Business Context and Reporting Period
Company: Wizard Entertainment, Inc. (Note: Input metadata referenced "Prairie Operating Co." but the filing text identifies the registrant as Wizard Entertainment, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2020
Business Overview: The Company produces pop culture and live multimedia conventions across North America. Due to the COVID-19 pandemic, the Company has postponed live events and pivoted to virtual fan experiences and e-commerce (Wizard Vault). On April 28, 2020 (subsequent event), the Company acquired the assets of the Jevo machine to diversify revenue into manufacturing and sales of gelatin shot units.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Convention Revenue | $2,602,419 | $3,549,983 |
| Gross Margin | $578,137 (22.2%) | $592,144 (16.7%) |
| Operating Expenses | $605,410 | $735,414 |
| Loss from Operations | $(27,273) | $(143,270) |
| Net Loss | $(183,614) | $(223,097) |
| Cash and Cash Equivalents (End of Period) | $2,400,196 | $951,265 |
| Working Capital Deficit | $(4,636,803) | N/A |
| Total Debt (Convertible Notes) | $4,436,831 | N/A |
Note: Total Debt includes a $2,500,000 convertible promissory note (related party) and a $1,936,831 convertible debenture (net of discount).
Material Changes vs. Prior Period
- Revenue Decline: Convention revenue decreased by $947,564 (26.7%) compared to Q1 2019. Average revenue per event dropped from $1.18M to $867k.
- Improved Margins: Gross profit percentage increased from 15% in Q1 2019 to 22% in Q1 2020 due to operational efficiencies.
- Reduced Operating Loss: Loss from operations narrowed significantly from $143,270 to $27,273, primarily driven by a $199,565 reduction in compensation expenses.
- Increased Interest Expense: Other expenses (interest) rose from $79,827 to $156,341 due to the amortization of debt discounts on recent convertible debentures.
- Cash Flow: Net cash used in operating activities increased to $376,793 from $57,257, largely due to a decrease in unearned revenue ($907k outflow) and an increase in accounts payable.
Guidance, Outlook, Risks, and Contingencies
- Going Concern: The Company has a working capital deficit of approximately $4.6 million and has historically raised doubts about its ability to continue as a going concern. Management believes cost savings, virtual events, e-commerce, and the Jevo acquisition will guide the company toward profitability, but no assurances are provided.
- COVID-19 Impact: The pandemic has created substantial uncertainty regarding the number of live events in 2020. Two shows scheduled for 2020 were postponed/cancelled. The Company is focusing on virtual events and online collectibles sales.
- Debt Obligations: The Company holds two convertible notes totaling $5 million face value. Subsequent to the reporting period, holders agreed to extend the maturity dates and forbear collection until December 31, 2022. Repricing of employee options to $0.25 reset the conversion rates of these notes to $0.25.
- Capital Resources: Funds from a December 2019 $2.5M debenture are restricted for M&A, new ventures, and brand extensions. Management anticipates potential need for additional financing from related parties or external sources.
- Controls: Management concluded that disclosure controls and procedures were not effective as of March 31, 2020.
Investor Verification Checklist
- Going Concern Status: Verify the Company's ability to meet obligations given the $4.6M working capital deficit and reliance on restricted funds or related-party financing.
- Debt Conversion Terms: Confirm the impact of the $0.25 conversion price reset on existing convertible notes and potential dilution to common shareholders.
- Revenue Diversification: Assess the viability of the new Jevo machine acquisition and e-commerce initiatives to replace lost convention revenue.
- Internal Controls: Review the specific deficiencies cited in the ineffective disclosure controls and the remediation plan.
- Related Party Transactions: Scrutinize the terms of the $2.5M convertible promissory note and consulting fees paid to Bristol Capital, LLC (controlled by the Chairman).