Filing identity and reporting period
The supplied filing is Wizard Entertainment, Inc.’s Form 10-K for the fiscal year ended December 31, 2019—not a filing for Prairie Operating Co. or a quarterly 2019 period. The company produces live pop-culture conventions and reports a passive 10% interest in CONtv, which it describes as inactive.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Convention revenue | $10.58 million | $13.90 million |
| Gross profit / margin | $904,631 / 8.6% | $2.62 million / 18.9% |
| Operating expenses | $2.76 million | $3.56 million |
| Operating loss | $1.86 million | $941,015 |
| Net loss | $2.16 million | $2.62 million |
| Cash used in operations | $705,603 | $743,458 |
Cash and cash equivalents were $2.78 million at year-end, compared with $1.01 million in 2018. Current assets were $3.22 million and current liabilities $7.70 million, leaving a $4.49 million working-capital deficit. Total liabilities were $9.71 million; stockholders’ deficit was $6.26 million. No cash income tax was reported, and no interest was paid in 2019 in the cash-flow statement.
Debt includes a $2.5 million related-party convertible note from 2016, overdue since December 2018 and accruing interest at 12%; accrued interest was $923,836 at year-end 2019. A second $2.5 million convertible debenture was issued in December 2019 at 12% interest, due December 2021, and secured by substantially all company assets. Its conversion price is initially $2.50 per share, with warrants for 300,000 shares at the same exercise price. The balance sheet reports the new debenture net at $1.93 million. The filing does not clearly reconcile the carrying values and total principal obligations across these instruments.
Changes versus 2018
Revenue fell $3.32 million, about 24%, despite the company reporting 12 conventions plus Ghostbusters Fan Fest and a Saudi Arabia event in 2019, versus 13 conventions in 2018. Management reported average revenue per event of $752,756 in 2019 versus $1,069,354 in 2018. Gross margin contracted by 10.3 percentage points. Lower staffing, compensation and general and administrative costs reduced operating expenses by $802,515, but did not offset the lower gross profit; operating loss therefore widened. Net loss narrowed, principally alongside a sharp decline in reported interest expense, from $1.68 million to $304,449.
Outlook, risks and notable items
Management expected to produce 9–12 live events in 2020 but said COVID-19 made the actual number uncertain. At the filing date, no scheduled shows had been cancelled or postponed; the company was pursuing virtual events and e-commerce, including its Wizard Vault collectibles site. A 2020 interactive virtual event was planned. The company said $2.5 million of proceeds from the December 2019 financing were restricted to M&A, new ventures, brand extensions and new business opportunities.
Going concern remains a material concern: the company had recurring losses and a substantial working-capital deficit, and management stated that continued operations depend on implementing its plan, generating sufficient revenue, controlling costs and potentially obtaining additional financing. COVID-19 could materially harm convention operations. The 12% secured convertible financing, dilution and default-related conversion-price provisions also present significant financing and shareholder risks. The company reported no material pending litigation and no off-balance-sheet arrangements.
Management concluded that disclosure controls and internal control over financial reporting were ineffective, citing limited segregation of duties and incomplete documentation of controls. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness. A 1-for-20 reverse stock split took effect in early 2020; the filing gives differing effective dates in different sections.
Key facts investors should verify
- Confirm the issuer: the provided text is Wizard Entertainment, Inc., inconsistent with the request metadata naming Prairie Operating Co.
- Reconcile the overdue 2016 related-party note, the 2019 secured debenture, accrued interest, and reported debt carrying values and maturities.
- Assess liquidity and going-concern exposure, including restrictions on the 2019 financing proceeds and the company’s ability to fund operations.
- Verify convention-level revenue and the reported average revenue per event, given the event counts and year-over-year revenue decline.
- Review potential dilution from convertible debt, warrants and options, and confirm post-reverse-split share and per-share figures.
- Track COVID-19 effects on scheduled events and the execution and revenue contribution of virtual events and e-commerce.
- Monitor remediation of the disclosed control weaknesses and the inconsistency in the reverse-split effective dates.