UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended:
December 31, 2017
or
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number:
000-33383
WIZARD
WORLD, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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98-0357690
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(State
or other jurisdiction of
incorporation or organization)
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(I.R.S.
Employer
Identification No.)
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662
N. Sepulveda Blvd., Suite 300
Los
Angeles, CA 90049
(Address
of principal executive offices)
(310)
648-8410
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]
No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
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[ ]
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Accelerated
filer
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[ ]
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Non-accelerated
filer
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[ ]
(Do not check if a smaller reporting company)
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Smaller
reporting company
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[X]
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Emerging
growth company
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[ ]
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2017, based
on a closing price of $0.20 was $3,981,938. As of April 2, 2018, the registrant had 68,535,036 shares of
its common stock, par value $0.0001 per share, outstanding.
Documents
Incorporated By Reference:
None
.
TABLE
OF CONTENTS
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included
in this Annual Report on Form 10-K are “forward-looking” statements, as well as historical information. Although we
believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations
reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those
anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk
Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “may,” “project,”
“plan,” “will,” “shall,” “should,” and similar expressions, including when used
in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable,
these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking
statements. Important factors that could cause our actual results, performance or achievements to differ from these forward-looking
statements include the following:
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the
availability and adequacy of our cash flow to meet our requirements;
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economic,
competitive, demographic, business and other conditions in our local and regional markets;
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changes
in our business and growth strategy;
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changes
or developments in laws, regulations or taxes in the entertainment industry;
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actions
taken or not taken by third-parties, including our contractors and competitors;
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the
availability of additional capital; and
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other
factors discussed under the section entitled “Risk Factors” or elsewhere in this Annual Report.
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All
forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake
no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date
initially filed or published, to reflect the occurrence of unanticipated events or otherwise unless required by applicable law.
PART
I
Item
1. Business.
As
used in this Annual Report, “we,” “us,” “our,” “Wizard,” “Company”
or “our Company” refer to Wizard World, Inc. and references to “Conventions” refer collectively to Kick
the Can Corp. and its predecessors, Wizard Conventions, Inc. and Kicking the Can, L.L.C.
Our
Company
Through
our operating subsidiary Conventions, the Company is a producer of “pop culture” live multimedia conventions across
the United States. These live multimedia conventions provide a social networking and entertainment venue for enthusiasts of movies,
TV shows, video games, technology, toys, social networking/gaming, comic books, anime, and graphic novels. The Company is also
moving forward with initiatives that will enhance the Company’s current operations.
Company
History
Wizard
World, Inc. (f/k/a GoEnergy, Inc.) was incorporated in Delaware on May 2, 2001. The Company was initially involved in oil and
gas exploration but ceased operations and abandoned any interests it had in such properties.
On
December 7, 2010, the Company entered into a Share Purchase and Share Exchange Agreement (the “Exchange Agreement”)
among the Company, the former majority stockholder of the Company, Conventions, and shareholders of Conventions, under which Conventions
became a wholly owned subsidiary of the Company.
On
August 27, 2014, the Company entered into a Joint Venture and Operating Agreement for a forty-seven and one half percent (47.5%)
interest in CON TV, LLC (“CONtv”), with Cinedigm Entertainment Corp. (“Cinedigm”), ROAR, LLC (“ROAR”)
and Bristol Capital, LLC (“Bristol”). On November 16, 2015, the parties entered into an Amended and Restated Operating
Agreement, effective as of July 1, 2015, which, among other things, restructured the business relationship between the Company
and Cinedigm with respect to the ownership and operation of CONtv. Under that agreement, the Company greatly reduced and limited
its obligations to the venture, while retaining a ten percent (10%) membership interest in CONtv.
On
December 29, 2014, the Company and a member of the Board of Directors (the “Board”) of the Company formed Wiz Wizard,
LLC (“Wiz Wizard”) in the State of Delaware. On February 4, 2016, the member of the Board assigned his fifty percent
(50%) membership interest to the Company. Consequently, Wiz Wizard is a wholly-owned subsidiary of the Company. Wiz Wizard is
not currently active.
On
April 10, 2015, the Company and a third-party formed ButtaFyngas, LLC in the State of Delaware. The Company owns fifty percent
(50%) of the membership interests. ButtaFyngas, LLC is not currently active.
Our
executive offices are located at 662 N. Sepulveda Blvd., Suite 300, Los Angeles California 90049, and our telephone number is
(310) 648-8410.
Business
Overview
The
Company produces live pop culture conventions (“Comic Conventions”) across the United States that provide a social
networking and entertainment venue for enthusiasts of movies, TV shows, video games, technology, toys, social networking, gaming,
comic books, and graphic novels. Our Comic Conventions provide an opportunity for companies in the entertainment, toy, gaming,
publishing and retail business to carry out sales, marketing, product promotion, public relations, advertising, and sponsorship
efforts.
During
2016, the Company underwent a significant senior management restructuring. The restructuring included the appointment of a new
Chief Executive Officer and new Chief Operating Officer, both entering their roles with experience at major movie studios and
television networks. The Company also appointed an Executive Chairman. Focused on reforming the Company’s operations and
key operating controls, the new management has worked extensively to position the Company to successfully grow by, among other
things, implementing newly constituted internal accounting, marketing, and talent departments. A further description of management’s
work to create a foundation for the Company to grow can be found below in
Growth Strategy
.
Conventions
Conventions
has been producing Comic Conventions since July 1997.
In
2017, Conventions produced 14 Comic Conventions in the following cities: (i) Portland, OR; (ii) New Orleans, LA; (iii)
Madison, WI; (iv) Cleveland, OH; (v) Chicago, IL; (vi) Minneapolis, MN; (vii) Philadelphia, PA; (viii) St Louis, MO; (ix) Des
Moines, IA; (x) Sacramento, CA; (xi) Columbus, OH; (xii) Oklahoma City, OK (xiii) Austin, TX; (xiv) Nashville, TN.
The
Company receives revenue from its Comic Conventions primarily from three sources: (i) consumer admissions; (ii) exhibitor booth
sales; and (iii) national and/or regional sponsorships. Comic Conventions vary in cost to produce. Production costs vary based
on the size and scope of the production. Generally, our production costs range from approximately $1,000,000 for a smaller
scale production to over $2,000,000 for a larger production.
The Company’s
plan for 2018 is to produce Comic Convention in the following cities: (i) New Orleans, LA; (ii) St. Louis, MO; (iii) Cleveland,
OH; (iv) Portland, OR; (v) Philadelphia, PA; (vi) Des Moines, IA; (vii) (viii) Columbus, OH
;
(ix) Boise ID; (x) Winston Salem, NC; (xi) Chicago, IL; (xii) Tulsa, OK; (xiii) Austin, TX; (xiv) Sacramento, CA; (xv) Springfield,
MO; (xvi) Montgomery,
AL; (xvii) Madison WI.
Our
target audience includes men and women in the 18 to 34 year old demographic, together with families of all ages who are fans of
various types of entertainment and media, including movies, music, toys, video games, consumer electronics, computers, and lifestyle
products (e.g. clothes, footwear, digital devices, and mobile phones). We continuously review our existing operations and procedures
relating to our Comic Conventions in order to ensure that we produce the best possible fan experience at our Comic Conventions,
and maximize revenue while containing costs.
CONtv
The
Company currently holds a limited and passive interest in CONtv, a digital network devoted to fans of pop culture entertainment.
ConBox
In
April 2015, the Company through its subsidiary, Wiz Wizard, launched ComicConBox (“ConBox”). ConBox is a subscription-based
premium monthly box service. The boxes provided by ConBox feature collectibles, exclusives, toys, tech and gaming, licensed artwork,
superior comics and apparel, Comic Convention admissions, special VIP discounts and more, which are shipped on or around the end
of every month. The Company is currently evaluating its ConBox strategy with the objective of providing more highly-curated goods
to subscribers while reducing the cost of production. The Company believes that the profitability of ConBox is limited due to
the high cost of goods and logistical complications. During the first month of 2017, the Company ceased its ConBox operations.
Digital
Media
The
Company produces a number of digital media properties, including, but not limited to, our recently updated website
www.wizardworld.com
,
emails, newsletters, Facebook, YouTube, Twitter and Instagram, to create awareness of our Comic Conventions and provide updates
to our fans and consumers. To a large extent we also use our website
www.wizardworld.com
to provide the latest Wizard World
news and information. While we derive little or no direct revenue from these properties, they have the indirect benefit of supporting
sales relating to our Comic Conventions (dealer and exhibitor booths, admissions, sponsorships), as well as helping us secure
additional sought after and high profile talent. This in turn helps us obtain additional admissions, booth sales and sponsorships
for our Comic Conventions. The Company intends to increase its presence in the digital space, through the creation and distribution
of high quality and compelling content. Plans are underway to launch an initiative that will greatly amplify the Company’s
digital presence and enhance the Company’s current operations.
