Business Context and Reporting Period
The supplied filing is Wizard Entertainment, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019—not a filing identified as Prairie Operating Co. The filing describes a producer of live pop-culture conventions seeking to expand into media and digital programming. Comparative results are for the three months ended March 31, 2018.
Financial Performance and Position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Convention revenue | $3.55 million | $3.99 million; down $441,183 (about 11%) |
| Gross profit / margin | $592,144 / about 17% | $1.10 million / about 28% |
| Operating expenses | $735,414 | $821,556 |
| Operating income (loss) | $(143,270) | $283,276 |
| Interest expense | $79,827 | $168,893 |
| Net income (loss) | $(223,097) | $114,383 |
| Operating cash flow | $(57,257) | $(57,811) |
| Cash and cash equivalents | $951,265 | $1,014,671 at Dec. 31, 2018 |
| Working capital | Deficit of $5,191,285 | Deficit of $5,023,993 at Dec. 31, 2018 |
| Total liabilities | $7,117,437 | $7,140,953 at Dec. 31, 2018 |
The company had a $2.5 million related-party convertible promissory note recorded as a current liability; the note’s stated maturity was December 30, 2018. The filing reports no default on indebtedness. The company adopted ASC 842 in Q1 and recognized operating lease assets and liabilities; the March 31 lease liability was $234,288.
Material Changes and Management Commentary
- Revenue declined despite producing three events in each comparison quarter; average revenue per event fell to $1.18 million from $1.33 million.
- Management attributed the lower gross margin and operating result primarily to talent-related convention costs. Operating expenses declined, including lower general and administrative expense, which management linked to overhead controls.
- Management expected to produce 14 live events in 2019, subject to change. It cited a Sony Pictures alignment and agreements related to programming advertising-supported and subscription video channels in China as potential revenue opportunities; timing and financial contribution are not quantified.
- Management cited ongoing cost-control efforts and possible related-party or external financing as support for its ability to continue as a going concern, but stated there can be no assurance that it can generate sufficient revenue, control costs, or raise funds. The filing identifies substantial doubt about continued operations.
- Disclosure controls and procedures were reported as not effective. Management said it would continue working to improve financial reporting controls.
Risks, Contingencies, and Unusual Items
- The severe working-capital deficit and limited cash create significant liquidity risk. The filing does not provide a clear committed financing source or quantified liquidity forecast.
- The company’s related-party debt bears 12% annual interest and is convertible; the filing lists 16.7 million potential shares from the convertible note and 16.7 million warrants, in addition to stock options. These securities could create substantial dilution.
- The company filed suit against a vendor concerning decorator services. It stated that, apart from this dispute, it knew of no pending litigation expected to materially adversely affect its financial condition or results.
- Q1 included $131,928 of share-based compensation. The filing reports no off-balance-sheet arrangements and no material changes to previously disclosed risk factors.
Important Facts for Investors to Verify
- Confirm the intended issuer: the provided filing names Wizard Entertainment, Inc., not Prairie Operating Co.
- Clarify the status, repayment or conversion terms, and any subsequent events concerning the $2.5 million related-party note that had a stated December 2018 maturity.
- Assess near-term liquidity, the working-capital deficit, and whether financing has been secured after quarter-end.
- Verify the status and commercial terms of the proposed 2019 events, Sony Pictures initiatives, and China channel launches; the filing does not quantify expected revenue or timing.
- Review the remediation of ineffective disclosure controls and confirm the operating-loss figure: the financial statements report $(143,270), while one going-concern note contains a different operating-loss amount.