Prairie Operating Co. annual report, FY2018

Business context and reporting period

Filing identity mismatch: The request identifies Prairie Operating Co., but the supplied Form 10-K is for Wizard Entertainment, Inc. This summary covers the company named in the filing. The report is for the fiscal year ended December 31, 2018, compared with 2017; it does not provide standalone fourth-quarter results.

Wizard Entertainment produces pop-culture conventions across the United States, earning revenue mainly from admissions, exhibitor booths, sponsorships and advertising. It held a 10% passive interest in CONtv and had discontinued its ConBox business in 2017. The company reported 13 conventions in 2018, versus 14 in 2017.

Financial performance and liquidity

Revenue declined about 7.2%; average revenue per convention was nearly unchanged at approximately $1.07 million. Cash and cash equivalents were $1.01 million at year-end, down from $1.77 million. Current assets were $2.12 million against current liabilities of $7.14 million, leaving a $5.02 million working-capital deficit, worse than the $3.54 million deficit in 2017. Total liabilities were $7.14 million; stockholders’ deficit was $4.91 million.

The $2.50 million related-party convertible note was not repaid at its December 30, 2018 maturity and remained outstanding. It bears 12% annual interest; accrued interest was $623,524 at year-end. The balance sheet reports the note, net of discount, as a $2.50 million current liability. Interest expense, including debt-discount amortization, was a major contributor to the net loss. No interest or income taxes were paid in either year. The filing reports no off-balance-sheet arrangements.

Material changes versus 2017

• Gross margin improved substantially, which management attributed to lower convention production costs and improved marketing and production practices.
• Operating expenses fell by approximately $1.78 million, reflecting lower staffing and compensation, consulting fees, and general and administrative costs.
• Operating loss narrowed by approximately $4.40 million, but the net loss remained significant as reported other expenses rose to approximately $1.67 million from $396,000.
• The company issued 5,768,956 preferred shares to settle $709,506 of liabilities owed to Executive Chairman-related Bristol entities and CEO John Maatta.

Outlook, risks and unusual items

Management expected to produce 13 live events in 2019, subject to changes in locations and venues. It cited possible growth initiatives involving Sony Pictures Entertainment, two China channels on CN Live, a programming agreement with Associated Television International, and a possible Asia touring event. These were plans or exploratory initiatives, not quantified revenue guidance.

Management acknowledged conditions that raised substantial doubt about the company’s ability to continue as a going concern, including operating losses and a large working-capital deficit. It expected cost savings to support 2019 results and said additional related-party or external financing might be available, but gave no assurance. The company’s ability to continue depends on implementing its business plan, generating sufficient revenue, controlling expenses, and obtaining financing if needed.

Key risks include limited liquidity and access to capital; the overdue related-party note and potential dilution; reliance on convention attendance, sponsors, exhibitors and talent; competition and changing consumer demand; and thinly traded OTC shares. Management concluded that disclosure controls and internal control over financial reporting were not effective, citing limited segregation of duties and incomplete documentation of control processes. The independent auditor expressed an unqualified opinion on the financial statements; the auditor did not attest to internal-control effectiveness.

Related-party matters warrant attention: the noteholder, Bristol Investment Fund, was controlled by the Executive Chairman; Bristol-related entities also provided consulting services and subleased office space to the company. The filing states that $45,000, $5,000 and $11,000 were paid to settle separate claims, and that a vendor dispute brought by the company remained at an early procedural stage.

Important facts for investors to verify

• Confirm the issuer: the supplied filing is Wizard Entertainment, Inc., not Prairie Operating Co.
• Review the overdue $2.50 million note’s current status, accrued interest, repayment or conversion terms, and any defaults or amendments.
• Assess the company’s near-term cash needs and financing availability in light of its $5.02 million working-capital deficit and going-concern disclosure.
• Evaluate potential dilution: the filing identifies 16.67 million shares issuable under the convertible note and 16.67 million under warrants, among other options; confirm which instruments remain outstanding and exercisable.
• Check the terms and governance approval of the preferred-share settlement and other transactions involving related parties.
• Reconcile presentation inconsistencies in the filing: the results table labels other expenses as $1,677,404, while the statements show $1,677,404 of interest expense, a $3,000 disposal gain, and $1,674,404 total other expenses; the cash-flow statement also gives a 2017 net-loss figure that differs from the audited statements.