Business context and reporting period
The supplied filing is Wizard World, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018; it does not identify Prairie Operating Co. as the registrant. Wizard World produces pop-culture conventions and had ceased its ConBox operations in 2017.
Financial results and position
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $3.991 million | $3.522 million |
| Gross profit | $1.105 million | $0.382 million |
| Operating expenses | $0.822 million | $1.664 million |
| Operating income (loss) | $0.283 million | $(1.282) million |
| Interest and other expenses | $0.169 million | $0.085 million |
| Net income (loss) attributable to common stockholders | $0.114 million | $(1.366) million |
| Cash used in operations | $0.058 million | $0.799 million |
Convention revenue rose $543,209, while ConBox revenue fell to zero from $74,119. Gross margin was about 27.7% of revenue versus 10.8% in the prior-year quarter. Cash was $1.712 million at quarter-end. Current liabilities were $6.030 million against current assets of $2.648 million, a $3.382 million working-capital deficit. Total liabilities were $6.030 million and stockholders’ deficit was $3.232 million.
Material changes and unusual items
Revenue increased about 13% year over year, and operating expenses fell about 51%. The company attributed improved results to stronger convention revenue, lower production costs, reduced staffing and corporate overhead. The prior-year comparative was restated after retrospective adoption of ASU 2017-11: the filing shows Q1 2017 net loss of $1.367 million, versus previously reported net income of $0.517 million, principally reflecting removal of a derivative-liability fair-value gain.
The company reported a related-party convertible note with $2.5 million initial principal, 12% annual interest, and a December 30, 2018 maturity. The balance sheet reports $1.211 million net as a current liability; the filing also reports $1.289 million of unamortized debt discount. Conversion is initially at $0.15 per share, subject to adjustment. Outstanding warrants and options create potential dilution. No cash interest was reported as paid during the quarter.
Outlook, risks and contingencies
Management expected to produce 16 live events in 2018, while noting the number could change. It cited prospective initiatives with Sony Pictures Entertainment and plans for two channels in China through CN Live, with Associated Television International; these are plans or agreements, not reported realized revenue. Management projected a 2018 corporate operating budget of $2.7 million, compared with $4.9 million in 2017.
The filing says prior conditions had raised substantial going-concern doubts through March 2019. Management cited cost reductions, revenue initiatives and possible related-party or external financing, but cautioned there can be no assurance of success. A former COO’s breach-of-contract and disability-discrimination case was scheduled for trial in 2019; the company disputes the claims. No amount of potential exposure is stated. Disclosure controls and procedures were reported ineffective; management said it was reviewing and improving financial-reporting controls. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the issuer: this source is Wizard World, Inc., not Prairie Operating Co.
- Reconcile accounts receivable: the balance sheet reports $273,586, while the segment disclosure reports $237,586.
- Review near-term liquidity, the going-concern disclosure, and the convertible note’s maturity, repayment or refinancing prospects, and conversion terms.
- Assess potential dilution from the convertible note, warrants and options; the filing’s reported basic and diluted per-share figures differ, with diluted loss per share shown as $(0.01) despite positive net income.
- Track whether planned conventions and media initiatives generate revenue, and monitor the litigation and remediation of ineffective disclosure controls.