The
Company maintains an email list consisting of all our current and active users. This is a primary driver of information dissemination,
along with Facebook, Instagram and Twitter. YouTube is mainly used as brand awareness, information is posted after a Comic Convention,
which helps to generate excitement at future events. Because our Comic Conventions visit multiple cities, it is essential that
we create excitement in multiple regions, not just focused on a single event.
Through
Facebook, our attending artists and celebrities are able to help promote our Comic Conventions by announcing their involvement
in our events. This helps generate excitement among both their existing fan base and ours while creating a sense of community
and groundswell of support for the upcoming Comic Convention. Once we establish a critical mass of people, the Comic Convention
can become part of the fabric of the community where people anticipate and look forward to the event months and sometimes even
a full year in advance. Retention of Comic Convention attendees is essential to our sales process. Procuring new and timely talent
helps generate new customers, as well as the word of mouth of previous attendees. Much of this is achieved via email, Facebook,
Twitter, and
www.wizardworld.com
.
Unlike
many live events (sports, concerts, etc.), where attendees are spectators (even if they are a part of a community at large), at
our Comic Conventions the attendees participate in events. This atmosphere creates a greater amount of user generated content
on Facebook, Twitter, Instagram and YouTube. For instance, we generally observe an increase in Facebook “Likes” on
profile picture changes on Facebook the days during and after our Comic Conventions featuring celebrity “Photo Ops.”
This is a non-paid form of free advertising. Social networks such as Facebook and Twitter are a perfect marriage for these types
of event photos.
Strategy
Our
objective is to create an expanded and qualitatively enhanced digital initiative to leverage the Company’s digital extensions
to become a dominant voice for pop culture enthusiasts across multiple media platforms. Key elements of our strategy include:
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producing
high quality Comic Conventions events across the United States to entertain fans and to allow for promotion of consumer products
and entertainment;
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produce
high quality content and leveraging the content created at the Comic Conventions through digital media outlets such as websites,
apps, emails, newsletters, Facebook, Twitter, Flickr, Tumblr, Instagram and YouTube, among others;
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obtaining
sponsorships and promotions from media and entertainment companies for our digital initiative Comic Conventions, including:
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expanding
our relationships with entertainment and media companies; and
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utilizing
the Company’s digital assets to create and launch a revised and vibrant e-commerce venture.
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Sponsorships
and Advertising
The
Company sells sponsorship and advertising opportunities to businesses seeking to reach our core target audience of active entertainment
consumers, with a particular focus on men and women ages 18 to 34 and families.
Sponsorships
and Promotions
We
provide sponsorship opportunities that allow advertisers a wide range of promotional vehicles on-site and through our public relations
efforts. For example, we offer advertisers the ability to: (i) display signage at our Comic Conventions, (ii) include their desired
logos on all direct mail that is sent in connection with one or more Comic Conventions, (iii) be included in press releases to
the media, (iv) obtain sponsor tags on the radio spots or in the print or online ads where we advertise, and (v) obtain advertising
space in our digital media. We also provide the opportunity for advertisers to sponsor events at the Comic Conventions, such as
costume contests or gaming tournaments and the ability to brand “step-and-repeats” for photo opportunities, meet and
greets with celebrities, VIP packages, and “goody” bag giveaways. Sponsors pay a fee based upon the position of their
advertising media and the exposure it will receive. We are able to increase our revenue by utilizing a strategic floor layout
that maximizes the amount of highly profitable booth, advertising, and sponsorship opportunities. We are focused on increasing
our sponsorship revenue and we are currently actively engaged in enhancing our capabilities in that regard.
Marketing
Our
Comic Conventions are marketed through a variety of media outlets, including social media, websites, public relations, television,
radio, out-of-home (OOH), email, “street-teams”, and by flyers, and postcards. Our Comic Conventions usually obtain
publicity through coverage of the events at our Comic Conventions by local TV stations, radio stations, newspapers, national press,
fan websites, blogs, and social network channels such as Twitter, Facebook, Flickr, and Tumblr. In certain instances, we do not
pay for advertising because we can provide desirable content to media outlets. For example, we typically invite local TV stations
to our Comic Conventions so that they can interview the celebrities featured at our Comic Conventions. As a result, we receive
free TV coverage and the TV stations obtain content for their shows. In addition, we arrange for celebrities to call into local
radio stations. As a result, we receive on-air promotion of our events and the radio station reaches a larger audience who want
to tune in to hear our celebrities. We also receive on-air promotion by exchanging air time for admission giveaways to our Comic
Conventions. With respect to the internet and online advertising, we advertise throughout our website
www.wizardworld.com
about
upcoming Comic Conventions. We also send out emails to our fans on a regular basis.
Trademarks
and Copyrights
We
have a portfolio of trademarks and service marks and maintain a catalog of copyrighted works. Such marks include “Wizard
World”, “Where Pop FI Comes to Life” and “Wizard World Girls” and “WizPop”.
Regulation
Typically,
we do not have to obtain permits to operate the Comic Conventions. The convention centers at which such events occur obtain any
required permits and cover fire safety and occupancy matters as part of the rental agreement. Crowd control varies by location
and is either provided by the convention center’s personnel or by a third-party security service recommended by the
convention center. The convention centers do, however, require liability insurance, which Conventions has obtained and maintained.
Customers
We
derive revenue from both Comic Convention attendees and corporate clients that purchase sponsor opportunities and take part in
our Comic Conventions as exhibitors.
Show
Attendees
Our
Comic Conventions are attended primarily by men and women in the 18 to 34 year old demographic, together with families of all
ages who are fans of various types of entertainment and media, including movies, music, toys, video games, consumer electronics,
computers, and lifestyle products (e.g. clothes, footwear, digital devices, and mobile phones). We are seeking to develop a positive
reputation for hosting quality events in order to build brand loyalty among our show attendees and ensure repeat attendance.
Corporate
Sponsors and Exhibitors
We
continue to target some of the leading movie studios, video game producers, comic book publishers, television broadcasters, and
toy manufacturers as future exhibitors and sponsors. In addition, our digital media business will provide sales opportunities
across the Fortune 1000 corporate sector, as these brand advertisers look to leverage our media properties to reach our target
audience.
No
single advertiser, promoter or sponsor comprises a significant portion of our revenues.
Competition;
Competitive Strengths
In
the live, regionally-based consumer conventions market, the strength of a competitor is measured by the location and size of the
region or city, the frequency of live events per year, the guest and VIP list (e.g. celebrities and artists), the number of paying
attendees, the physical size of the convention, the extent of the public relations outreach (through traditional media, digital
media and social media), and the quantity and quality of exhibitors and dealers. We believe that we have a strong competitive
position because our Comic Conventions take place in well-known major cities across the United States throughout the year. Our
strategy of providing multiple conventions per year enable us to market our events throughout the entire year, create a large
amount of high-quality content that can be distributed through our digital media outlets, and market in not only the regional
consumer areas, but nationally as well. The multiple locations also allow us to work with more celebrities, artists and writers
and host them in multiple cities.
There
are a number of Comic Convention providers that produce events across the country. We are unique in that we produce more Comic
Conventions in the United States annually than any other organization. We reach audiences coast-to-coast, north-to-south markets
in the United States. We believe that creates an advantage over other event producers because our Comic Conventions are not limited
to one city, but rather span well-known cities across the United States.
We
also believe that we have an advantage over competitors because our Comic Conventions are well known and well respected in the
Comic Convention and pop culture industry. We have a reputation among fans, exhibitors, and celebrities for producing high-quality
and well attended Comic Conventions.
Sales
Channels and Pricing Policies
We
have outsourced our admission sales to a national ticketing service. Our intention is to move all ticketing to a bar-code system
that will be consumer friendly by decreasing lines at the convention venues. Admission prices typically range from $50 for a single
day pass to $95 for a general weekend pass. Entry for children ten years old and under is free at Wizard Comic Conventions.
Sales
and Marketing Strategy
We
promote our Comic Conventions through a wide variety of media outlets, such as local radio and TV stations, newspapers, fan websites,
and blogs. We also use online social networks such as Facebook, Twitter, Instagram and YouTube, to reach our fans and provide
updates. Further, we promote our Comic Conventions on our website
www.wizardworld.com
and through our email database. We
currently sell to prospective corporate sponsors and advertisers through our direct sales force.
Growth
Strategy
Aggressive
steps taken by the Company’s new management throughout 2017 including but not limited to cost containment and the reduction
of corporate overhead, have now provided a stable and reliable base of operations from which the Company can grow. The Company
plans to pursue expansion by carefully evaluating various strategies that are now under consideration and utilizing knowledge
gained throughout the Company’s history.
