Prairie Operating Co. annual report, FY2014

Filing summary

Identity and period: The request identifies Prairie Operating Co. and “2014 Q4,” but the supplied filing is Wizard World, Inc.’s Form 10-K for the fiscal year ended December 31, 2014. The filing reports annual results, not stand-alone fourth-quarter results.

Business context

Wizard World produces pop-culture conventions across North America, earning revenue primarily from admissions, exhibitor booths, sponsorships and advertising. It held 17 events in 2014, compared with eight in 2013. Its CONtv digital service launched in March 2015 through a joint venture in which Wizard World holds a 47.5% interest.

Financial performance and liquidity

• Revenue more than doubled, largely because the company staged more events and increased event marketing, admission prices and event scale. Average revenue per event fell to $1.36 million from $1.40 million.
• Gross margin declined as marketing and advertising costs increased. Operating expenses rose, including compensation and share-based payments; the company also accrued approximately $571,000 for the CEO’s bonus.
• Other expense was $473,000 in 2014, including a $461,000 loss from CONtv. The prior-year result included a $3.97 million derivative-liability fair-value loss. The 2013 common-stockholder loss includes a $242,482 deemed dividend.
• At year-end, cash was $5.79 million, current assets $7.77 million, current liabilities $3.93 million and working capital $3.84 million. Total liabilities were current; the balance sheet reports no debt. Unearned convention revenue was $2.02 million. Operating cash flow was positive; investing cash flow was $(88,367), and cash increased $2.16 million.
• The company paid $575,000 in estimated income taxes despite reporting no income-tax provision; it used approximately $816,000 of tax-loss carryforwards and maintained a full valuation allowance against net deferred tax assets.

Outlook, risks and other notable 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.
• CONtv was planned as both an ad-supported service and a $6.99-per-month subscription offering. Management warned that content, platform and launch costs could weigh on results if revenue and subscriber growth do not cover them.
• Principal risks include the ability to fund growth, event profitability and attendance, competition, reliance on key personnel and partners, and the costs and uncertain monetization of CONtv. The company also cited thin OTC trading, potential share dilution and concentrated insider ownership.
• The company reported no material litigation or off-balance-sheet arrangements. Its independent auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls.
• Potential dilution is notable: 11.975 million plan securities were reported outstanding or granted by year-end, with 3.025 million shares remaining available; the plan authorization had been increased to 15 million shares. The CEO’s amended employment agreement includes salary, an EBITDA-based bonus and substantial option awards.

Important facts for investors to verify

1. Confirm the issuer and reporting period: the supplied filing is Wizard World’s annual 2014 Form 10-K, not a Prairie Operating Co. filing or a quarterly report.
2. Reconcile the 2013 net-loss figures: MD&A presents $(3.64) million in one comparison, while net loss attributable to common stockholders in the financial statements is $(3.88) million after the deemed dividend.
3. Review event-level profitability, 2015 event plans and the timing and refundability of the $2.02 million in unearned convention revenue.
4. Assess CONtv’s funding obligations, equity-method losses, related-party interests and path to monetization.
5. Quantify potential dilution from outstanding options, the expanded equity plan and the CEO’s compensation arrangements.