Filing summary
Entity and period: The supplied filing is Wizard World, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed April 2, 2018. It does not appear to be a filing for Prairie Operating Co.; the company identity in the request and source do not match.
Business context
Wizard World produced pop-culture conventions through its operating subsidiary, reporting 14 events in 2017 versus 16 in 2016. Revenue came primarily from admissions, exhibitor booths, and sponsorships. The company ceased its ConBox subscription-box operations during 2017 and held a limited, passive 10% interest in CONtv.
Financial performance and liquidity
| Metric | 2017 | 2016, restated where applicable |
|---|---|---|
| Total revenue | $15.07 million | $22.70 million |
| Convention revenue | $14.98 million | $21.99 million |
| ConBox revenue | $84,580 | $707,101 |
| Gross margin | $9,316 (approximately 0.1% of revenue) | $6.53 million |
| Operating expenses | $5.35 million | $7.72 million |
| Loss from operations | $5.34 million | $1.18 million |
| Net loss | $5.73 million | $1.58 million |
| Cash used in operating activities | $2.53 million | $2.49 million |
| Cash and cash equivalents at year-end | $1.77 million | $4.40 million |
Revenue declined approximately 34% year over year, with fewer events and lower average revenue per event. Management attributed the near-zero 2017 gross margin to weaker event revenue and excessive production costs. Operating expenses fell by $2.37 million, including lower compensation and general and administrative costs, but the operating loss nevertheless widened substantially.
At December 31, 2017, current assets were $2.77 million and current liabilities were $6.31 million, resulting in a $3.54 million working-capital deficit, versus positive working capital of approximately $2.86 million a year earlier. Total liabilities were $6.31 million, total assets $2.94 million, and stockholders’ equity was negative $3.37 million.
The company reported a related-party convertible note with a $2.5 million initial principal, 12% annual interest, and a December 30, 2018 maturity; its year-end net carrying value was $1.12 million, classified as current. It is convertible at an initial $0.15 per share, subject to adjustment. Interest expense, including debt-discount accretion, was $395,102 in 2017. The filing also reports 16.7 million outstanding warrants at a $0.15 exercise price.
Outlook, risks, and unusual items
- Management expected to produce 16 conventions in 2018, subject to changes in locations and venues. It forecast corporate overhead of approximately $2.7 million in 2018, down from approximately $4.9 million in 2017, and said production costs excluding talent had been reduced by about one-third. These are management expectations, not reported results.
- Management cited planned initiatives with Sony Pictures Entertainment and agreements involving Chinese programming on CN Live and Associated Television International. The described opportunities were exploratory or in development; the filing does not establish that they will generate material revenue.
- The company disclosed substantial doubt regarding its ability to continue as a going concern, citing recurring losses, cash use, and the working-capital deficit. Continued operations depend on executing its plan, generating sufficient revenue, controlling expenses, and potentially obtaining additional financing; management provided no assurance that these conditions would be met.
- Disclosure controls and internal control over financial reporting were reported ineffective. Management identified material weaknesses involving limited segregation of duties and incomplete documentation of control processes. No auditor attestation of internal controls was included.
- The company early adopted ASU 2017-11 and retrospectively restated 2016 financial statements, including material changes to reported derivative-related balances and 2016 loss. The 2017 auditor issued an unqualified opinion on the financial statements and highlighted the accounting change.
- A former COO’s contract and disability-discrimination claims were pending, with trial scheduled for 2019; the company said it intended to proceed to trial and believed the claims lacked merit. Other described lawsuits had been resolved.
- The company dismissed its former auditor in December 2017 and engaged a new auditor. It reported no disagreements or reportable events with the former auditor.
Most important facts to verify
- Confirm that this Wizard World filing is the intended source, since it does not match the requested Prairie Operating Co.
- Reconcile inconsistent loss figures in the filing: the audited statements report 2017 net loss of $5.73 million and 2016 restated net loss of $1.58 million, while parts of MD&A and the cash-flow statement contain differing figures.
- Review the going-concern disclosure, cash runway, debt maturity and conversion terms, and the company’s ability to obtain additional financing.
- Track whether 2018 cost-reduction targets and the planned convention schedule were achieved, and whether the announced media initiatives produced revenue.
- Assess remediation of the disclosed material weaknesses and the status and potential financial impact of the former COO litigation.