We
plan to organically develop new Comic Conventions, including a focused initiative to develop new Comic Conventions in smaller
markets; in a variety of alternative venues. We also seek to increase revenues of our existing Comic Conventions through improving
the fan experience by adding more entertainment, exhibitors, celebrities, panels, gaming tournaments, genres of fandom and opportunities
for VIP experiences. Internalizing various services provided at our Comic Conventions we believe we can also lead to increased
revenues. For example, all photo-operations at our Conventions are now owned and controlled by the Company. To help us provide
a better customer experience, and in order to address the logistics of hosting additional and more profitable Comic Conventions,
the Company has entered into a relationship with a sophisticated ticket sales company. We have focused on the cost of production
of each Convention and we have taken material strides to improve operating efficiencies.
The
Company is also looking to leverage its existing resources and exposure, both online and at Comic Conventions, to generate revenue
through new business opportunities. For example, the Company intends to move into the area of e-commerce and collectibles. The
Company has embarked on a new digital initiative intended to promote its convention platform.
Additionally,
we are attempting to increase revenue through increasing corporate sponsorships with national Fortune 1000 marketers by
offering these advertisers a wide range of promotional vehicles, both on-site and through our digital media and online offerings.
We believe that we will be able to further enhance our relationships with our existing dealers, exhibitors, celebrities, and VIPs
while, at the same time, developing new relationships with national brand marketers looking to connect with our growing audiences.
Currently the Company has embarked on a major initiative to identify potential local, regional and national sponsors and to conclude
sponsorship arrangements with them.
To
help facilitate our growth, we have recently restructured our marketing department which now produces and utilizes enhanced sales
collateral. We have also upgraded our internal accounting department which has adopted the use of sophisticated accounting
software and PO systems in order to better handle the accounting matters associated with a larger company.
The
Wizard World Comic Convention digital marketing platform extends across online and social media outlets with a growth strategy
that is fueled by continually producing content for and harnessing content from the growing Comic Convention consumers. For example,
the platform includes: (i) the website
www.wizardworld.com
(ii) our Facebook page,
www.facebook.com/wizardworld
,
(iii) Twitter at
www.twitter.com/wizardworld
, (iv) video social websites such as
www.youtube.com/wizardworld
, and
(v) Instagram at
www.instagram.com/wizardworld
. Through the distribution of our content via digital media, we offer advertisers
the ability to display their sponsorship messages in immersive and integrated ways, including, but not limited to, our large e-mail
database of fans. Through sales varying from digital display advertising space on our digital media properties, to title sponsorship
positioning on key aspects for the live events, we plan to generate new forms of sponsorship revenues and thus strengthen our
financial condition. It is our further intention to expand the Company’s digital offerings by curating and producing high
quality content for digital distribution which will broaden the Company’s position and reputation as an authentic voice
of pop culture. The new digital initiatives will enhance the Company’s live event activities and will become a major force
in their own right. We will also greatly increase our presence as a disseminator of collectible products as a part of a greatly
augmented and expanded e-commerce initiative.
In
the Fall of 2017, we announced two agreements with the CN Live platform in China. Under these agreements will provide English
language programs across mainland China on an ad-supported and SVOD basis. Plans also include the development of IP with a major
motion picture studio, in addition to exploring immersive media opportunities.
Employees
We
currently have 18 full-time equivalent employees. Additionally, we engage 8 freelance consultants providing us with
greater core competence in the disciplines of Marketing, Sponsorship Sales, Event Production and e-commerce.
Where
You Can Find More Information
Our
website address is
www.wizardworld.com
. We do not intend our website address to be an active link or to otherwise incorporate
by reference the contents of the website into this Report. The public may read and copy any materials the Company files with the
U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030.
The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
Item
1A. Risk Factors.
Risks
Relating to our Company
If
we need additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to
limit the scope of our operations.
As
we move forward to implement our growth strategies, we may experience increased capital needs. We may not, however, have sufficient
capital to fund our future operations without additional capital investments. If adequate additional financing is not available
on reasonable terms or at all, we may not be able to carry out our corporate strategy and we would be forced to modify our business
plans (e.g., limit our expansion, limit our marketing efforts and/or decrease or eliminate capital expenditures), any of which
may adversely affect our financial condition, results of operations and cash flow. Such reduction could materially adversely affect
our business and our ability to compete.
Our
capital needs will depend on numerous factors, including, without limitation, (i) our profitability, (ii) our ability to respond
to a release of competitive products by our competitors, and (iii) the amount of our capital expenditures, including acquisitions.
Moreover, the costs involved may exceed those originally contemplated. Cost savings and other economic benefits expected may not
materialize as a result of any cost overruns or changes in market circumstances. Failure to obtain intended economic benefits
could adversely affect our business, financial condition and operating performances.
We
need to manage growth in operations to maximize our potential growth and achieve our expected revenues. Our failure to manage
growth can cause a disruption of our operations that may result in the failure to generate revenues at levels we expect.
In
order to maximize potential growth in our current markets, we may have to expand our operations. Such expansion will place a significant
strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to
improve our financial controls, operating procedures and management information systems. We will also need to effectively train,
motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from
generating the revenues we expect.
Insiders
have substantial control over the Company, and they could delay or prevent a change in our corporate control even if our other
stockholders want it to occur.
As of the date of this filing, our executive
officers, directors, and principal stockholders who beneficially own 5% or more of our outstanding common stock, own a substantial
amount of our outstanding common stock. These stockholders are able to exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay
or prevent an outside party from acquiring or merging with our Company even if our other stockholders want it to occur. This
may also limit your ability to influence the Company in other ways.
Our
Certificate of Incorporation provides for indemnification of officers and directors at our expense and limits their liability,
which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended
for the benefit of officers and/or directors.
Our
Certificate of Incorporation and applicable Delaware law provide for the indemnification of our directors and officers against
attorney’s fees and other expenses incurred by them in any action to which they become a party arising from their association
with or activities on our behalf. This indemnification policy could result in substantial expenditures by us that we will be unable
to recoup.
We
have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against
public policy as expressed in the Securities Act of 1933, as amended (the “Securities Act”), and is, therefore, unenforceable.
In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by
us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or
proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will
(unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate
jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue. The legal process relating to this matter, if it were to occur, is likely
to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the
market and price for our shares if such a market ever develops.
Risks
Related to our Business and Industry
General
We
may not be able to prevent others from using our intellectual property, and may be subject to claims by third parties that we
infringe on their intellectual property.
We
regard the content that we plan to distribute via digital media to be important to our success. We plan to rely on non-disclosure
and other contractual provisions to protect our proprietary rights. We may also try to protect our intellectual property rights
by, among other things, searching the Internet to detect unauthorized use of our intellectual property.
However,
policing the unauthorized use of our intellectual property is often difficult and any steps we take may not, in every case, prevent
the infringement by unauthorized third parties. Further, there can be no assurance that our efforts to enforce our rights and
protect our intellectual property will be successful. We may need to resort to litigation to enforce our intellectual property
rights, which may result in substantial costs and diversion of resources and management attention.
Further,
although management does not believe that our products and services infringe on the intellectual rights of others, there is no
assurance that we will not be the target of infringement or other claims. Such claims, even if not true, could result in significant
legal and other costs and may be a distraction to our management or interrupt our business.
We
encounter competition in our business, and any failure to compete effectively could adversely affect our results of operations.
We
anticipate that our competitors will continue to expand and seek to obtain additional market share with competitive price and
performance characteristics. Aggressive expansion of our competitors or the entrance of new competitors into our markets could
have a material adverse effect on our business, results of operations and financial condition.
If
we do not compete successfully against new and existing competitors, we may lose our market share, and our operating results may
be adversely affected.
We
compete with other advertising service providers that may reach our target audience by means that are more effective than our
Comic Conventions and digital media. Further, if such other providers of advertising have a long operating history, large product
and service suites, more capital resources and broad international or local recognition, our operating results may be adversely
affected if we cannot successfully compete.
Our
future success depends upon, in large part, our continuing ability to attract and retain qualified personnel.
Expansion
of our business and operations may require additional managers and employees with industry experience, in which case our success
will be dependent on our ability to attract and retain experienced management personnel and other employees. There can be no assurance
that we will be able to attract or retain qualified personnel. Competition may also make it more difficult and expensive to attract,
hire and retain qualified managers and employees. If we fail to attract, train and retain sufficient numbers of the qualified
personnel, our prospects, business, financial condition and results of operations will be materially and adversely affected.
Comic
Convention Business
If
we do not maintain and develop our Wizard World Comic Convention brand, we will not be able to attract an audience to the Comic
Conventions.
