Business context and reporting period
This filing is Wizard Entertainment, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019; it does not identify Prairie Operating Co. as the registrant. Wizard produces live pop-culture conventions and is pursuing related media and event initiatives.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Convention revenue | $2.54 million | $5.11 million | $6.09 million | $9.10 million |
| Gross margin dollars | $377,833 | $622,365 | $969,977 | $1,727,197 |
| Gross margin rate | 15% | 12% | 16% | 19% |
| Operating expenses | $662,250 | $866,636 | $1,397,664 | $1,688,192 |
| Operating income (loss) | $(284,417) | $(244,271) | $(427,687) | $39,005 |
| Net loss | $(359,292) | $(505,272) | $(582,389) | $(390,889) |
Revenue fell about 50% in Q2 and 33% for the first half. The company attributed the declines to fewer events and lower average revenue per event. Six-month gross margin rate declined despite cost reductions, which management attributed to talent-related event costs. Interest expense was $74,875 for Q2 and $154,702 for the first half, lower than the comparable prior-year periods. Basic and diluted loss per share were $0.01 in each reported period.
Cash was $491,974 at June 30, 2019, down from $1,014,671 at year-end 2018. Six-month operating cash use was $514,809, compared with $303,887 a year earlier; investing cash use was $7,888. Current assets were $1.16 million and current liabilities $6.64 million, producing a $5.49 million working-capital deficit. Total liabilities were $6.77 million; stockholders’ deficit was $5.31 million. Current liabilities included a $2.5 million related-party convertible note and $2.85 million in accounts payable and accrued expenses.
Material changes, outlook, and risks
- Wizard produced two conventions and the limited-scope Ghostbusters Fan Fest in Q2 2019, versus four events in Q2 2018. For the first half, it produced five conventions plus Fan Fest, versus seven events in the prior-year period.
- Management cited ongoing cost-control efforts and planned to produce approximately 14 live events during 2019, subject to change. Initiatives included a possible fixed-site convention and immersive-entertainment venue, Asia touring, Middle East production, acquisitions, and a planned CN Live programming test in China in fall 2019. These are plans, not quantified guidance.
- The filing states that cash and the working-capital deficit raise significant doubt about the company’s ability to continue as a going concern through June 2020. Management anticipated cost savings, revenue growth, and potential related-party or external financing, but offered no assurance of obtaining sufficient funds.
- The $2.5 million convertible debenture was originally due December 30, 2018, carries 12% interest, and is convertible at an initial $0.15 per share. The filing reports it as a current liability and states there was no default on indebtedness. Related-party relationships include the Chairman’s consulting arrangement and office sublease.
- Disclosure controls and procedures were determined to be ineffective. Management reported no material changes to internal control over financial reporting during the quarter and said it was working to improve financial reporting procedures.
- A vendor dispute concerning decorator services was settled on terms management considered favorable. The company reported no other pending litigation it believed could materially adversely affect it, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the registrant identity: this source is a Wizard Entertainment filing, not a Prairie Operating Co. filing.
- Review the going-concern disclosures, cash needs, financing availability, and the status and terms of the related-party debenture, including its past-due stated maturity.
- Assess event schedules, revenue per event, and talent costs against management’s 2019 plans and the first-half results.
- Review the nature and remediation status of the ineffective disclosure controls and procedures.
- Check related-party balances and arrangements, including consulting fees, the office sublease, officer loan, and amount due to CONtv.