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WIZD > SEC Filings for WIZD > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for WIZARD WORLD, INC.

Form 10-Q for WIZARD WORLD, INC.


14-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This quarterly report on Form 10-Q and other reports filed by Wizard World, Inc.
(the "Company") from time to time with the SEC (collectively, the "Filings")
contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company's management as well as estimates and assumptions made by Company's management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan," or the negative of these terms and similar expressions as they relate to the Company or the Company's management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company's business, industry, and the Company's operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Overview

We intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying notes for the three months ended September 30, 2012 and 2011, included elsewhere in this report.

We are a producer of pop culture and multimedia conventions ("Comic Cons") across North America that market movies, TV shows, video games, technology, toys, social networking/gaming platforms, comic books and graphic novels. These Comic Cons provide sales, marketing, promotions, public relations, advertising and sponsorship opportunities for entertainment companies, toy companies, gaming companies, publishing companies, marketers, corporate sponsors and retailers.

Plan of Operation

Our Company has two lines of business: (i) live multimedia events, which involve ticket sales and exhibitor booth space, and (ii) sponsorships and advertising. Our current focus is on growing our existing Comic Cons by obtaining new exhibitors and dealers and attracting more high profile celebrities and VIPs. We also plan to expose our database of fans and our target market of young adult males to our content through digital media such as Facebook, Twitter, YouTube, Flickr, and Tumblr, and draw higher traffic to our website www.wizardworld.com by creating content from our live multimedia events and promoting such events through emails and newsletters.

We continued the development of the "Wizard World Digital Entertainment Network," which is comprised of one website located at www.toywiz.com and the Wizard World email database. The Wizard World Digital Entertainment Network will offer display advertising to brand advertisers, priced on a traditional CPM ad impression basis. We plan to work with display advertising networks and third party representation firms, and to hire four direct sales employees over the next 12 months to maximize the monetization of the Wizard World Digital Entertainment Network.

We expect to produce seven (7) live events during the year ended December 31, 2012. We run the risk that we will not be profitable in the live event business. To date, we have operated profitable live events in both the Philadelphia and Chicago markets, but we have operated at a deficit in other events. In order for us to operate a successful event, we must produce an event that is relevant to the public in order drive ticket sales, booth sales, sponsorship and advertising. In order for the Company to grow the digital business, we must attract unique users and drive traffic to our online site. To date, we have exhausted considerable resources developing our media platform, but we have yet to earn a profit from the platform.

Currently, our digital media business has been funded on capital raised from outside investors. We are currently earning revenue from the site and from the newly launched digital entertainment ad network, but not enough to maintain the costs to operate. We must continue to fund the digital media business from outside investors and from cash flow from the live event business until the media platform generates enough revenue to support its own operation.

Results of Operations



For the Three Months Ended September 30, 2012 and 2011:



                                                                    Three Months Ended
                                                             September 30,       September 30,
                                                                 2012                2011
Convention revenue                                          $     2,792,907     $     1,434,625
Gross profit                                                $     1,380,630     $       733,566
Operating expenses                                          $      (734,087 )   $      (915,866 )
Income (loss) from operations                               $       646,543     $      (182,300 )
Other income (expenses)                                     $     1,057,744     $    (1,209,789 )
Net income (loss)                                           $     1,704,287     $    (1,392,089 )
Income (loss) per common share - basic and diluted          $          0.04     $         (0.04 )

Convention Revenue

Convention revenue was $2,792,907 for the three months ended September 30, 2012, as compared to $1,434,625 for the comparable period ended September 30, 2011, an increase of $1,358,282. The increase in convention revenue is primarily attributable to running well advertised and marketed events. The Company hosted two conventions during the three months ended September 30, 2012, as compared to one event during the comparable three months ended September 30, 2011.

Gross Profit

Gross profit percentage decreased from a gross profit of 51% during the three months ended September 30, 2011, to a gross profit of 49% during the three months ended September 30, 2012. The slight decrease is primarily attributable to the Company adding an additional event during the three months ended September 30, 2012, as compared to the comparable period ended September 30, 2011. The additional event had a lower gross profit.

Operating Expenses

General and administrative expenses for the three months ended September 30, 2012, was $734,087, as compared to $915,866 for the three months ended September 30, 2011. The $181,779 decrease is primarily attributable to a $366,895 decrease in web development fees offset by a $140,120 increase in consulting fees paid in both cash and stock and a $41,010 increase in compensation expense.