We
attract audiences and advertisers partly through brand name recognition. We believe that establishing, maintaining and enhancing
our portfolio of Comic Conventions and the brands of our strategic partners will enhance our growth prospects. The promotion of
our Wizard World Comic Convention brand and those of our strategic partners will depend largely on our success in maintaining
a sizable and loyal audience, providing high-quality content and organizing effective marketing programs. If we fail to meet the
standards to which our consumers are accustomed, our reputation will be harmed and we may lose market share.
Our
future success depends on attracting sponsors and pop culture advertisers who will advertise at our Comic Conventions. If we fail
to attract a sufficient number of sponsors and pop culture advertisers, our operating results and revenues may not meet expectations.
One
of our important strategies is to create an integrated platform of tours on which sponsors and pop culture advertisers wishing
to reach our young male target audience may advertise. However, advertisers may find that our targeted demographic does not consist
of their desired consumers or a critical mass of consumers, decide to use a competitor’s services or decide not to use our
services for other reasons. If the sponsors and pop culture advertisers decide against advertising with us, we may not realize
our growth potential or meet investor expectations. Our future operating results and business prospects could be adversely affected.
We
may not be able to respond to changing consumer preferences and our sales may decline.
We
operate in markets that are subject to change, including changes in customer preferences. New fads, trends and shifts in pop culture
could affect the type of live events customers will attend or the products consumers will purchase. Content in which we have invested
significant resources may fail to meet consumer demand at the time. A decrease in the level of media exposure or popularity of
the pop culture market or a loss in sales could have a material adverse effect on our business, prospects and financial condition.
We
rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties
fail to perform or terminate any of their contractual arrangements with us for any reason or cease operations, or should we fail
to adequately identify key business relationships, our business could be disrupted and our reputation may be harmed.
If
any of our business partners or contracting counterparties fails to perform or terminates their agreement(s) with us for any reason,
or if our business partners or contracting counterparties with which we have short-term agreements refuse to extend or renew the
agreement or enter into a similar agreement, our ability to carry on operations and cross-sell sales and marketing services among
different platforms may be impaired. In addition, we depend on the continued operation of our long-term business partners and
contracting counterparties and on maintaining good relations with them. If one of our long-term partners or counterparties is
unable (including as a result of bankruptcy or a liquidation proceeding) or unwilling to continue operating in the line of business
that is the subject of our contract, we may not be able to obtain similar relationships and agreements on terms acceptable to
us or at all. If a partner or counterparty fails to perform or terminates any of the agreements with us or discontinues operations,
and we are unable to obtain similar relationships or agreements, such events could have an adverse effect on our operating results
and financial condition. Further, if we are unable to timely produce our Comic Conventions or produce the same quality of Comic
Conventions to which our target demographic has been accustomed, the consequences could be far-reaching and harmful to our reputation,
existing business relationships and future growth potential.
We
may also need to form new strategic partnerships or joint ventures to access appropriate assets and industry know-how. Failing
to identify, execute and integrate such future partnerships or joint ventures may have an adverse effect on our business, growth,
financial condition, and cash flow from operations.
Our
future success depends on attracting high-profile celebrities and VIPs to our Comic Conventions. If we fail to attract such celebrities
and VIPs, our attendance may suffer and our operating results and revenues may be adversely impacted.
Our
ability to maintain our competitive position will be dependent on attracting high profile celebrities and VIPs to attend our Comic
Conventions. We attract our audience by providing opportunities to meet some of their favorite celebrities. The failure of the
Company to attract such high-profile celebrities and VIPs may hurt the attendance at our Comic Conventions and as a result, our
operations results and revenues may be adversely impacted.
Digital
Media
We
could face a variety of risks of expanding into a new business.
The
Company will expand into digital media and content creation. Risks of our entry into the new business line of digital media, include,
without limitation: (i) potential diversion of management’s attention and other resources, including available cash, from
our existing businesses; (ii) unanticipated liabilities or contingencies; (iii) the need for additional capital and other resources
to expand into this new line of business; and (iv) inefficient combination or integration of operational and management systems
and controls. Entry into a new line of business may also subject us to new laws and regulations with which we are not familiar,
and may lead to increased litigation and regulatory risk. Further, our business model and strategy are still evolving and are
continually being reviewed and revised, and we may not be able to successfully implement our business model and strategy. We may
not be able to attract a sufficiently large number of audience or customers, or recover costs incurred for developing and marketing
these products or services. If we are unable to successfully implement our growth strategies, our revenue and profitability may
not grow as we expect, our competitiveness may be materially and adversely affected, and our reputation and business may be harmed.
In
developing and marketing the new business of digital media, we may invest significant time and resources. Initial timetables for
the introduction and development of our digital media business may not be achieved and price and profitability targets may not
prove feasible. Furthermore, any new line of business could have a significant impact on the effectiveness of our system of internal
controls. Failure to successfully manage these risks in the development and implementation of our new digital media business could
have a material adverse effect on our business, results of operations and financial condition.
We
will face significant competition in the digital media business. If we fail to compete effectively, we may lose users to competitors,
which could materially and adversely affect our ability to generate revenues from online advertising.
We
will face significant competition for online advertising revenues with other websites that sell online advertising services. In
addition, we indirectly compete for advertising budgets with traditional advertising media, such as television and radio stations,
newspapers and magazines, and major out-of-home media. Some of our competitors may have longer operating histories and significantly
greater financial, technical and marketing resources than we do, and in turn may have an advantage in attracting and retaining
users and advertisers.
Risks
Relating to Being a Public Company
We
will incur significant costs to ensure compliance with United States corporate governance and accounting requirements.
We
will incur significant costs associated with our public company reporting requirements and costs associated with corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all
of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some
activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult
and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on the Board or as executive officers. We may be wrong in our prediction
or estimate of the amount of additional costs we may incur or the timing of such costs.
If
we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report
our financial results or prevent fraud may be adversely affected and investor confidence may be adversely impacted.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include
a report of management on the Company’s internal controls over financial reporting in their annual reports. Under current
SEC rules, our management may conclude that our internal controls over our financial reporting are not effective. Even if our
management concludes that our internal controls over financial reporting are effective, our independent registered public accounting
firm may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented,
designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In the event that we are unable
to have effective internal controls, investors and others may lose confidence in the reliability of our financial statements and
our ability to obtain equity or debt financing as needed could suffer.
In
addition, failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm
our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting
firm identify material weaknesses, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence
in our financial statements and harm our stock price. In addition, if we are unable to continue to comply with Section 404, our
non-compliance could subject us to a variety of administrative sanctions, including the inability of registered broker-dealers
to make a market in our common stock, which could reduce our stock price.
Risks
Related To Our Industry
A
continued decline in general economic conditions and disruption of financial markets may, among other things, reduce the discretionary
income of consumers or further erode advertising markets, which could adversely affect our business.
Our
operations are affected by general economic conditions, which affect consumers’ disposable income. The demand for entertainment
and leisure activities tends to be highly sensitive to the level of consumers’ disposable income. Declines in general economic
conditions could reduce the level of discretionary income that our fans and potential fans have to spend on consumer products
and entertainment, which could adversely affect our revenues. Volatility and disruption of financial markets could limit our advertisers’,
sponsors’, and/or promoters’ ability to obtain adequate financing to maintain operations and result in a decrease
in sales volume that could have a negative impact on our business, financial condition and results of operations. Continued softness
in the market could adversely affect our revenues or the financial viability of our distributors.
The
advertising market is particularly volatile and we may not be able to effectively adjust to such volatility.
Advertising
spending is volatile and sensitive to changes in the economy. Our advertising customers may reduce the amount they spend on our
media for a number of reasons, including, without limitation:
|
●
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a
downturn in economic conditions;
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|
|
|
|
●
|
a
deterioration of the ratings of their programs; or
|
|
|
|
|
●
|
a
decline in advertising spending in general.
|
We
may be unable to maintain or increase our advertising fees and sales, which could negatively affect our ability to generate revenues
in the future. A decrease in demand for advertising in general, and for our advertising services in particular, could materially
and adversely affect our operating results.
Risks
Related To Our Securities
Our
common stock is quoted on the OTCBB and OTCQB, which may have an unfavorable impact on our stock price and liquidity.
Our
common stock is quoted on the OTCBB and OTCQB. The quotation of our shares on the OTCBB and OTCQB may result in a less liquid
market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price
of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
There
is limited liquidity on the OTCBB and OTCQB, which enhances the volatile nature of our equity.
When
fewer shares of a security are being traded on the OTCBB and OTCQB, volatility of prices may increase and price movement may outpace
the ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a
lower likelihood that orders for shares of our common stock will be executed, and current prices may differ significantly from
the price that was quoted at the time of entry of the order.
Our
stock price is likely to be highly volatile because of our limited public float.
