Convention operator Wizard World, Inc. made around $365,000 in its recently completed Q3, but warned in the notes to its financials that it would run out of cash at the end of the year.  To solve that problem, the company plans to raise capital “through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes,” the note said.  But if it’s not successful, the company will pursue a “…significant reduction of operating expenses until such time that funds provided by operations are sufficient to fund working capital requirements.”

The $365,000 profit was down 50% from the year ago period.  Sales were only down 12% (on fewer shows), but expenses were flat.

The company has been profitable so far this year (see “Wizard World Turns Profit in First Quarter”), so how is it running out of cash?  The answer comes from its statement of cash flows, which show that its “Unearned Revenue” account is down $3,221,138 in the first nine months of 2016.  That account reflects prepayments for tickets, booths, sponsorships, or Con Box subcriptions, or cash in before the service is delivered. 

Wizard World has reduced the number of shows it’s mounting, cutting back from 24 shows in 2015 to 19 in 2016, and plans to reduce further to 16 in 2017 (see “Wizard World Cuts Back on Shows Again in 2017”), and has reduced emphasis on its Con Box subscription service (in a crowded category).  Both of those factors have reduced the amount of money it takes in before its shows take place, or before it ships its subscription boxes. 

The thinner schedule means that the company is also cutting the amount it lays out in expenses in advance of its shows, but that only contributed $522,210 to cash in the first nine months of the year, leaving  roughly $2.7 million in negative cash flow just from the unearned income and prepaid expenses accounts. 

And it’s likely that the company is expecting a rough Q4, as that’s the quarter with the fewest shows but continuing expenses.  Last year Wizard World lost $2.19 million in Q4.  It had $3.19 million in cash at the end of Q3 this year, but could burn through that quickly with fewer shows in the pipe and a big Q4 loss.

ICv2 columnist Rob Salkowitz pointed out some of the factors stressing show operators earlier this year (see “As the 2016 Con Season Begins, Seams Are Starting to Show”).  And Wizard World now has a big distraction, with litigation pending with its former Chief Marketing Officer (see “Shamus Countersues Wizard World” and “Wizard World Files Suit Against Steve Shamus”).  It will be interesting to see how this plays out.