Filing identity and reporting period
Important source mismatch: The request identifies Prairie Operating Co., but the supplied 10-K is for Wizard World, Inc. It reports the fiscal year ended December 31, 2016, with 2015 comparisons; it does not provide standalone fourth-quarter results.
Wizard World produced pop-culture conventions and operated the subscription-box business ConBox. Its convention business was the principal source of revenue.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Total revenue | $22.70 million | $24.03 million |
| Gross profit | $6.53 million | $5.27 million |
| Gross margin | 28.8% | 21.9% |
| Operating loss | $1.18 million | $2.88 million |
| Net loss attributable to common stockholders | $8.52 million | $4.25 million |
| Basic and diluted loss per share | $0.16 | $0.08 |
| Cash from operating activities | $(2.49) million | $0.44 million |
Convention revenue was $21.99 million, down 4.0%; ConBox revenue was $0.71 million, down 36.9%. The company held 16 conventions versus 25 in 2015, while average convention revenue per event rose to approximately $1.29 million from $0.92 million. Management attributed stronger convention margins and a narrower operating loss to better-attended events, cost containment, and reduced spending on CONtv.
Net loss worsened largely because of $6.94 million in noncash derivative-related charges associated with the December financing. Other expenses totaled $7.27 million, versus $1.35 million in 2015. The company recorded a $0.32 million gross loss in ConBox in 2016, compared with $0.11 million gross profit in 2015, and wrote off $0.16 million of obsolete inventory.
At year-end, cash was $4.40 million, working capital was $2.86 million, and total liabilities were $9.24 million, including $6.50 million of derivative liabilities. Stockholders’ equity was negative $3.40 million. The company reported no off-balance-sheet arrangements.
Material changes, financing, and outlook
- Management was restructured during 2016, including new CEO and COO appointments, and operations were consolidated to one office. The company also reported efforts to strengthen accounting, marketing, sales tracking, and operating controls.
- In December 2016, the company received $2.5 million from Bristol Investment Fund, an entity controlled by Executive Chairman Paul Kessler. The related-party financing included a 12% secured convertible debenture due December 2018, convertible initially at $0.15 per share, and warrants. The debt is secured by substantially all company assets. The filing says net proceeds of approximately $2.475 million were intended for working capital.
- The financing’s conversion and warrant features generated substantial derivative accounting charges and could result in significant share issuance. The filing reports 16.67 million warrants outstanding and 16.67 million shares issuable on conversion of the debenture at the initial conversion price, subject to adjustment; additional reset provisions may affect conversion terms.
- Management planned approximately 16 conventions in 2017, while noting the number could change as locations and venues were evaluated. It also described plans for digital content, sponsorship growth, e-commerce, and collectibles, without quantified revenue or profit guidance.
- Management said the financing and potential access to further capital alleviated its initial going-concern concerns, but cautioned that continued operations depend on implementing its plan, generating sufficient revenue, controlling costs, and obtaining financing if needed. The filing states losses had raised doubt about the company’s ability to continue as a going concern beyond 2017.
Risks, contingencies, and governance
- Disclosure controls and internal control over financial reporting were assessed as ineffective. Management identified material weaknesses involving limited segregation of duties and incomplete documentation of financial-reporting processes. The auditor did not attest to internal controls.
- Related-party dealings include the secured financing and office sublease involving entities controlled by the Executive Chairman. The company also agreed to pay his affiliated consulting firm $18,750 per month and grant options.
- A former executive’s lawsuit and a separate shareholder-disclosure lawsuit concluded on February 15, 2017; management characterized the outcomes as favorable, and the financial statements say they had no financial impact. A separate claim alleges $42,600 plus fees for services; the company filed a counterclaim seeking more than $90,000. Outcomes are uncertain.
- The company cited risks including the need for additional capital, event attendance and celebrity availability, competition, consumer and advertiser demand, and limited liquidity and volatility in its OTC-traded stock. It did not expect to pay dividends in the foreseeable future.
- The company reported 68.54 million common shares outstanding at year-end. Potential dilution from convertible debt, warrants, options, and future financing is material. The filing also reports substantial insider ownership and voting influence.
Most important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Wizard World, Inc., not Prairie Operating Co.
- Review the original audited statements and financing documents for the debenture’s interest, maturity, security, conversion resets, warrant terms, and potential dilution.
- Assess cash burn, event-level profitability, and whether the company can fund operations and scheduled events without additional capital.
- Track remediation of the disclosed control weaknesses and whether future filings report effective disclosure and financial-reporting controls.
- Check subsequent filings for the status and financial effect of the Silverman litigation and the company’s 2017 convention and digital-business plans.