The
market price of our common stock is likely to be highly volatile because there has been a relatively thin trading market for our
stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell
shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility. Other
factors that could cause such volatility may include, among other things: actual or anticipated fluctuations in our operating
results; the absence of securities analysts covering us and distributing research and recommendations about us; overall stock
market fluctuations; economic conditions generally; announcements concerning our business or those of our competitors; our ability
to raise capital when we require it, and to raise such capital on favorable terms; conditions or trends in the industry; litigation;
changes in market valuations of other similar companies; announcements by us or our competitors of significant contracts, acquisitions,
strategic partnerships or joint ventures; future sales of common stock; actions initiated by the SEC or other regulatory bodies;
and general market conditions. Any of these factors could have a significant and adverse impact on the market price of our common
stock. These broad market fluctuations may adversely affect the trading price of our common stock.
The
ownership by our Executive Chairman of our common stock will likely limit your ability to influence corporate matters.
Mr. Paul Kessler, our Executive Chairman,
is the beneficial owner of a substantial amount of the issued and outstanding shares of the Company’s common stock.
As a result, our Mr. Kessler has significant influence over most matters that require approval by our stockholders, including
the election of directors and approval of significant corporate transactions, even if other stockholders oppose them. This concentration
of ownership might also have the effect of delaying or preventing a change of control of our Company that other stockholders may
view as beneficial.
In
order to raise sufficient funds to expand our operations, we may have to issue additional securities at prices which may result
in substantial dilution to our shareholders.
If
we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership
will be reduced. In addition, these transactions may dilute the value of our common shares outstanding. We may also have to issue
securities that may have rights, preferences and privileges senior to our common stock.
Our
stock is thinly traded, so an investor may be unable to sell at or near ask prices or at all.
The
shares of our common stock are traded on the OTCBB and OTCQB and are thinly traded, meaning that the number of persons interested
in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation
is attributable to a number of factors, including the fact that we are a smaller reporting company that is relatively unknown
to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales
volume. Even in the event that we come to the attention of such persons, they would likely be reluctant to follow an unproven
company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable.
As a consequence, our stock price may not reflect an actual or perceived value. Also, there may be periods of several days or
more when trading activity in our shares is minimal or non-existent, as is currently the case, as compared to a seasoned issuer
that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect
on share price. A broader or more active public trading market for our common shares may not develop or if developed, may not
be sustained. Due to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money
or otherwise desire to liquidate your shares.
Currently,
there is a limited public market for our securities, and there can be no assurances that any public market will ever develop and,
even if developed, it is likely to be subject to significant price fluctuations.
We
have a trading symbol for our common stock, namely ‘WIZD’. However, our stock has been thinly traded, if at all. Consequently,
there can be no assurances as to whether:
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any
market for our shares will develop;
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●
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the
prices at which our common stock will trade; or
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●
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the
extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
|
Until
our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades
is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced
by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business,
including the impact of the factors referred to elsewhere in these risk factors, investor perception of our Company and general
economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of
our common stock.
We
are subject to the “penny stock rules” which will make our securities more difficult to sell.
We
are subject to the SEC’s “penny stock” rules because our securities sell below $5.00 per share. The penny stock
rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information
about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer
with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly
account statements showing the market value of each penny stock held in the customer’s account. In addition, the bid and
offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing
prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
Furthermore,
the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for our securities.
As long as our securities are subject to the penny stock rules, the holders of such securities will find it more difficult to
sell their securities.
We
are not likely to pay cash dividends in the foreseeable future.
We
currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not
expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (“Sublease”) to occupy office space at 662
N. Sepulveda Blvd., Los Angeles, California 90049 with Bristol Capital Advisors, LLC, an entity controlled by the Company’s
Executive Chairman. The term of the Sublease is 5 years and 3 months, beginning on July 1, 2016 with monthly payments of $8,118.
Upon execution of the sublease, the Company paid a security deposit of $9,137 and $199,238 for prepaid rent. The prepaid rent
allowed the Company to obtain preferential lease terms and induced the landlord to make certain improvements to the property.
Bristol Capital Advisors, LLC is not the owner of the subject premises (it is a tenant in the building) and Bristol Capital Advisors,
LLC passes its actual and direct cost of the Company’s occupancy through to the Company without any fee, profit or markup.
Bristol Capital Advisors, LLC in no manner profited from the pre-payment of rent. The Company bases its operations out of this
location.
The
Company does not own any real estate.
Item
3. Legal Proceedings.
On
October 28, 2016, the Company filed a Complaint (the “SDNY Complaint”) and commenced a lawsuit in the United States
District Court, Southern District of New York, against Stephen Shamus, the former Chief Marketing Officer of the Company whose
employment was terminated on October 27, 2016 (the “SDNY Lawsuit”). In the SDNY Lawsuit, the Company alleges, among
other things, breach of fiduciary duty, misappropriation of corporation assets, breach of contract, and conversion, against Mr.
Shamus relating to the Company’s assertion that he used his position with the Company to improperly obtain memorabilia at
the Company’s Comic Conventions which he would then sell and retain the profits from for his own benefit. On November 16,
2016, Mr. Shamus filed an Answer to the SDNY Complaint with counterclaims against the Company (the “SDNY Counterclaim”).
The SDNY Counterclaim alleges breach of contract and unjust enrichment against the Company and seeks compensatory damages in the
form of cash.
The
SDNY Lawsuit was concluded on what management considers to be favorable terms on February 15, 2017.
On
December 16, 2016, the Company filed a Complaint (the “DNJ Complaint”) and commenced a lawsuit in the United States
District Court, District of New Jersey (the “DNJ Lawsuit”), against Gareb Shamus, the founder and former Chief Executive
Officer of the Company; Pivot Media LLC and 4 Brothers LLC, entities owned and operated by Gareb Shamus; Stephen Shamus, the former
Chief Marketing Officer of the Company whose employment was terminated on October 27, 2016; Kenneth Shamus, a former director
of the Company; Eric Weisblum; GEM Funding LLC; It’s All Normal LLC; and various other defendants (collectively, the “DNJ
Defendants”). In the DNJ Complaint, the Company alleged that the DNJ Defendants violated Section 13(d) of the Securities
and Exchange Act of 1934 and SEC Rules 13d-1 and 13d-5. The Company sought an injunction to compel the DNJ Defendants to make
complete disclosure under Section 13(d) of the Exchange Act and to cure their past violations.
The
DNJ Lawsuit was concluded on what management considers to be favorable terms on February 15, 2017.
On
January 11, 2017, Arden B. Silverman (“Silverman”), d/b/a Capital Asset Protection, filed a complaint (the “Silverman
Complaint”) and commenced a lawsuit against the Company in the Superior Court of California, County of Los Angeles –
Central District (the “Silverman Lawsuit”). Silverman brought the claim after being assigned the right title and interest
in a claim against the Company by Rogers & Cowan, Inc., a California corporation (Rogers & Cowan). The Silverman Complaint
alleges the Company owes $42,600 plus attorney’s fees to Silverman for services provided by Rogers & Cowan to the Company.
On April 10, 2017, the Company filed a cross Cross-Complaint in the Silverman Lawsuit against Rogers and Cowan, among others (the
“Cross-Complaint”). The Cross-Complaint seeks in excess of $90,000 from Rogers & Cowan, among others, and alleges,
fraud, negligent misrepresentation, breach of written agreement; breach of covenant of good faith and fair dealings, and violations
of Cal. Bus. & Prof. Code §§17200 et seq. The matters at issue in the Silverman lawsuit were resolved by way of
a mutual settlement that, in the opinion of, was advantageous to the Company in June 2017.
A
complaint for breach of contract and various disability discrimination claims was filed by former COO Randy Malinoff after the
Company terminated him for cause. The Company believes that the matter, which is set for trial in 2019, is wrongful and is without
merit. The Company currently intends to proceed to trial on this matter.
With
the exception of the foregoing disputes, the Company is not involved in any disputes and does not have any litigation matters
pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results
of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our
subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s
or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could
have a material adverse effect.
However,
from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that
may harm our business.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a)
Market Information
Our
shares of common stock are currently quoted on the OTCBB and OTCQB under the symbol “WIZD”.
The
following table sets forth the high and low bid price for our common stock for each quarter during the past two fiscal years.
The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect
actual transactions.
Quarter
ended
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Low
Price
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High
Price
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December
31, 2017
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$
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0.110
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$
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0.300
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September
30, 2017
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$
|
0.090
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$
|
0.350
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June
30, 2017
|
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$
|
0.135
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|
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$
|
0.230
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March
31, 2017
|
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$
|
0.155
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$
|
0.260
|
|
|
|
|
|
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|
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December
31, 2016
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$
|
0.156
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$
|
0.338
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|
September
30, 2016
|
|
$
|
0.310
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$
|
0.470
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|
June
30, 2016
|
|
$
|
0.330
|
|
|
$
|
0.530
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March
31, 2016
|
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$
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0.302
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$
|
0.500
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(b)
Holders
As
of March 28, 2018, a total of 68,535,036 shares of the Company’s common stock were outstanding and held by
30 shareholders of record. This figure does not take into account those shareholders whose certificates are held in the
name of broker-dealers or other nominees.
