Business context and reporting period
Filing identity discrepancy: The supplied filing is Wizard Entertainment, Inc.’s Form 10-Q for the quarter ended September 30, 2019, not Prairie Operating Co. This summary reflects the filing text provided.
Wizard produces live pop-culture conventions and related events. The financial statements are unaudited and cover the three and nine months ended September 30, 2019, compared with the same periods in 2018.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Convention revenue | $2.83 million | $4.47 million | $8.92 million | $13.57 million |
| Gross margin | $103,000 (3.6%) | $1.00 million (22.4%) | $1.07 million (12.0%) | $2.73 million (20.1%) |
| Operating expenses | $694,000 | $1.00 million | $2.09 million | $2.69 million |
| Operating income (loss) | $(591,000) | $(4,000) | $(1.02) million | $35,000 |
| Net loss | $(666,000) | $(448,000) | $(1.25) million | $(838,000) |
- Cash and cash equivalents were $314,000 at September 30, 2019, down from $1.01 million at December 31, 2018.
- Operating cash use was $694,000 for the first nine months, compared with $513,000 in 2018; investing cash use was $7,000. Ending cash was $314,000.
- Working capital deficit was $6.09 million, versus $5.02 million at year-end 2018. Current assets were $518,000 and current liabilities $6.61 million.
- Total liabilities were $6.79 million. Current liabilities included a $2.50 million related-party convertible note, $2.80 million in accounts payable and accrued expenses, and $988,000 in unearned revenue. The note bears 12% interest and had a stated maturity date of December 30, 2018; the filing does not clearly explain its repayment or extension status.
- Stockholders’ deficit was $5.92 million. Common shares outstanding were 70.14 million; the filing also lists 38.20 million potential shares from the convertible note, options, and warrants, excluded from diluted EPS as anti-dilutive.
Material changes versus prior comparable periods
- Nine-month revenue declined $4.65 million; the company produced 10 conventions, including Ghostbusters Fan Fest, versus 12 in the prior-year period. Average revenue per event also declined.
- Q3 revenue fell $1.64 million, with four events versus five in Q3 2018. Management attributed weaker operating results to fewer events, lower revenue, and talent-related costs.
- Gross margin percentage fell to 3.6% in Q3 and 12.0% for the nine-month period. Management cited lower top-line revenue in Q3 and talent costs for the year-to-date decline.
- Operating expenses decreased, including lower general and administrative costs, which management attributed to cost controls. The savings did not offset lower revenue and weaker gross margins.
- Interest expense declined to $230,000 for the nine months from $873,000 in 2018, primarily reflecting lower debt-discount amortization.
Outlook, risks, contingencies, and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern through December 2020, citing operating losses, low cash, and the working capital deficit. It expects cost controls, revenue initiatives, and potential related-party or external financing to help, but gives no assurance of success.
- Management planned 14 live events for 2019 and described initiatives including fixed-site and immersive entertainment, an Asia tour, Middle East production opportunities, acquisitions, and programming for a China AVOD service. These are plans or developing activities, not quantified financial guidance.
- The company adopted ASC 842 in 2019 and recorded operating lease assets and liabilities. Lease liabilities totaled $194,000 at present value; the office sublease is with an entity controlled by the chairman.
- Related-party matters include the convertible note, consulting fees, office sublease, and a $75,000 non-interest-bearing loan from the CEO. The company reported a settled vendor dispute and no other pending litigation believed likely to have a material adverse effect.
- Disclosure controls and procedures were assessed as ineffective. Management said it is working to improve financial reporting controls; no material changes in internal control over financial reporting were reported during the quarter.
- The filing reports no off-balance-sheet arrangements, no material changes to previously disclosed risk factors, and no default on indebtedness. No quantitative financial guidance was provided.
Most important facts for investors to verify
- Confirm the issuer: the provided filing is for Wizard Entertainment, Inc., not Prairie Operating Co.
- Determine the current status, maturity, interest, and repayment or refinancing terms of the $2.50 million related-party convertible note, whose stated maturity predates the reporting date.
- Assess near-term liquidity and financing needs given $314,000 of cash, a $6.09 million working capital deficit, and the going-concern warning.
- Track convention count, attendance and revenue per event, talent costs, and whether cost savings can restore gross margins.
- Evaluate progress, funding requirements, and expected economics of the China, Asia, Middle East, fixed-site, and acquisition initiatives.
- Review remediation of ineffective disclosure controls and the potential dilution from the note, options, and warrants.
- Reconcile a note disclosure that cites nine-month operating loss of $1,109,186 with the statements and MD&A, which report $1,019,186.