Business context and reporting period
This filing covers the three months ended March 31, 2021. The supplied metadata names Prairie Operating Co., but the filing identifies the registrant as Wizard Brands, Inc. (formerly Wizard Entertainment, Inc.); confirm the filing is for the intended company.
Wizard Brands produces pop-culture events and has expanded into virtual programming, online collectibles sales through Wizard World Vault, and Jevo beverage appliances. COVID-19 halted live events; the company reported no live events during Q1 2021 and no live events scheduled for the remainder of 2021.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $379,174 | $2,602,419 |
| Gross profit | $81,628 | $578,137 |
| Gross margin | 21.5% | 22.2% |
| Operating expenses | $3,154,927 | $605,410 |
| Loss from operations | $(3,073,299) | $(27,273) |
| Net loss | $(2,468,875) | $(183,614) |
| Net loss attributable to common stockholders | $(2,411,977) | $(183,614) |
| Basic and diluted loss per share | $(0.69) | $(0.05) |
| Net cash used in operations | $(1,185,040) | $(376,793) |
- Revenue fell approximately 85%, primarily because convention revenue was zero compared with $2.58 million in Q1 2020. Q1 2021 revenue included $191,962 from virtual events, $172,698 from e-commerce, and $14,514 from Jevo.
- Cash and cash equivalents were $2,635,325 at March 31, 2021, versus $1,897,703 at December 31, 2020. Total assets were $3,716,265.
- Current liabilities were $6,582,819 and total liabilities were $9,267,757. The balance sheet reports current assets of $3,330,906, yielding a working capital deficit of $3,251,913 by subtraction; MD&A instead reports current assets of $3,300,906 and a deficit of $3,281,913. The filing’s current-asset and working-capital values do not reconcile.
- Reported debt-related balances included a $2.5 million related-party convertible promissory note, $2.034 million convertible debenture net of discount, and $545,162 of notes payable net. The company also had $197,600 of PPP borrowing, a $197,662 PPP2 loan, and a $149,900 SBA loan included within notes payable.
- Cash from financing activities was $1,922,662, including $1,725,000 from Series B preferred stock and warrants and $197,662 of PPP2 proceeds. The cash-flow statement reports net cash used in investing activities of $156,733, although the displayed property-and-equipment purchase line is zero; the amount is not clearly reconciled.
Material changes versus the prior comparable period
- Revenue declined sharply as live conventions stopped, while virtual-event and e-commerce sales became significant sources of Q1 revenue.
- Operating expenses rose to $3.15 million from $605,410. Management cited Jevo integration, increased consulting and general and administrative costs, and stock-based compensation. A $1,592,517 fair-value charge for 300,000 warrants issued to financial adviser Kingswood was a notable expense.
- Other income and expenses shifted to net other income of $604,424 from net expense of $156,341. The filing discusses a $224,241 CONtv payable write-off, but does not clearly reconcile that amount to the $828,516 reported as other income.
- Net operating cash outflow increased to $1.19 million from $377,000. The company ended the quarter with more cash, supported by financing proceeds.
Outlook, risks, contingencies and unusual items
- Going concern: Management disclosed a working capital deficit and recurring losses and stated that these conditions had previously raised substantial doubt about the company’s ability to continue as a going concern through March 2022. Management expects virtual activities, e-commerce, cost controls, new business verticals, and potential financing to help, but cautioned that there is no assurance of sufficient revenue or future financing.
- COVID-19 and operating outlook: Management said the duration and business impact of COVID-19 were uncertain, all scheduled 2021 live shows had been postponed, and none were scheduled for the rest of the year. It discussed virtual programming, subscription content, collectibles, NFTs, and Jevo expansion as strategic opportunities; no quantified financial guidance was provided.
- Financing and dilution: A March private placement with Leviston had a stated purchase price of $5 million, payable in installments subject to registration-related conditions. The filing reports approximately $1.7 million received by March 29 and approximately $460,000 received on April 26. Series B preferred stock carries a 5% cumulative dividend and conversion and warrant features. The filing also reports 11 million warrants outstanding versus 3.51 million common shares outstanding, as well as 789,250 options; potential dilution is substantial.
- Debt terms: The $2.5 million convertible debenture and related-party convertible note carry 12% interest and conversion-price ratchets; holders agreed to defer requiring payment until December 31, 2022. The filing says the company’s security interest in substantially all its property for a debenture creditor ranks equally with certain other creditors.
- Reporting controls: Management concluded disclosure controls and procedures were not effective as of quarter-end. It reported no material changes in internal control over financial reporting during the quarter and said it is working to improve documentation and oversight.
- The company reported no litigation believed likely to have a material adverse effect, no defaults on senior securities, and no off-balance-sheet arrangements. It reported no income tax provision for the quarter.
Important facts for investors to verify
- Confirm the registrant identity: the request metadata says Prairie Operating Co., while the filing is for Wizard Brands, Inc.
- Reconcile the conflicting current-asset and working-capital figures, the differing operating-loss amounts elsewhere in the filing, and the investing cash-flow presentation.
- Clarify the components of the $828,516 other-income figure and how it relates to the disclosed $224,241 CONtv payable write-off.
- Confirm the amount and timing of Leviston proceeds received, remaining installment conditions, registration status, and the conversion and warrant dilution terms.
- Assess liquidity needs, debt maturities and interest obligations, the going-concern uncertainty, and management’s plans if live events or external financing do not resume as expected.
- Review remediation of ineffective disclosure controls and the significant warrant, option, and preferred-stock overhang.