(c)
Dividends
We
have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There
are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by
Delaware law.
(d)
Securities Authorized for Issuance under Equity Compensation Plans
Below
is a description of the Company’s compensation plan adopted in 2011, and the Company’s compensation plan adopted in
2016.
2011
Incentive Stock Award Plan, as Amended
On
May 9, 2011, the Board approved, authorized and adopted (subject to stockholder approval) the 2011 Incentive Stock and Award Plan
(the “2011 Plan”). The 2011 Plan was amended on September 14, 2011, April 11, 2012, July 9, 2012 and September 25,
2014. The Plan provides for the issuance of up to 15,000,000 shares of our common stock through the grant of non-qualified options,
incentive options and restricted stock to our directors, officers, consultants, attorneys, advisors and employees. The 2011 Plan
has been administered by the Board since its adoption.
Under
the 2011 Plan:
1.
Each option contains the following terms:
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(i)
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the
exercise price, which shall be determined at the time of grant, shall not be less than 100% of the Fair Market Value (defined
as the closing price on the final trading day immediately prior to the grant on the principal exchange or quotation system
on which the common stock is listed or quoted, as applicable) of the common stock of the Company,
provided
that if
the recipient of the option owns more than ten percent (10%) of the total combined voting power of the Company or of any subsidiary,
the exercise price shall be at least 110% of the Fair Market Value;
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(ii)
|
the
term of each option shall be fixed by the Board,
provided
that such option shall not be exercisable more than five
(5) years after the date such option is granted, and
provided further
that with respect to an incentive option, if
the recipient owns more than ten percent (10%) of the total combined voting power of the Company or of any subsidiary, the
incentive option shall not be exercisable more than five (5) years after the date such incentive option is granted;
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(iii)
|
subject
to acceleration in the event of a change of control of the Company (as further described in the 2011 Plan), the period during
which the options vest shall be designated by the Board or, in the absence of any option vesting periods designated by the
Board at the time of grant, shall vest and become exercisable in equal amounts on each fiscal quarter of the Company through
the four (4) year anniversary of the date on which the option was granted;
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(iv)
|
no
option is transferable and each is exercisable only by the recipient of such option except in the event of the death of the
recipient (if such recipient is a natural person); and
|
|
|
|
|
(v)
|
with
respect to incentive options, the aggregate Fair Market Value of common stock exercisable for the first time during any calendar
year shall not exceed $100,000.
|
2.
Each award of restricted stock will be subject to the following terms:
|
(i)
|
no
rights to an award of restricted stock is granted to the intended recipient of restricted stock unless and until the grant
of restricted stock is accepted within the period prescribed by the Board;
|
|
|
|
|
(ii)
|
a
certificate or certificates issued evidencing shares of restricted stock shall not be delivered until they are free of any
restrictions specified by the Board at the time of grant;
|
|
|
|
|
(iii)
|
upon
the acceptance and issuance of a certificate or certificates, recipients of restricted stock have the rights of a stockholder
of the Company as of the date of the grant of the restricted stock;
|
|
|
|
|
(iv)
|
shares
of restricted stock are forfeitable until the terms of the restricted stock grant have been satisfied or the employment with
the Company is terminated; and
|
|
|
|
|
(v)
|
the
restricted stock is not transferable until the date on which the Board has specified such restrictions have lapsed.
|
2016
Incentive Stock Award Plan
On
August 12, 2016, Board unanimously approved, authorized and adopted (subject to stockholder approval) the 2016 Incentive Stock
and Award Plan (the “2016 Plan”) to replace the expired Third Amended and Restated 2011 Incentive Stock and Award
Plan. The 2016 Plan provides for the issuance of up to 5,000,000 shares of the Company’s common stock through the grant
of nonqualified options, incentive options and restricted stock to the Company’s directors, officers, consultants, attorneys,
advisors and employees. Until a committee consisting of two or more independent, non-employee directors is appointed to administer
the 2016 Plan, the Board shall administer the Plan.
Under
the 2016 Plan:
1.
Each option will contain the following terms:
(i)
the exercise price for an Incentive Option (as defined in the Plan), which shall be determined at the time of grant, shall not
be less than 100% of the Fair Market Value (defined as the closing price on the final trading day immediately prior to the grant
on the principal exchange or quotation system on which the common stock is listed or quoted, as applicable) of the common stock
of the Company,
provided
that if the recipient of the option owns more than ten percent (10%) of the total combined voting
power of the Company, the exercise price shall be at least 110% of the Fair Market Value, and
provided further
that with
respect to the Nonqualified Option (as defined in the Plan), the purchase price of each share of stock purchasable under a Nonqualified
Option shall be at least 100% of the Fair Market Value of such share of stock on the date that Nonqualified option is granted,
unless
the Committee, in its sole and absolute discretion, determines to set the purchase price of such Nonqualified Option
below Fair Market Value;
(ii)
the term of each option shall be fixed by the Board,
provided
that such option shall not be exercisable more than five
(5) years after the date such option is granted, and
provided further
that with respect to an Incentive Option, if the
recipient owns more than ten percent (10%) of the total combined voting power of the Company, the Incentive Option shall not be
exercisable more than five (5) years after the date such Incentive Option is granted;
(iii)
subject to acceleration in the event of a change of control of the Company (as further described in the Plan), the period during
which the options vest shall be designated by the Board or, in the absence of any option vesting periods designated by the Board
at the time of grant, shall vest and become exercisable in equal amounts on each fiscal quarter of the Company through the four
(4) year anniversary of the date on which the option was granted;
(iv)
no option is transferable and each is exercisable only by the recipient of such option except in the event of the death of the
recipient (if such recipient is a natural person); and
(v)
with respect to Incentive Options, the aggregate Fair Market Value of common stock exercisable for the first time during any calendar
year shall not exceed $100,000.
2.
Each award of restricted stock will be subject to the following terms:
(i)
no rights to an award of restricted stock is granted to the intended recipient of restricted stock unless and until the grant
of restricted stock is accepted within the period prescribed by the Board;
(ii)
certificate(s) evidencing the restricted stock shall not be delivered until they are free of any restrictions specified by the
Board at the time of grant;
(iii)
recipients of restricted stock have the rights of a stockholder of the Company as of the date of the grant of the restricted stock;
(iv)
shares of restricted stock are forfeitable until the terms of the restricted stock grant have been satisfied or the employment
with the Company is terminated prior to such restrictions being satisfied; and
(v)
the restricted stock is not transferable until the date on which the Board has specified such restrictions have lapsed.
As
of December 31, 2017, the Company issued the following stock options and grants under the 2011 Plan:
Equity
Compensation Plan Information Under The 2011 Plan
Plan
category
|
|
Number
of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights and
number of
shares
of restricted stock
|
|
|
Weighted
average
exercise price of outstanding
options, warrants
and rights (1)
|
|
|
Number
of
securities
remaining
available
for future
issuance
|
|
Equity
compensation approved by security holders under the Plan
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
3,319,000
|
|
|
$
|
0.59
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,319,000
|
|
|
$
|
0.59
|
|
|
|
-
|
|
(1)
|
Excludes
shares of restricted stock issued under the Plan.
|
As
of December 31, 2017, the Company issued the following stock options and grants under the 2016 Plan:
Equity
Compensation Plan Information Under The 2016 Plan
Plan
category
|
|
Number
of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights and
number of
shares
of restricted
stock
|
|
|
Weighted
average
exercise price of outstanding
options, warrants
and rights
|
|
|
Number
of
securities
remaining available
for future issuance
|
|
Equity
compensation approved by security holders under the Plan
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
2,000,000
|
|
|
$
|
0.55
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,000,000
|
|
|
$
|
0.55
|
|
|
|
3,000,000
|
|
Rule
10B-18 Transactions
During
the year ended December 31, 2017, there were no repurchases of the Company’s common stock by the Company.
Recent
Sales of Unregistered Securities
There
were no unregistered sales of the Company’s equity securities during the year ended December 31, 2017 that were not previously
disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE
FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS
THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.
THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK
FACTORS” AND THOSE INCLUDED 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 years ended December 31, 2017 and 2016, included elsewhere in this report.
We
are currently a producer of Comic Conventions across the United States that celebrate movies, television shows, video games, technology,
toys, social networking/gaming platforms, comic books and graphic novels. Our Comic Conventions provide entertainment for fans
of the pop culture genre, as well as sales, marketing, promotions, public relations, advertising and sponsorship opportunities
for entertainment companies, toy companies, gaming companies, publishing companies, marketers, corporate sponsors, and retailers
which wish to reach our audience.
