Business Context and Reporting Period
This Form 8-K was filed by Wizard Entertainment, Inc. (not Prairie Operating Co.) on December 23, 2019, reporting events occurring on December 19, 2019. The filing details the entry into a material definitive agreement for a private placement of securities.
Key Financial Metrics and Transaction Details
- Capital Raised: The Company received $2,500,000 in cash proceeds.
- Net Proceeds: Approximately $2,475,000, after deducting legal fees.
- Use of Proceeds: Working capital purposes.
- Debt Instrument: A $2,500,000 Senior Secured Convertible Debenture with a 12% annual interest rate, maturing on December 30, 2021.
- Equity Instrument: Warrants to acquire 6,000,000 shares of Common Stock at an exercise price of $0.125 per share, exercisable immediately and expiring on December 1, 2024.
- Security Interest: The Company granted a security interest in substantially all of its property to secure the Debenture.
Material Changes and Transaction Terms
The primary material change is the incurrence of new debt and the potential dilution of existing shareholders through the issuance of warrants and convertible debt. Key terms include:
- Conversion Price: Initial conversion price is $0.125 per share. In the event of a default, the price adjusts to the lesser of the current price or 50% of the average of the three lowest trade prices during the 20 trading days prior to conversion.
- Interest Payments: Interest is payable quarterly starting January 1, 2020, and upon conversion or redemption.
- Covenants: The Debenture includes negative covenants restricting additional indebtedness, granting of liens, and share repurchases.
Guidance, Risks, and Contingencies
The filing does not provide forward-looking financial guidance or management commentary regarding future performance. However, it highlights the following risks and contingencies:
- Default Risk: The conversion price mechanism significantly penalizes the Company in the event of a default, potentially leading to substantial dilution.
- Liquidity Constraints: The Company is restricted from incurring additional indebtedness or granting security interests without specific permissions.
- Regulatory Status: The securities were sold unregistered under Section 4(2) and Regulation D, meaning they cannot be resold in the U.S. without registration or an exemption.
Investor Verification Checklist
- Verify the Company's current ability to service the 12% interest payments on the $2.5 million debt.
- Assess the potential dilution impact of the 6,000,000 warrants and the convertible debenture at the $0.125 strike price.
- Review the "Security Agreement" to understand the scope of assets pledged as collateral.
- Confirm the Company's compliance with the negative covenants regarding future debt and asset liens.
- Check for any subsequent filings regarding the Company's liquidity status or default events.