Filing summary
Registrant: The supplied filing is Wizard World, Inc.’s Form 10-Q, not a filing for Prairie Operating Co. It covers the quarter and six months ended June 30, 2017; the interim financial statements are unaudited.
Business context and reporting period
Wizard World produces pop-culture conventions across North America. Revenue primarily comes from convention admissions, exhibitor space, sponsorships and advertising. Management said it had suspended active ConBox production and distribution to focus on conventions. The company reported five events in Q2 2017 and eight events in the first half, versus seven and eleven, respectively, in the comparable 2016 periods.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $4.95 million | $9.63 million | $8.47 million | $14.97 million |
| Gross profit (loss) | $(0.35) million | $2.41 million | $0.04 million | $4.61 million |
| Operating expenses | $1.55 million | $1.93 million | $3.21 million | $4.01 million |
| Operating income (loss) | $(1.90) million | $0.48 million | $(3.18) million | $0.60 million |
| Net income (loss) attributable to common shareholders | $(2.23) million | $0.40 million | $(1.71) million | $0.38 million |
| Basic loss (income) per share | $(0.03) | $0.01 | $(0.02) | $0.01 |
Convention revenue fell 48% in Q2 and 42% in the first half year over year. Management attributed the declines to fewer events, lower attendance, inefficient marketing and reduced celebrity talent. First-half operating expenses declined 20%, largely from lower compensation and general and administrative costs, but this did not offset weaker revenue and event economics.
First-half cash used in operating activities was $1.39 million, compared with $0.26 million provided in the prior-year period. Investing cash use was $0.09 million; cash fell from $4.40 million at year-end 2016 to $2.92 million at June 30, 2017. Current assets were $4.11 million and current liabilities $9.15 million, a $5.04 million working-capital deficit. The filing separately reports a $189,128 deficit excluding derivative liabilities.
Total liabilities were $9.17 million, including $4.85 million of current related-party derivative liabilities and a $2.5 million face-value convertible debenture. The debenture bears 12% annual interest, is due December 30, 2018, and is convertible at an initial $0.15 per share, subject to adjustments. Accrued interest was $176,500. Stockholders’ deficit was $4.84 million.
Material changes, outlook and risks
- Other income for the first half included a $1.65 million non-cash gain from remeasuring derivative liabilities; Q2 instead included a $0.24 million derivative fair-value loss. These valuation changes materially affected reported earnings.
- The company received $2.5 million in December 2016 financing from Bristol Investment Fund, an entity controlled by the board chairman, in exchange for a debenture and warrants. The filing states that management believed this financing and potential additional financing alleviated substantial doubt about going concern, but also cautions that continued operations depend on revenue growth, cost control and access to further funding, with no assurance of success.
- Management expected to produce 22 live events in 2017, subject to change. It planned to expand convention offerings and marketing, and announced plans for digital content, including WizPop and a digital Wizard Magazine, with content expected to begin in August 2017. Other digital, international, venue, merchandising and acquisition ideas were exploratory, not firm guidance.
- Disclosure controls and procedures were reported ineffective as of quarter-end. Management said it was reviewing reporting policies and working to strengthen controls; no material control changes occurred during the quarter.
- A dispute with former COO Randall Malinoff remained unresolved. The Silverman lawsuit was settled for a non-material payment; two other lawsuits concluded without financial impact. The company reported no other pending litigation it believed would materially harm its financial condition or results.
- Related-party arrangements include the Bristol financing and consulting agreement, and an office sublease from an entity controlled by the chairman. The filing reports $187,500 in accrued Bristol monthly fees at June 30, 2017.
Investor verification priorities
- Confirm the registrant identity: the source is Wizard World, Inc., not Prairie Operating Co.
- Reconcile the Q2 net-loss disclosures: the statements report a $2,226,573 loss attributable to common shareholders, while MD&A elsewhere cites $2,226,723.
- Assess convention attendance, event-level profitability and the feasibility of the 22-event plan, given the sharp revenue decline and Q2 gross loss.
- Review cash runway, the working-capital shortfall, refinancing prospects and the related-party debenture’s conversion and reset terms.
- Evaluate the sensitivity and estimation uncertainty of the Level 3 derivative liabilities, which rely on unobservable volatility assumptions and significantly affected reported income.
- Monitor remediation of ineffective disclosure controls, the former COO dispute, and potential dilution from outstanding warrants, options and convertible securities.