Plan
of Operation
At
present, the Company is engaged primarily in the live event business and derives income mainly from: (i) the production of Comic
Conventions, which involves the sales of admissions and exhibitor booth space, and (ii) sale of sponsorships and advertising.
The Company, while taking steps to enhance its live events operations, is steadily moving into the space of being a hyphenate
live event media company.
We
plan on continuing to enhance our Comic Conventions by featuring new and exciting exhibitors and high-profile celebrities. Further,
we are carefully researching and identifying new geographic markets for our Comic Convention. During the second half of 2017 we
embarked on an aggressive review of the costs expended at each of our Conventions. As the result of this review, we have identified
many operating efficiencies which have enabled us to operate our Conventions at a production cost (aside from talent) that is
approximately 33.3% lower than previous operations. The savings on logistics and production have enabled us to consistently
produce shows that are favorably contributing to the net operating margin.
In
December 2017 the Company embarked on a cost containment strategy. The implementation of that strategy, which has been in place
since January 2018 will reduce corporate overhead from an approximate $4.9 million in 2017 to approximately $2.7 million in 2018.
The efficiencies in Convention production in addition to the savings achieved in corporate overhead should have a materially positive
impact on the going forward results.
Concurrently
with the Company’s efforts in the Comic Convention business, the Company is selectively producing and branding compelling
content and reaching consumers via social media outlets such as Facebook, Twitter and YouTube, as well as the Company’s
website, www.wizardworld.com. The Company hopes to utilize its digital offerings to bolster its Comic Convention business.
We
currently expect to produce 16 live events during 2018, although that number of conventions may change as we evaluate locations
and venues. Among the shows being produced in 2018 are shows in new markets, including Boise, Winston Salem, and Montgomery.
The
Company has recently announced an alignment with Sony Pictures Entertainment. Pursuant to that alignment the Company is exploring
a number of initiatives, which may include: (i) the development of intellectual property for the creation of motion
picture and television content. The first session for the reception of such content will be in Portland in April 2018, (ii)
the production of an exclusive event on the Sony Pictures lot in June of 2019 (iii) the entry into the immersive
entertainment space, (iv) the launch of a touring event in Asia. These activities, in addition to others will broaden the
scope of the Company’s portfolio of revenue generating activities.
Additionally,
t
he Company has entered into an agreement to program two channels
in China on the CN Live platform. The Company has entered into a programming agreement with Associated Television International
and is proceeding with its plans to launch the Chinese networks. In addition to the agreement with Associated Television International,
the Company is discussing the acquisition of content with other third-party suppliers.
Results
of Operations
Summary
of Statements of Operations for the Year Ended December 31, 2017 and 2016:
|
|
Year Ended
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Convention revenue
|
|
$
|
14,983,033
|
|
|
$
|
21,994,433
|
|
ConBox revenue
|
|
$
|
84,580
|
|
|
$
|
707,101
|
|
Gross profit
|
|
$
|
9,316
|
|
|
$
|
6,534,543
|
|
Operating expenses
|
|
$
|
(5,346,924
|
)
|
|
$
|
(7,716,789
|
)
|
Loss from operations
|
|
$
|
(5,337,608
|
)
|
|
$
|
(1,182,246
|
)
|
Other expenses
|
|
$
|
(395,887
|
)
|
|
$
|
(325,857
|
)
|
Net loss attributable to common shareholder
|
|
$
|
(5,732,814
|
)
|
|
$
|
(1,508,103
|
)
|
Loss per common share – basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.03
|
)
|
Convention
Revenue
Convention
revenue was $14,983,033 for the year ended December 31, 2017, as compared to $21,994,433 for the comparable period ended December
31, 2016, a decrease of $7,011,400. The decrease in convention revenue is primarily attributable to running less shows than the
prior year. In addition, the Company increased admission prices and the overall size and scope of each event. The Company ran
fourteen events during the year ended December 31, 2017, as compared to sixteen events during the comparable year ended December
31, 2016. Average revenue generated per event in 2017 was $1,070,217 as compared to $1,374,652 during 2016.
ConBox
Revenue
ConBox
revenue was $84,580 for the year ended December 31, 2017, as compared to $707,101 for the comparable year ended December 31, 2016,
a decrease of $622,521. The Company ceased ConBox operations in 2017 resulting in the decrease.
Gross
Profit
Gross
profit percentage for the convention segment decreased from a gross profit of 31% during the year ended December 31, 2016, to
a gross profit of 0.1% during the year ended December 31, 2017. The Company produced fourteen events during the year ended December
31, 2017, as compared to sixteen events during the comparable year ended December 31, 2016. The gross profit percentage decrease
was attributable to decreased revenue at each show and higher than acceptable production costs.
Gross
profit percentage for the ConBox segment increased from a gross deficit of 46% during the year ended December 31, 2016, to a gross
profit of 5% during the year ended December 31, 2017. The gross profit percentage increase was attributable to an overall decrease
in fulfillment costs. The Company ceased ConBox operations in 2017.
Operating
Expenses
Operating
expenses for the year ended December 31, 2017, was $5,346,924, as compared to $ 7,716,789 for the year ended December 31,
2016. The change is attributable to a decrease in employee compensation and general and administrative expenses offset by a
slight increase in consulting expenses. The $1,450,062 decrease in compensation is primarily attributable to a decline
in both headcount and officer compensation. General and administrative expenses decreased by $943,383 since the prior year
comparative period due to a decrease in service fees, travel and web development.
Loss
from Operations
Loss
from operations for the year ended December 31, 2017, was $5,337,608 as compared to a loss from operations of $1,182,246 for the
year ended December 31, 2016. The loss was primarily attributable to issues related to production costs, which were excessive
versus revenue and corporate overhead that could not be sustained. The Company has addressed both issues. Additionally, the Company
has augmented its marketing and talent departments to increase attendance at its conventions. During the 4
th
Quarter
of 2017 the Company dramatically reduced its corporate overhead expenses, reducing the projected Corporate Operating budget in
2018 to $2,700,000 compared with $4,900,000 in 2017. This reduction, combined with the operating efficiency in producing
the shows should materially improve the operating results in 2018.
Other
Expenses
Other expenses for the year ended December
31, 2017, was $395,887, as compared to $325,857 for the year ended December 31, 2016. During the year ended December 31,
2017, the Company recorded interest of expense of $395,102 related to the convertible note and corresponding debt discount compared
to $26,481 during the year ended December 31, 2016. The Company recorded a loss of $262,500 during the year ended December
31, 2016 on the CONtv joint venture with Cinedigm compared to a loss of $0 during the year ended December 31, 2017. For the year
ended December 31, 2017 and 2016, the Company recorded a loss of $785 and $36,876, respectively, upon the disposal of equipment.
Net
Loss Attributable to Common Stockholder
Net loss attributable to common stockholder
for the year ended December 31, 2017, was $5,732,814 or loss per basic share of $0.08, compared to a net loss of $1,575,361
or loss per basic share of $0.03, for the year ended December 31, 2016.
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 December 31, 2017 compared to December 31,
2016:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
Increase/(Decrease)
|
|
Current Assets
|
|
$
|
2,765,278
|
|
|
$
|
5,599,269
|
|
|
$
|
(2,833,991
|
)
|
Current Liabilities
|
|
$
|
6,306,310
|
|
|
$
|
2,736,953
|
|
|
$
|
3,569,357
|
|
Working Capital (Deficit)
|
|
$
|
(3,541,032
|
)
|
|
$
|
2,862,316
|
|
|
$
|
6,403,348
|
|
At
December 31, 2017, we had a working capital deficit of $3,541,032, as compared to working capital of $2,862,317,
at December 31, 2016, a decrease of $6,403,348. The change in working capital is primarily attributable
to a decrease in cash and cash equivalents, prepaid expenses and an increase in accounts payable and accrued expenses, unearned
revenue and convertible promissory notes. These were offset by an increase in accounts receivable.
Net
Cash
Net
used in operating activities for the year ended December 31, 2017 and 2016, was $2,533,595 and $2,488,009, respectively.
The net loss for the years ended December 31, 2017 and 2016, was $5,733,495 and $1,508,103, respectively.
Going
Concern Analysis
The Company had a net loss of $5,733,495 and
$1,508,103 for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, we had cash and working capital
deficit of $1,769,550 and $3,541,032, respectively. We have evaluated the significance of these conditions in relation to our
ability to meet our obligations, which had previously raised doubts about the Company’s ability to continue as a going concern
through March 2019. However, the Company believes that the effects of its cost savings efforts with regard to corporate overhead
and show production expenses commenced in 2017 are not reflected in the above results, but should be evident in 2018.
