Prairie Operating Co. quarterly report, Q2 FY2015

Business context and reporting period

Filing identity: The supplied filing is Wizard World, Inc.’s Form 10-Q for the quarter ended June 30, 2015—not a filing identified as Prairie Operating Co. Verify the issuer before relying on this summary. The company produces pop-culture conventions and operates a subscription box service launched in April 2015; it also has a 47.5% interest in the CONtv joint venture.

Key financial results

At June 30, 2015, cash was $4.56 million, current assets $6.67 million, current liabilities $4.99 million, and working capital $1.68 million. Total liabilities were $4.99 million, all classified as current; no borrowings or interest expense are reported for the period. Cash declined $1.23 million from year-end 2014. The company invested $0.95 million net in CONtv during the first half.

Material changes versus prior comparable period

• Second-quarter revenue rose 6% year over year; first-half revenue rose 10%. Convention revenue increased, and ConBox contributed $132,309 in its launch period.
• Gross margin fell from about 39% to 10% in the quarter and from 38% to 17% in the first half. Management cited higher event advertising and marketing, programming and venue build-out costs, and new shows.
• Results shifted from profit to loss: first-half 2014 net income was $1.45 million versus a $2.79 million net loss in first-half 2015. The 2015 period included $0.90 million of CONtv equity-method losses.
• First-half operating expenses increased to $4.15 million from $3.22 million, including higher compensation and share-based payments. The company reported 47 employees at June 30, 2015, versus 35 a year earlier.
• Working capital decreased $2.16 million from December 31, 2014, as current liabilities rose and current assets declined.

Outlook, risks, contingencies and unusual items

Management expected to produce 27 live events in 2015. It said some events had been profitable and others operated at a deficit; the digital platform had not yet earned a profit. Management attributed weaker margins to spending intended to grow events and improve the fan experience. This is forward-looking commentary, not a reported guarantee of future results.

CONtv’s launch-period loss is a notable unusual item. The company also disclosed related-party consulting arrangements involving ROAR and Bristol Capital, both connected to directors; both entities received 2.5% profits participation and ownership interests in CONtv. The CEO’s employment agreement provides a $41,666.67 monthly base salary, a $1,200 monthly car allowance, potential performance bonuses, and 2.7 million stock options. The company reported no material litigation, no material change to previously disclosed risk factors, no defaults on senior securities, and no off-balance-sheet arrangements. It stated disclosure controls were effective and reported no material quarterly change in internal control.

Important facts for investors to verify

• Confirm the issuer: the filing identifies Wizard World, Inc., despite the request naming Prairie Operating Co.
• Reconcile MD&A figures with the financial statements: MD&A reports second-quarter operating loss as $1.81 million, while the statement of operations reports $1.34 million; MD&A reports first-half operating cash use of $257,019, while the cash flow statement reports $259,017.
• Assess event-level profitability and whether increased event count can translate into improved gross margins; average revenue per event declined year over year, according to management.
• Review CONtv funding needs and losses, the company’s related-party arrangements, and the carrying value of its investment.
• Monitor cash usage, working capital, and the substantial unearned convention revenue balance ($1.20 million), which depends on future events and applicable refund terms.
• Consider potential equity dilution: 7.58 million stock options were disclosed, and the company reported 51,368,386 common shares outstanding as of August 3, 2015.