Business context and reporting period
The supplied filing is Wizard World, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014; it is not identified as a filing by Prairie Operating Co. Wizard World produces pop-culture and multimedia conventions across North America. Its reported business includes live events and sponsorships and advertising.
Management planned 16 live events in 2014. It reported operating profitable events in some markets and deficits in others. Its digital platform had not yet generated a profit.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 or comparison |
|---|---|---|
| Convention revenue | $5.173 million | $1.793 million |
| Gross profit | $1.913 million; 37% margin | $0.817 million; 46% margin |
| Operating expenses | $1.221 million | $0.691 million |
| Income from operations | $0.692 million | $0.126 million |
| Net income | $0.692 million | $1.175 million |
| Net income attributable to common shareholders | $0.692 million; $0.01 per basic and diluted share | $1.104 million; $0.03 basic and $0.02 diluted |
| Cash from operating activities | $(0.156) million | $0.192 million |
| Cash and working capital | $3.464 million cash; $3.106 million working capital at March 31 | $3.634 million cash; $2.206 million working capital at December 31, 2013 |
Revenue rose about 188% year over year; the company held four events versus two a year earlier. Management attributed the increase to better advertising and marketing, higher admission prices, larger events, and the higher event count. Gross margin declined, which management attributed largely to increased advertising and marketing per event. Operating expenses increased as the employee count rose from 10 to 27 and compensation included a year-end CEO bonus.
Operating cash use reflected funding prepaid expenses for upcoming shows. Investing cash outflow was $14,000, and cash declined by $170,000 during the quarter. Current liabilities were $2.069 million; the balance sheet lists no debt, and total liabilities consist of current liabilities. The reported current ratio was approximately 2.5. No income tax provision was recorded; the company said deferred tax benefits from loss carryforwards were fully offset by a valuation allowance.
Material changes, outlook, risks, and unusual items
- Although operating income improved, net income was lower than in Q1 2013 because the prior-year period included $1.050 million of income from a change in the fair value of derivative liabilities. The filing says those instruments have since been extinguished.
- Unearned convention revenue was $866,000 at quarter-end, representing deposits for events not yet held; deposits may be refundable in whole or in part under their terms.
- The company reported $1.309 million in prepaid expenses, up from $620,000 at year-end, consistent with advance funding of upcoming shows.
- A seven-year office lease with entities related to a director and the CEO began in April 2013. Disclosed future minimum payments, including related tax, total $496,800.
- On March 12, 2014, the company issued 250,000 common shares to settle a $103,750 accrued liability. The filing also reports 10,000 fully vested options issued to a strategic partner, with a $0.40 exercise price and five-year term.
- Subsequent events include a further grant of 20,000 fully vested options to a strategic partner and authorized grants of up to 300,000 options to each independent director, along with new director retainers and meeting fees.
- Substantially all cash was held at major financial institutions, and some balances exceeded FDIC insurance limits. Management said it had not experienced losses and did not believe exposure was significant.
- Management reported no material litigation, no off-balance-sheet arrangements, and no material change to previously disclosed risk factors. It cautioned that forward-looking statements are subject to risks and actual results may differ; it gave no numerical earnings or revenue guidance.
Most important facts for investors to verify
- Confirm the issuer: the provided filing is for Wizard World, Inc., not Prairie Operating Co.
- Assess whether the higher event volume and revenue can be sustained while restoring gross margin and generating positive operating cash flow.
- Review event-level profitability, upcoming-show prepaid costs, and the refund terms and timing of unearned convention deposits.
- Evaluate potential dilution from outstanding options and the subsequent director awards; verify the option grant date, as the notes say January 16, 2014 while Part II says January 16, 2013 for the 10,000-option grant.
- Reconcile small presentation differences in the working-capital comparison: the stated balances imply a $900,000 increase, while the table shows current liabilities decreasing by $23,462.
- Review the related-party lease terms, uninsured cash exposure, and the company’s reliance on event attendance, exhibitor sales, sponsorships, and advertising.