Business context and reporting period
Entity mismatch: The request identifies Prairie Operating Co., but the supplied filing is Wizard World, Inc.’s Form 10-K. This summary covers Wizard World’s fiscal year ended December 31, 2012, with comparative 2011 figures; it is not a standalone 2012 fourth-quarter report.
Wizard World produces pop-culture conventions across North America, earning revenue mainly from tickets, exhibitor and dealer sales, with a smaller contribution from sponsorships and advertising. It held seven events in 2012, versus nine in 2011. Its digital media business remained an investment initiative and had not generated enough revenue to cover its operating costs.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Convention revenue | $6.744 million | $3.782 million |
| Gross profit | $2.419 million | $0.951 million |
| Gross margin | 36% | 25% |
| Operating expenses | $2.221 million | $4.108 million |
| Operating income (loss) | $0.198 million | $(3.157) million |
| Net loss | $(1.019) million | $(2.009) million |
| Operating cash flow | $0.243 million | $(1.573) million |
| Cash at year-end | $1.957 million | $0.422 million |
| Working capital | $1.012 million | $(1.464) million |
Revenue increased 78% despite two fewer events; management attributed the rise to stronger event marketing, higher ticket prices, and larger events. Average revenue per event rose to approximately $963,000 from $420,000. Operating expenses declined 46%, including lower web-development, consulting, and professional fees. The company reported no income-tax provision.
At December 31, 2012, current assets were $2.260 million and current liabilities were $1.247 million. Current liabilities included $176,000 of unearned convention revenue and $387,000 of accrued preferred dividends; no convertible promissory notes remained on the balance sheet. Total liabilities were $6.031 million, including a $4.784 million derivative liability. The filing reports no off-balance-sheet arrangements. No separate interest-rate or foreign-exchange exposure is quantified; the company says it holds no derivatives for hedging.
Financing cash flow was $1.292 million in 2012, principally reflecting $1.550 million raised through Series A convertible preferred stock, offset by $233,000 of issuance costs and $25,000 of note repayment. Management estimated a $2.3 million working-capital requirement and a $190,000 monthly burn rate for the next 12 months, while stating that available cash and operating cash flow would be sufficient for that period.
Material changes and unusual items
- Operations improved substantially: positive operating income replaced a large operating loss, and operating cash flow turned positive. The company nevertheless remained loss-making after other expenses.
- Other expenses included a $1.012 million loss from changes in derivative fair value. The derivative liability was valued using Level 3 inputs and a Lattice model, making the valuation dependent on unobservable assumptions.
- The statements report a $2.120 million deemed dividend on Series A preferred stock and a $3.139 million net loss attributable to common stockholders, compared with a $1.019 million net loss before that dividend. The filing reports basic and diluted loss per share of $0.03, which appears to reflect the pre-dividend net loss; the relationship between the reported EPS and loss attributable to common stockholders warrants reconciliation.
- Series A preferred stock carries an 8% cumulative annual dividend, rising to 15% upon default, and has conversion, anti-dilution, redemption, and liquidation-preference provisions. The filing describes a two-times-stated-value preference upon a liquidation event. These terms may materially affect common-stock dilution and value.
- The company issued 690,000 common shares to consultants for services, valued at $296,000. Common shares outstanding were 35,794,878 as of March 28, 2013. As of year-end, 7,987,274 warrants were outstanding; the filing also identifies substantial convertible preferred stock and options as potential dilution.
Outlook, risks and contingencies
Management planned eight live events in 2013, focusing on selected North American cities, and continued pursuing digital advertising and sponsorship revenue. The filing provides no quantified revenue or earnings guidance. Management said some events had been profitable while others operated at a deficit; the digital platform had yet to earn a profit and depended on outside financing and cash flow from live events.
Key risks include dependence on event attendance and discretionary consumer spending, competition, event-specific losses, reliance on additional capital, the ability to monetize digital properties, and dependence on key personnel. Preferred-stock terms and potential equity issuance create financing and dilution risks. The common stock trades on the OTCBB/OTCQB and is described as thinly traded and subject to penny-stock rules. The filing reports no material pending litigation and says management did not believe disclosed contingencies would materially harm the company, while noting that outcomes cannot be assured.
Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end because of material weaknesses, including limited transaction controls, inadequate segregation of duties, and insufficient top-level review. Remediation depended in part on obtaining funding and adding resources. The independent auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal controls.
Important facts for investors to verify
- Confirm the filing identity and period: the supplied document is Wizard World’s FY 2012 Form 10-K, not a Prairie Operating Co. filing or a quarterly report.
- Reconcile reported EPS of $(0.03) with the $3.139 million loss attributable to common stockholders and the $2.120 million preferred deemed dividend.
- Reconcile the derivative liability amounts: the balance sheet and MD&A cite $4.784 million, while the Level 3 note gives $4.784435 million and contains other inconsistent table figures.
- Assess whether the stated cash runway is achievable against the disclosed $2.3 million working-capital need, $190,000 monthly burn estimate, event-level profitability, and reliance on external financing.
- Review the preferred-stock dividend, redemption, liquidation, conversion, and anti-dilution terms, along with potential warrant, option, and preferred-stock dilution.
- Track remediation of the disclosed material weaknesses and the company’s ability to fund its digital business and execute the 2013 event plan.