Income (Loss) from Operations

Income (loss) from operations for the three months ended September 30, 2012, was $646,543, as compared to a loss of $(182,300) for the three months ended September 30, 2011. The increase in income (loss) from operations is the Company running two profitable events during the three months ended September 30, 2012, as compared to running one event during the three months ended September 30, 2011. In addition, the Company reduced web development costs during the three months ended September 30, 2012, as compared to the three months ended September 30, 2011.

Other Income (expenses)

Other income (expense) for the three months ended September 30, 2012, was $1,057,744, as compared to $(1,209,789) for the three months ended September 30, 2011. The Company incurred a gain in change in fair value of derivative liabilities in the amount $1,068,302 during the three months ended September 30, 2012 as compared to a loss from the change in fair value of derivative liabilities of $(1,143,968) during the comparable three months ended September 30, 2011. In addition, during the three months ended September 30, 2012, the Company recorded $10,572 in interest expense on the Company's convertible notes issued in August 2011 and amortized debt discounts to interest expense as compared to $65,821 for the comparable three months ended September 30, 2011.

Net Income (Loss)

Net income for three months ended September 30, 2012, was $1,704,287 or income per share of $0.04, as compared to a loss of $(1,392,089) or loss per share of $(0.04), for the three months ended September 30, 2011.

For the Nine Months Ended September 30, 2012 and 2011:



                                                     Nine Months Ended
                                             September 30,       September 30,
                                                 2012                2011
Convention revenue                          $     5,173,315     $     3,076,697
Gross profit                                $     1,955,914     $       761,232
Operating expenses                          $    (1,903,860 )   $    (3,355,277 )
Income (loss) from operations               $        52,054     $    (2,594,045 )
Other income (expenses)                     $    (1,339,062 )   $       479,492
Net loss                                    $    (1,287,008 )   $    (2,114,553 )
Loss per common share - basic and diluted   $         (0.08 )   $         (0.06 )

Convention Revenue

Convention revenue was $5,173,315 for the nine months ended September 30, 2012, as compared to $3,076,697 for the comparable period ended September 30, 2011, an increase of $2,096,618. The increase in convention revenue is primarily attributable to running well advertised and marketed events. The Company made an effort to decrease the number of live events (from 7 in 2011 to 5 in 2012) in order to spend more resources to increase the per show revenue. Average per show revenue increased significantly during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011.

Gross Profit

Gross profit percentage increased from a gross profit of 25% during the nine months ended September 30, 2011, to a gross profit of 38% during the nine months ended September 30, 2012. The increase is primarily attributable to the Company establishing hard budgets for each show, increasing exhibitor revenues and ticket sales.

Operating Expenses

General and administrative expenses for the nine months ended September 30, 2012, was $1,903,860, as compared to $3,355,277 for the nine months ended September 30, 2011. The $1,451,417 decrease is primarily attributable to a $784,614 decrease in web development charges, and a $677,799 decrease in consulting fees paid in both cash and stock.

Income (Loss) from Operations

Income from operations for the nine months ended September 30, 2012, was $52,054, as compared to a loss of $2,594,045 for the nine months ended September 30, 2011. The primary increase in income (loss) from operations is the Company running more profitable event during the nine months ended September 30, 2012, as compared to running unprofitable events during the nine months ended September 30, 2011. In addition, the Company reduced third party consulting fees, web development costs and stock based compensation during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011.

Other Income (expenses)

Other income (expense) for the nine months ended September 30, 2012, was $(1,339,062), as compared to $479,492 for the nine months ended September 30, 2011. The Company incurred a loss in change in fair value of derivative liabilities in the amount $(1,089,254) during the nine months ended September 30, 2012 as compared to a gain from the change in fair value of derivative liabilities of $345,425 during the comparable nine months ended September 30, 2011. In addition, during the nine months ended September 30, 2012, the Company recorded $249,822 in interest expense on the Company's convertible notes issued in August 2011 and amortized debt discounts to interest expense as compared to $66,180 during the comparable nine months ended September 30, 2011.

Net Loss

Net loss for nine months ended September 30, 2012, was $(1,287,008) or loss per share of $(0.08), as compared to $(2,114,553) or loss per share of $(0.06), for the nine months ended September 30, 2011.

Inflation did not have a material impact on the Company's operations for the applicable period. Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company's results of operations.

