Business Context and Reporting Period
Company: Wizard World, Inc. (formerly GoEnergy, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2011
Business Overview: The Company produces pop culture and live multimedia conventions ("Comic Cons") across North America. In 2011, it produced nine events in cities including Miami, New Orleans, Toronto, and Chicago. Revenue is generated through consumer ticket sales, exhibitor booth sales, and sponsorships. In late 2011, the Company launched a digital media subsidiary and an advertising network to monetize its fan database and content.
Key Financial Metrics
| Metric | 2011 | 2010 |
|---|---|---|
| Convention Revenue | $3,782,124 | $3,000,814 |
| Gross Profit | $950,913 | $842,201 |
| Gross Margin | 25.1% | 28.1% |
| Operating Expenses | $4,108,215 | $1,183,010 |
| Loss from Operations | $(3,157,302) | $(340,809) |
| Net Loss | $(2,009,238) | $(1,628,190) |
| Net Loss Per Share (Basic/Diluted) | $(0.06) | $(0.08) |
| Current Assets | $669,972 | $656,997 |
| Current Liabilities | $4,080,466 | $2,925,407 |
| Working Capital Deficit | $(3,410,494) | $(2,268,410) |
| Cash and Cash Equivalents | $422,135 | $542,564 |
Debt and Liquidity: The Company holds convertible promissory notes and derivative liabilities totaling approximately $2.58 million ($633k notes + $1.95M derivative liability). Net cash used in operating activities was $1.57 million in 2011, funded by $1.46 million in financing activities (issuance of preferred stock and convertible notes).
Material Changes vs. Prior Period
- Revenue Growth: Convention revenue increased by $781,310 (26%) due to running nine events in 2011 compared to eight in 2010, with higher average revenue per event.
- Expense Surge: Operating expenses increased by $2.93 million (247%). Key drivers included:
- Web development fees: $815,039 (new line item for digital platform).
- Non-cash stock-based compensation: $700,090.
- Compensation and professional fees increases associated with public company status.
- Derivative Liability Impact: The Company recorded a non-cash gain of $1.28 million on the change in fair value of derivative liabilities, significantly offsetting the operating loss. In 2010, this same line item resulted in a loss of $1.28 million.
- Liquidity Deterioration: The working capital deficit widened by $1.14 million, driven by increased accounts payable, accrued liabilities, and convertible notes.
Guidance, Outlook, Risks, and Contingencies
- Going Concern: Independent auditors have expressed substantial doubt about the Company's ability to continue as a going concern due to accumulated deficits and net operating losses. Continued operations depend on raising additional capital.
- Strategic Focus: For 2012, the Company plans to focus on its six most popular "Super-Regional" shows to drive revenue growth. It aims to monetize its digital entertainment ad network by hiring direct sales employees and working with third-party representation firms.
- Capital Needs: The Company anticipates needing additional funding to finance growth and operations. It plans to raise capital through private placements of equity or debt.
- Internal Controls: Management identified material weaknesses in internal controls over financial reporting, citing inadequate segregation of duties and lack of top-level reviews due to limited resources.
- Unresolved Staff Comments: As of the filing date, the Company had outstanding comments from the SEC staff regarding previous 8-K and 10-K filings.
Investor Verification Checklist
- Capital Sufficiency: Verify the Company's ability to secure the additional financing required to sustain operations given the "Going Concern" warning and $3.4 million working capital deficit.
- Digital Monetization: Assess the actual revenue generated from the newly launched "Wizard World Digital Entertainment Network" to determine if it can offset the $815k+ development costs.
- Derivative Accounting: Review the valuation methodology for the $1.95 million derivative liability, as fluctuations in this non-cash item significantly impact reported net income/loss.
- Related Party Transactions: Scrutinize agreements with related parties, including consulting fees paid to California Concepts (CEO's company) and the Chairman's consulting arrangement.
- Stock Dilution: Monitor the impact of outstanding warrants (7+ million) and convertible preferred stock on future shareholder dilution.