Wizard World, Inc. — Q2 2016 Form 10-Q
Entity note: The request identifies Prairie Operating Co., but the supplied filing is for Wizard World, Inc. This summary reflects the supplied filing. Reporting period ended June 30, 2016; interim financial statements are unaudited.
Business context and outlook
Wizard World produces pop-culture conventions across North America and operates ConBox, a subscription merchandise business. Management expected to produce 19 live events in 2016 and planned live concerts at approximately seven conventions. It also described ongoing efforts to grow digital audiences and its online presence; the digital platform had not yet earned a profit.
Financial performance
| Metric | Three months ended June 30, 2016 | Three months ended June 30, 2015 | Six months ended June 30, 2016 | Six months ended June 30, 2015 |
|---|---|---|---|---|
| Total revenue | $9.63 million | $7.58 million | $14.97 million | $13.68 million |
| Gross profit | $2.41 million | $0.74 million | $4.61 million | $2.26 million |
| Operating income (loss) | $0.48 million | ($1.34 million) | $0.60 million | ($1.89 million) |
| Net income (loss) attributable to common stockholders | $0.40 million | ($1.80 million) | $0.38 million | ($2.78 million) |
| Basic and diluted EPS | $0.01 | ($0.04) | $0.01 | ($0.05) basic |
- For Q2, convention revenue rose $2.06 million to $9.51 million; the company held seven events versus six a year earlier. ConBox revenue declined to $123,000 from $132,000.
- For the first half, convention revenue increased $956,000 and ConBox revenue rose to $471,000 from $132,000. Management attributed improved event revenue and gross margins to stronger attendance, established markets, marketing, pricing, and event programming.
- Gross margin was approximately 25% in Q2 versus 10% a year earlier, and 31% for the first half versus 17%. Operating expenses declined to $1.93 million for Q2 and $4.01 million for the first half.
Cash, liquidity, and debt
- Cash was $4.87 million at June 30, up from $4.72 million at year-end. Working capital was $1.96 million, versus $1.08 million at year-end; current assets were $6.41 million and current liabilities $4.46 million.
- First-half operating cash flow was $260,130, compared with cash used of $259,017 in the 2015 cash-flow statement. Investing activities used $115,503; financing activities provided no cash. The MD&A gives the 2015 operating cash outflow as $257,019, a difference from the statement.
- The balance sheet shows no borrowings or non-current liabilities. The filing reports no defaults on indebtedness.
- Unearned revenue fell to $2.09 million from $3.73 million at year-end, while accounts payable and accrued expenses rose to $2.12 million from $1.58 million.
Material changes, risks, and unusual items
- The company reported a first-half return to operating and net profitability, compared with losses in the prior-year period. Lower CONtv losses contributed: $150,000 for the first half versus $898,436 a year earlier. The CONtv investment was reported at zero; the company retained a 10% interest and had a $249,241 balance due to the venture.
- In February 2016, the company acquired the remaining 50% interest in Wiz Wizard, making it wholly owned. It entered into a five-year, three-month office sublease with an entity controlled by the chairman, at $8,118 monthly; it paid $199,238 in prepaid rent and a $9,137 deposit. Future minimum rent payments total $493,540.
- Management concluded disclosure controls and procedures were not effective at quarter-end. It said it was reviewing policies and procedures and working to improve financial reporting controls.
- The filing identifies no material litigation, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Cash at certain banks exceeded FDIC insurance limits.
- Post-quarter developments included the CEO’s July employment agreement and options, the COO’s July appointment and planned options, and board ratification of the related-party sublease. The company also reported 10.2 million options outstanding at June 30; a subsequent disclosure says 5.79 million additional options were forfeited.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Wizard World, Inc., not Prairie Operating Co.
- Reconcile the 2015 operating cash-flow comparison: the cash-flow statement reports ($259,017), while MD&A reports ($257,019).
- Verify event-count descriptions: MD&A says 11 events in first-half 2016 versus 13 in first-half 2015, despite higher first-half 2016 revenue; Q2 counts were seven versus six.
- Assess the implications of ineffective disclosure controls, the related-party office lease and prepaid rent, and remaining CONtv funding obligations.
- Review the subsequent option forfeitures and executive compensation arrangements when assessing potential dilution and costs.