SEC Filing Summary: Wizard World, Inc. (Form 10-K)
Business Context and Reporting Period
Company: Wizard World, Inc. (formerly GoEnergy, Inc.)
Reporting Period: Fiscal year ended December 31, 2010
Business Model: Producer of pop culture and live multimedia conventions ("Comic Cons") across North America. Revenue is generated through consumer ticket sales, exhibitor booth sales, and sponsorships. In late 2011, the company launched a digital entertainment ad network.
Key Event: On December 7, 2010, the company completed a reverse acquisition of Kick the Can Corp. (Conventions), becoming a producer of conventions. The transaction was treated as a capital transaction where Conventions is the accounting acquirer.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Convention Revenue | $3,000,814 | $2,119,327 |
| Gross Profit | $842,201 (28% margin) | $(59,678) (Loss) |
| Operating Loss | $(340,809) | $(827,899) |
| Net Loss | $(1,628,190) | $(829,625) |
| Net Loss Per Share (Basic/Diluted) | $(0.08) | $(0.04) |
| Cash and Cash Equivalents (End of Period) | $542,564 | $2,364 |
| Working Capital Deficit | $(2,268,410) | $(515,341) |
| Total Current Liabilities | $2,925,407 | $556,918 |
| Derivative Liability | $2,260,571 | $0 |
Note: The significant increase in current liabilities and working capital deficit in 2010 is primarily driven by the recognition of a $2.26 million derivative liability associated with convertible preferred stock and warrants issued during the year.
Material Changes vs. Prior Period
- Revenue Growth: Convention revenue increased by $881,487 (41.6%) due to an increase in the number of live events produced (8 events in 2010 vs. 3 in 2009). Five new events generated $1.19 million in revenue.
- Profitability Improvement: The company moved from a gross loss of 3% in 2009 to a gross profit margin of 28% in 2010. This was achieved by cutting production costs per show (approx. $1.1 million reduction in existing events) and utilizing more part-time staff.
- Operating Expenses: Compensation expenses rose to $461,478 from $182,044, and General and Administrative expenses increased to $721,532 from $586,177, reflecting the overhead of running additional conventions.
- Non-Operating Expenses: Other expenses surged to $1.29 million in 2010 (from $1,726 in 2009) due to a $1.28 million derivative expense related to the fair value adjustment of warrant liabilities.
- Liquidity: Cash on hand increased significantly to $542,564 from $2,364, funded primarily by $894,314 in net cash provided by financing activities (issuance of convertible preferred stock).
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 through debt or equity markets.
- Outlook: Management plans to focus on six "Super-Regional" shows in 2012 and expand the digital media business (Wizard World Digital Entertainment Network) to generate advertising revenue. The company expects to continue funding the digital business via outside investors until it becomes self-sustaining.
- Risks:
- Capital Needs: The company may be unable to obtain sufficient capital to fund growth, potentially forcing a reduction in operations.
- Internal Controls: Management identified material weaknesses in internal controls over financial reporting, including inadequate segregation of duties and lack of top-level reviews.
- Stock Liquidity: Common stock is quoted on the Pink Sheets (Symbol: WIZD) and is thinly traded, subject to penny stock rules, which may hinder investors' ability to sell shares.
- Competition: Faces competition from established entities like Comic-Con International (San Diego) and Reed Exhibitions.
- Unresolved Staff Comments: As of January 12, 2012, the company had 16 outstanding comments from the SEC regarding its Form 8-K/A filings related to the 2010 share exchange.
Investor Verification Checklist
- Capital Sufficiency: Verify the company's ability to secure the additional financing required to sustain operations given the "Going Concern" warning.
- Derivative Liability: Confirm the valuation methodology and potential cash impact of the $2.26 million derivative liability.
- Internal Controls: Assess the remediation plan for material weaknesses in financial reporting and segregation of duties.
- SEC Compliance: Monitor the resolution of the 16 outstanding SEC comments regarding the reverse acquisition.
- Digital Revenue: Evaluate the actual revenue generation from the newly launched digital ad network versus the projected costs.