Prairie Operating Co. — 2017 Q3 10-Q Summary
Entity discrepancy: The supplied filing is for Wizard World, Inc., not Prairie Operating Co. The summary below reflects the filing’s stated registrant. The reporting period ended September 30, 2017; the interim financial statements are unaudited.
Business context and reporting period
Wizard World produces pop-culture conventions across North America. Its reported segments are conventions and ConBox; management said it had suspended active ConBox production and distribution to focus on conventions. The company also began creating digital editorial content in August 2017.
Financial performance and liquidity
| Metric | Three months ended Sept. 30, 2017 | Nine months ended Sept. 30, 2017 |
|---|---|---|
| Revenue | $5.23 million | $13.70 million |
| Gross profit (loss) | $(5,000) | $32,000 |
| Operating expenses | $1.27 million | $4.49 million |
| Operating income (loss) | $(1.28) million | $(4.45) million |
| Net income (loss) attributable to common stockholders | $(3.70) million | $(5.40) million |
| Loss per share, basic and diluted | $(0.05) | $(0.08) |
For the nine months, cash used in operating activities was $3.13 million and cash used in investing activities was $97,000; cash declined by $3.23 million to $1.18 million. At September 30, current assets were $2.21 million and current liabilities were $10.89 million, a reported working-capital deficit of $8.67 million. Total assets were $2.42 million; total liabilities were $10.95 million; stockholders’ deficit was $8.53 million.
Current liabilities included $7.16 million of related-party derivative liabilities and $2.77 million of accounts payable and accrued expenses. The related-party convertible debenture had an initial principal of $2.5 million, bears 12% interest, and matures December 30, 2018. Its reported carrying value, net of debt discount, was $61,222; accrued interest was $253,000. The filing also reports 16.7 million exercisable Series A warrants at $0.15 per share and 37.98 million anti-dilutive securities excluded from diluted EPS.
Changes versus prior comparable periods
- Third-quarter revenue fell 18% year over year, while gross profit declined from $2.44 million to a small gross loss. The company held four events in each quarter; management attributed lower revenue and margins mainly to reduced attendance and higher event costs.
- Nine-month revenue fell 36%, from $21.38 million to $13.70 million. Convention revenue declined as the company produced 12 events versus 15 in the prior-year period and had lower attendance. ConBox revenue fell to $85,000 from $608,000.
- Nine-month gross profit dropped to $32,000 from $7.05 million, and operating results shifted from $1.08 million income to a $4.45 million loss. Lower operating expenses—down $1.49 million—did not offset weaker revenue and event economics.
- Nine-month net cash used in operations increased to $3.13 million from $1.25 million. The working-capital deficit widened by $5.04 million from December 31, 2016.
- Third-quarter other expense included a $2.31 million noncash loss from remeasuring derivative liabilities. For the nine months, the corresponding fair-value loss was $661,000, alongside $289,000 of interest expense.
Outlook, risks, contingencies, and unusual items
- Management expected to produce 14 live events in 2017, subject to change as locations and venues were evaluated. It aimed to increase revenue through improved marketing, broader attractions and celebrity talent, and to reduce costs. No quantified financial guidance was provided.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern through November 2018. It said additional related-party or external debt/equity financing might be available, but gave no assurance; continued operations depend on revenue generation, cost control, and financing.
- Disclosure controls and procedures were assessed as ineffective. Management and the board were reviewing reporting policies and procedures; no material change in internal control over financial reporting was reported for the quarter.
- Derivative liabilities are Level 3 fair-value estimates using a Monte Carlo model and unobservable volatility assumptions; management cautioned that changes in assumptions could materially affect reported values and earnings.
- A dispute with former COO Randall Malinoff remained active. Other described lawsuits had concluded, including a settlement in the Silverman matter for a non-material payment. The company reported no other pending litigation it believed would materially adversely affect its financial condition or results.
- Management disclosed plans to develop digital media and explore international distribution, live events, a content/merchandise installation, and business combinations; these initiatives may not come to fruition. The company also reported rights to program two channels in China and was discussing content supply.
Most important facts for investors to verify
- Confirm the issuer identity: the provided filing names Wizard World, Inc., despite the request metadata naming Prairie Operating Co.
- Assess near-term funding needs against the $1.18 million cash balance, $8.67 million working-capital deficit, operating cash burn, and going-concern warning.
- Review the debenture’s terms, accrued interest, debt discount, related-party status, derivative valuation, and potential dilution from warrants and other securities.
- Track convention attendance, event count, per-event revenue, and event-level costs, which drove the sharp deterioration in margins and operating results.
- Monitor remediation of ineffective disclosure controls and the status and potential cost of the Malinoff dispute.