activities is largely due to an increase in operating costs during the current period.

*Investing activities.* Net cash used in investing activities totaled $13.9 million and $21.6 million during the nine months ended September 30, 2024 and 2023, respectively. The $7.7 million decrease in our net cash used in investing activities was largely driven by the $21.1 million spent in connection with the Exok Option Purchase during the nine months ended September 30, 2023 and the $1.0 million cash proceeds and $0.2 million note receivable from the Crypto Sale in January 2024, which is reflected as discontinued operations. These decreases were partially offset by the $9.0 million deposit made in connection with the NRO Acquisition, $3.0 million of which was returned to us during the three months ended September 30, 2024, and an $8.6 million increase in capital investments in oil and natural gas properties during the nine months ended September 30, 2024.

*Financing activities.* Net cash provided by financing activities totaled $46.7 million for the nine months ended September 30, 2024, driven by proceeds of $33.5 million from the exercise of Series D B and Series E B warrants, $15.0 million of proceeds from the issuance of Common Stock, partially offset by the related issuance costs of $4.9 million, and $3.0 million of proceeds from the issuance of the Subordinated Note. Net cash provided by financing activities totaled $36.7 million for the nine months ended September 30, 2023, which was comprised of proceeds from the issuance of the Series D PIPE of $17.4 million, partially offset by the related financing costs of $0.4 million, and the issuance of the Series E PIPE of $20.0 million, partially offset by the related financing costs of $0.2 million.

#### Liquidity Analysis

For the nine months ended September 30, 2024, we had a net loss of $29.0 million. We cannot predict if or when we will be profitable, and we may continue to incur losses for an indeterminate period of time. Additionally, we may be unable to achieve or sustain profitability on a quarterly or annual basis and extended periods of losses and negative cash flow may prevent us from successfully operating and expanding our business. As of September 30, 2024, we had cash and cash equivalents of $40.1 million, working capital of $12.1 million, and an accumulated deficit of $107.8 million.

Our cash balance as of September 30, 2024 has decreased, as we paid $49.6 million to close the NRO Acquisition on October 1, 2024. Refer to *Note 4 – Acquisitions and Mergers* for further discussion of the NRO Acquisition. Even though we will begin to recognize revenues from the producing wells acquired in the NRO Acquisition, we expect our cash balance and working capital will decrease in the future as we continue to incur expenses in connection with our business unless we are able to obtain additional financing through public or private capital markets.

The assessment of liquidity requires management to make estimates of future activity and judgments about whether we can meet our obligations and have adequate liquidity to operate. Significant assumptions used in our forecasted model of liquidity in the next 12 months include our current cash position and our ability to manage spending. Based on an assessment of these factors, management expects that our cash balance and expected revenues from our existing producing wells will not be sufficient to meet our obligations over the next twelve months. We plan to obtain additional financing through public or private capital markets, including potentially through reserve-based lending arrangements, and view our plans as probable of being successfully implemented based on the value of our proved developed reserves acquired in the NRO Acquisition, the value of our outstanding Common Stock warrants, and our ability to issue additional Common Stock in public or private transactions, including the SEPA, as discussed above. Based on these plans, substantial doubt about our ability to continue as a going concern does not exist.

### Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon the accompanying condensed consolidated financial statements. These financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the amounts reports for assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Management believes its estimates and assumptions to be reasonable under these circumstances. Certain estimates and assumptions are inherently unpredictable and actual results could differ from those estimates. We have provided a full discussion of our significant accounting policies, estimates, and judgments in Note 2 – Summary of Significant Accounting Policies in our 2023 Annual Report on Form 10–K/A for the fiscal year ended December 31, 2023. We have not changed any of our significant accounting policies, estimates, or judgements during the nine months ended September 30, 2024, however, we did apply the discontinued operations guidance to account for the Crypto Sale in January 2024. Refer to *Note 3 – Discontinued Operations* for a full discussion of the discontinued operations and the subsequent accounting.

### Off–Balance Sheet Arrangements

We do not have any off–balance sheet arrangements.

## Controls and procedures

As filed, 3,450 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10–Q. For purposes of this section, the term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2024 our disclosure controls and procedures were effective at a reasonable assurance level.

### Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost–effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision–making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 355 characters.

In addition to the other information set forth in this Quarterly Report on Form 10–Q, we refer you to Item 1A. “Risk Factors” of our Annual Report on Form 10–K/A for the fiscal year ended December 31, 2023. As of the date of this Quarterly Report on Form 10–Q, there have been no material changes in the risk factors disclosed in our filings listed above.

Filed Nov 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-044178. Last ingested by Listed: Oct 24, 2026, 15:05 ET. No prices; not investment advice.