Filing summary: Wizard World, Inc. — Form 10-Q
Identity note: The request metadata names Prairie Operating Co., but the filing is for Wizard World, Inc. This summary reflects the filing provided.
Business context and reporting period
The company produces pop-culture conventions across North America and earns revenue primarily from admissions, exhibitor space, sponsorships and advertising. It ceased ConBox operations in 2017. This unaudited report covers the quarter and six months ended June 30, 2018, compared with the corresponding 2017 periods. The company reported 68,535,036 common shares outstanding as of August 9, 2018.
Financial performance and liquidity
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | $5.112 million | $9.103 million |
| Gross profit | $622,365 | $1.727 million |
| Gross margin | About 12% | About 19% |
| Operating income (loss) | ($244,271) | $39,005 |
| Net loss | ($505,272) | ($390,889) |
| Loss per share, basic and diluted | ($0.01) | ($0.01) |
For the six months, operating cash flow was negative $303,887 and investing cash flow was negative $7,928; cash declined by $311,815 to $1.458 million. At June 30, current assets were $2.149 million versus current liabilities of $6.003 million, yielding a $3.853 million working-capital deficit. Total assets were $2.239 million and stockholders’ deficit was $3.719 million.
Current liabilities included a related-party convertible note, net, of $1.397 million and $2.644 million of accounts payable and accrued expenses. The note had an original principal of $2.5 million, accrues interest at 12%, and is due December 30, 2018; the filing reports $1.103 million of unamortized debt discount. The filing states no debt default and no interest paid in cash during the six-month period.
Material changes versus prior comparable periods
- Second-quarter revenue increased 3.3% year over year; six-month revenue increased 7.5%, driven by convention revenue. The company held four events in the quarter versus five, and seven in the six-month period versus eight; reported average revenue per event rose.
- Gross profit improved from a loss of $345,141 in Q2 2017 and $36,605 for the first half of 2017 to positive gross profit in 2018. Management attributed the improvement to marketing and production efficiencies.
- Operating expenses fell 44% in Q2 and 47% for the first half. First-half operating results improved by $3.217 million, from a $3.178 million loss to $39,005 income.
- Despite better operating results, first-half net loss remained $390,889, as interest expense rose to $429,894 from $176,674. Cash fell from $1.770 million at year-end 2017, and the working-capital deficit widened by $312,263.
- The 2017 comparative results were restated following early adoption of ASU 2017-11, which changed accounting for certain warrants and conversion features. The filing shows the restatement increased the reported six-month 2017 net loss by $1.645 million, to $3.355 million.
Outlook, risks and unusual items
Management expected to produce 16 live events in 2018, subject to change, including events in new markets. It cited ongoing overhead and convention-production cost reductions and said it expected those savings to support future results. Planned growth initiatives included exploring projects with Sony Pictures Entertainment and programming two channels in China through CN Live, with Associated Television International helping launch the networks. These initiatives are plans or agreements, not reported realized revenue.
The filing states that prior conditions had raised substantial doubt about the company’s ability to continue as a going concern through June 2019. Management believed cost savings and potential financing from related parties or external sources could help, but cautioned that there were no assurances. The financial statements contain no adjustments for potential going-concern consequences.
Disclosure controls and procedures were reported ineffective at quarter-end. Management said it was reviewing and documenting financial-reporting procedures; it reported no material changes in internal control during the quarter. A former COO’s contract and disability-discrimination lawsuit was set for trial in 2019; the company disputed the claims and intended to proceed to trial. Related-party arrangements include the convertible note, executive-chairman consulting fees and office sublease. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is Wizard World, Inc., not Prairie Operating Co.
- Assess liquidity and refinancing needs, particularly the $3.853 million working-capital deficit and the convertible note due December 2018.
- Evaluate whether convention margins and cost reductions are sustainable, and whether planned event volume and revenue initiatives are achieved.
- Review the going-concern disclosures, ineffective disclosure controls, and progress on remediation.
- Monitor the former COO litigation and the terms, balances and governance implications of related-party transactions.
- Reconcile the filing’s figures where inconsistent: the primary balance sheet reports total assets of $2.239 million, while the segment note lists $2.284 million for June 30, 2018.