Liquidity and Capital Resources



The following table summarizes total current assets, liabilities and working
capital at September 30, 2012, compared to December 31, 2011:



                             September 30,      December 31,
                                 2012               2011           Increase/(Decrease)
Current Assets              $     2,565,834     $     669,972     $           1,895,862
Current Liabilities         $     6,782,147     $   4,080,466     $           2,701,681
Working Capital (Deficit)   $    (4,216,313 )   $  (3,410,494 )   $            (805,819 )

At September 30, 2012, we had a working capital deficit of $4,216,313, as compared to a working capital deficit of $3,410,494, at December 31, 2011, a decrease of $805,819. The decrease is primarily attributable to an increase of $2,917,665 in derivative liabilities embedded in the company's financial instruments, offset by an increase in cash.

Net Cash

Net cash provided by (used) in operating activities for the nine months ended September 30, 2012 and 2011, was $310,949 and $(1,235,194), respectively. The net loss for the nine months ended September 30, 2012 and 2011, was $(1,287,008) and $(2,114,553), respectively. The strengthening of the operations is primarily attributable to running less but more profitable events during the nine months ended September 30, 2012. In addition, the Company is not incurring the web development fees that it incurred during the comparable nine months ended September 30, 2011.

Net cash obtained through all financing activities for the nine months ended September 30, 2012, was $1,316,764, as compared to $893,117 for the nine months ended September 30, 2011. The Company raised $1,550,000 through the sale and issuance of convertible preferred stock, less $233,236 in issuance costs.

Going Concern

As reflected in the accompanying unaudited interim financial statements, the Company had a net loss for the nine months ended September 30, 2012, and a working capital deficit and stockholders' deficit, respectively, at September 30, 2012. These factors raise substantial doubt about the Company's ability to continue as a going concern.

The ability of the Company to continue its operations is dependent on management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes.

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

In response to these problems, management continues to the following actions:

continue with the implementation of the business plan;

increase product prices and reduce discounts;

increase revenue from existing live events; and

increase revenue through sponsorship and advertising deals.

Off-Balance Sheet Arrangements

As of September 30, 2012, the Company had no off-balance sheet arrangements.

Critical Accounting Policies

We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this "Management's Discussion and Analysis of Financial Condition and Results of Operation."

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company's significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to deposits and construction in progress, income tax rate, income tax provision, allowance of deferred tax assets and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Property and Equipment

Property and equipment is stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets, varying from 3 to 5 years or, when applicable, the life of the lease, whichever is shorter.

Carrying Value, Recoverability and Impairment of long-lived assets

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company's long-lived assets, which include property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset's expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company's overall strategy with respect to the manner or use of the acquired assets or changes in the Company's overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; and
(v) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

The impairment charges, if any, are included in operating expenses in the accompanying statements of operations.

Derivative Instruments

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Paragraph 810-10-05-4 of the Codification and Paragraph 815-40-25 of the Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

Income Taxes

We comply with SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

Revenue Recognition

In accordance with the provisions of Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, as amended by SAB 104, revenues are generally recognized when products are shipped or as services are performed. However, due to the nature of our business, there are additional steps in the revenue recognition process, as described below:

Sponsorships: We follow the guidance of Emerging Issues Task Force ("EITF") Issue 00-21 Revenue Arrangements with Multiple Deliverables, and assign the total of sponsorship revenues to the various elements contained within a sponsorship package based on their relative fair values.

Fair Value of Financial Instruments

We follow paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of our financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification ("Paragraph 820-10-35-37") to measure the fair value of our financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1 - Quoted market prices available in active markets for identical assets or liabilities as of the reporting date;

Level 2 - Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date; and

Level 3 - Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amount of the Company's financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company's convertible preferred stock and warrants approximate the fair value of such instruments based upon management's best estimate of interest rates that would be available to the Company for similar financial arrangements at September 30, 2012.

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative warrant liability at every reporting period and recognizes gains or losses in the consolidated statements of operations and comprehensive income (loss) that are attributable to the change in the fair value of the derivative warrant liability.

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheets:

                                                               Fair Value Measurement Using
                               Carrying
                                 Value           Level 1           Level 2          Level 3          Total

Derivative conversion
features and warrant
liabilities                   $ 4,864,334     $           -     $           -     $ 4,864,334     $ 4,864,334

Recent Accounting Pronouncements

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