Business Context and Reporting Period
This Form 8-K Current Report is filed by Wizard World, Inc. (not Prairie Operating Co.) for the reporting period of December 1, 2016. The filing details the entry into a Material Definitive Agreement and the unregistered sale of securities to raise capital.
Key Financial Metrics and Transaction Details
- Capital Raised: The Company received $2,500,000 in cash proceeds from the offering.
- Net Proceeds: Approximately $2,475,000, designated for working capital purposes.
- Debt Instrument: Issuance of a $2,500,000 Senior Secured Convertible Debenture with a 12% annual interest rate, maturing on December 30, 2018.
- Equity Instruments:
- Series A Warrants: To acquire 16,666,667 shares at an exercise price of $0.15 per share.
- Series B Warrants: To acquire 16,666,650 shares at an exercise price of $0.0001 per share.
- Transaction Costs: The Company agreed to pay $25,000 cash and issue 500,000 shares of Common Stock to cover the Purchaser's legal fees.
- Collateral: The Company granted a security interest in substantially all of its property and subsidiary ownership interests to secure the Debenture.
Material Changes and Covenants
The transaction represents a significant increase in the Company's debt load and potential equity dilution. The Debenture includes customary negative covenants restricting the Company from incurring additional indebtedness, granting further security interests, or repurchasing Common Stock without specific permissions. The conversion price of the Debenture is subject to a "ratchet" provision; in the event of a default, the conversion price may be reduced to 50% of the average of the three lowest trade prices during the 20 trading days prior to conversion.
Outlook, Risks, and Contingencies
The net proceeds are intended to fund working capital, suggesting a need for immediate liquidity. The securities were sold unregistered under Section 4(2) of the Securities Act and Regulation D, meaning they cannot be resold in the U.S. without an effective registration statement or valid exemption. The Purchaser is Bristol Investment Fund, Ltd., an entity controlled by the Chairman of the Company's Board of Directors, indicating a related-party transaction.
Investor Verification Checklist
- Verify the Company's current cash position and burn rate to assess the necessity of the secured debt.
- Review the impact of the 33,333,317 total warrant shares and potential conversion of the $2.5M debenture on existing shareholder dilution.
- Confirm the status of any registration statement required for the resale of the underlying securities.
- Assess the implications of the security interest granted on substantially all Company assets for future financing capabilities.
- Examine the related-party nature of the transaction with the Chairman-controlled entity.