Business Context and Reporting Period
Company: Wizard World, Inc. (Note: Metadata referenced "Prairie Operating Co." but the filing text identifies the registrant as Wizard World, Inc., formerly Goenergy, Inc.)
Reporting Period: Quarter ended March 31, 2011
Business Overview: The Company produces pop culture and live multimedia conventions ("Comic Cons") across North America. Following a reverse acquisition in December 2010, the Company operates two primary lines of business: live multimedia events (ticket sales and exhibitor booths) and sponsorships/advertising. The Company is also developing a digital media platform.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Convention Revenue | $536,656 | $214,830 |
| Gross Profit (Loss) | $(127,150) | $(3,097) |
| Operating Expenses | $888,852 | $181,920 |
| Loss from Operations | $(1,016,002) | $(185,017) |
| Net Income (Loss) | $573,124 | $(185,382) |
| Cash at Period End | $187,236 | $646,607 |
| Working Capital Deficit | $(1,461,942) | $(2,268,410) |
| Derivative Liability | $852,077 | $2,260,571 |
Cash Flow: Net cash used in operating activities was $(282,984) for Q1 2011 compared to $(19,409) in Q1 2010. Net cash used in financing activities was $(74,983).
Material Changes vs. Prior Period
- Revenue Growth: Convention revenue increased by $321,826 (150%) due to producing three live events in Q1 2011 compared to one in Q1 2010.
- Operating Loss Expansion: Operating loss widened significantly to $(1,016,002) from $(185,017). This was driven by the costs of running three unprofitable events, increased staff, and higher professional fees associated with public company status.
- Non-Cash Gains: The reported Net Income of $573,124 is primarily driven by a non-cash gain of $1,408,494 on the change in fair value of derivative liabilities. Without this gain, the Company would have reported a significant operating loss.
- Expense Increases: Operating expenses rose by $706,932, largely due to a $465,000 increase in non-cash stock-based compensation and a $150,000 increase in cash compensation.
- Liquidity: Cash balances decreased by $355,328 during the quarter. However, the working capital deficit improved by $806,468, primarily due to the reduction in the derivative liability.
Outlook, Risks, and Management Commentary
- Going Concern: The filing includes a "Going Concern" warning. The Company has an accumulated deficit of $(2,560,892) and a working capital deficit. Management states that the ability to continue operations is dependent on raising additional capital through debt or equity markets.
- Profitability Challenges: Management notes that while Philadelphia and Chicago markets have been profitable, other events have operated at a deficit. The digital media business is currently funded by outside investors and has not yet generated sufficient revenue to cover its operating costs.
- Future Plans: The Company expects to produce nine live events in 2011. Strategies to improve financial position include increasing product prices, reducing discounts, and securing more sponsorship deals.
- Controls and Procedures: Management concluded that disclosure controls and procedures were not effective as of March 31, 2011.
- Subsequent Events: Following the quarter, the Company entered into various stock subscription agreements and convertible debenture offerings totaling over $1.1 million in principal amounts to raise capital.
Investor Verification Checklist
- Derivative Liability Volatility: Verify the sustainability of the reported net income, which is heavily reliant on a $1.4M non-cash gain from derivative liability revaluation rather than core operations.
- Cash Burn Rate: Assess the sufficiency of the $187,236 cash balance against the $282,984 quarterly operating cash burn and the need for immediate capital raises.
- Event Profitability: Review the specific P&L for individual convention events to understand the variance between profitable (Philadelphia/Chicago) and unprofitable markets.
- Stock-Based Compensation: Confirm the valuation assumptions used for the $465,000 in stock-based compensation and the dilution impact of outstanding warrants (approx. 8M) and options.
- Internal Controls: Investigate the specific deficiencies cited in the ineffective disclosure controls and procedures.