In addition to its cost containment strategies,
the Company has announced three agreements intended to expand its future revenues: 1) an alignment with Sony Pictures
Entertainment to explore a number of strategic initiatives; 2) an agreement to program a linear advertising Supported channel
and an SVOD Channel in China on the CN Live platform; and, 3) a programming agreement with Associated Television International
to launch the Chinese networks.
Additionally,
if
necessary, management believes
that both related parties (management and members of the Board of Directors of the Company) and potential external sources of
debt and/or equity financing may be obtained based on management’s history of being able to raise capital from both internal
and external sources coupled with current favorable market conditions. Therefore, the accompanying condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern.
The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein.
While the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the
ability to raise additional funds if necessary, there can be no assurances to that effect. The Company’s ability to continue
as a going concern is dependent upon the ability to further implement the business plan, generate sufficient revenues and to control
operating expenses.
Off-Balance
Sheet Arrangements
As
of December 31, 2017, 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 GAAP 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(s) of the financial
statements and the reported amounts of revenues and expenses during the reporting period(s). 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.
The
impairment charges, if any, are included in operating expenses in the accompanying statements of operations.
Income
Taxes
The
Company accounts for income taxes under Section 740-10-30 of the FASB ASC. Deferred income tax assets and liabilities are determined
based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the statements of operations in the period that includes the enactment date.
The
Company adopted section 740-10-25 of the FASB ASC (“Section 740-10-25”). Section 740-10-25 addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that
has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides
guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires
increased disclosures.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
consolidated balance sheets, as well as tax credit carry-backs and carryforwards. The Company periodically reviews the recoverability
of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in
these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual
taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Revenue
Recognition
The
Company follows Paragraph 605-10-S99-1 of the FASB ASC for revenue recognition. The Company will recognize revenue when it is
realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria
are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered
to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Unearned
convention revenue is deposits received for conventions that have not yet taken place, which are fully or partially refundable
depending upon the terms and conditions of the agreements.
Unearned
ConBox revenue is non-refundable up-front payments for products. These payments are initially deferred and subsequently recognized
over the subscription period, typically three months, and upon shipment of the product. The Company ceased ConBox operations
in 2017.
The
Company recognizes cost of revenues in the period in which the revenues was earned. In the event the Company incurs cost of revenues
for conventions that are yet to occur, the Company records such amounts as prepaid expenses and such prepaid expenses are expensed
during the period the convention takes place.
Equity–based
compensation
The
Company recognizes compensation expense for all equity–based payments in accordance with ASC 718 “
Compensation
– Stock Compensation
”. Under fair value recognition provisions, the Company recognizes equity–based compensation
net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite
service period of the award.
Restricted
stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally
vest over the requisite service periods, typically over a four-year period (vesting on a straight–line basis). The
fair value of a stock award is equal to the fair market value of a share of Company stock on the grant date.
The
fair value of option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes
option valuation model requires the development of assumptions that are input into the model. These assumptions are the expected
stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock
and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s
Common stock over the expected option life and other appropriate factors. Risk–free interest rates are calculated based
on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company
has never paid or declared any cash dividends on our Common stock and does not intend to pay dividends on our Common stock in
the foreseeable future. The expected forfeiture rate is estimated based on historical experience.
Determining
the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the
subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards
represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.
As a result, if factors change and the Company uses different assumptions, our equity–based compensation could be materially
different in the future. In addition, the Company is required to estimate the expected forfeiture rate and recognize expense only
for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the equity–based
compensation could be significantly different from what the Company has recorded in the current period.
The
Company accounts for share–based payments granted to non–employees in accordance with ASC 505-40, “
Equity
Based Payments to Non–Employees
”. The Company determines the fair value of the stock–based payment as either
the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions
as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments
is reached, or (2) the date at which the counterparty’s performance is complete. The fair value of the equity instruments
is re-measured each reporting period over the requisite service period.
Fair
Value of Financial Instruments
We
follow Paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of our financial instruments and paragraph 820-10-35-37
of the FASB ASC (“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 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.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
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. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amount of the Company’s assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses,
accounts payable and accrued liabilities, and unearned revenue approximate their fair value because of the short maturity of those
instruments.
Recent
Accounting Pronouncements
In
July 2015, the FASB issued the ASU No. 2015-11 “
Inventory (Topic 330)
:
Simplifying the Measurement of Inventory”
(“ASU 2015-11”)
.
The amendments in this ASU do not apply to inventory that is measured using last-in, first-out
(LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured
using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this ASU at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured
using LIFO or the retail inventory method. For public business entities, the amendments in this ASU are effective for fiscal years
beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted the standard during
the year ended December 31, 2017 and the adoption did not have a material effect on its consolidated financial statements and
disclosures.
In
February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842).”
Under ASU 2016-02, lessees will be required
to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the
right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of
financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting
companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted
using a modified retrospective approach. The Company is in the process of evaluating the effect of the new guidance on its consolidated
financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-10, “
Revenue from Contracts with Customers: Identifying Performance Obligations
and Licensing (Topic 606)
”. In March 2016, the FASB issued ASU No. 2016-08, “
Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross verses Net) (Topic 606)
”. These amendments provide additional
clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”.
The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance
obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides
a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual
property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal
versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10
and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which the Company intends to adopt for interim
and annual reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the standard and does
not expect the adoption will have a material effect on its consolidated financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-09, “
Compensation – Stock Compensation (Topic 718)
”. The FASB
issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based
payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption of the update is permitted. The Company adopted the standard during
the year ended December 31, 2017 and the adoption did not have a material effect on its consolidated financial statements and
disclosures.
In
May 2016, the FASB issued ASU No. 2016-12, “
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients”
, which narrowly amended the revenue recognition guidance regarding collectability, noncash
consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is
currently evaluating the standard and does not expect the adoption will have a material effect on its consolidated financial statements
and disclosures.
In
August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments”
(“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and
cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning
after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply,
in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently
in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.
In
October 2016, the FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity
transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective
for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the
update is permitted. The Company is currently evaluating the impact of the new standard.
In
November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”
, requiring that the statement
of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December
15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which
requires application of the guidance for all periods presented. The Company is currently evaluating the impact of the new standard.
In
May 2017, the FASB issued ASU 2017-09, “
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,”
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. The Company
is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.
In
July 2017, the FASB issued ASU 2017-11, “
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception”
. Part I of this update addresses the complexity of accounting
for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible
instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part
II of this update addresses the difficulty of navigating Topic 480,
Distinguishing Liabilities from Equity
, because of
the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of
the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities
and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting
effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018.
The
Company early adopted the ASU 2017-11 in the three months ending December 31, 2017.
In
September 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-13,
Revenue
Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).
The
new standard, among other things, provides additional implementation guidance with respect to Accounting Standards Codification
(ASC) Topic 606 and ASC Topic 842. ASU 2017-03 is effective for annual and interim fiscal reporting periods beginning after December
15, 2017. The Company is currently evaluating the impact of the new standard but does not expect it to have a material impact
on its implementation strategies or its consolidated financial statements upon adoption.
Management
made the decision to early adopt ASU 2017-11, which required retrospective adjustment causing the 2016 audited financial statements
to be restated. See Footnote 3 to the Financial Statements. The comparative financial information
disclosed
in the Form 10-K including the audited 2016 financial statements represent the restated amounts.
Other
than the early adoption of ASU 2017-11, Management does not believe that any recently issued, but not yet effective
accounting
pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.
Quantitative
and Qualitative Disclosure About Market Risk
We
have limited exposure to market risks from instruments that may impact the
Balance Sheets, Statements of Operations,
and
Statements of Cash Flows.
Such exposure is due primarily to changing interest rates.
The
primary objective for our investment activities is to preserve principal while maximizing yields without significantly increasing
risk. This is accomplished by investing excess cash in highly liquid debt and equity investments of highly rated entities which
are classified as trading securities.
Off-Balance
Sheet Arrangements
We
have no significant known off balance sheet arrangements.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
We
do not hold any derivative instruments and do not engage in any hedging activities.
Item
8. Financial Statements.
Our
consolidated financial statements are contained in pages F-1 through F-28 which appear at the end of this Annual Report.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Effective
on December 19, 2017, the Board dismissed Rosenberg Rich Baker Berman & Company (“RRBB”), as the Company’s
independent registered public accounting firm.
RRBB’s
report on the financial statements for the fiscal years ended December 31, 2016 and 2015, contained no adverse opinion or disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years
ended December 31, 2016 and 2015, and in the subsequent interim periods through December 19, 2017, the date of dismissal of RRBB,
there were no disagreements with RRBB on any matter of accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of RRBB, would have caused them to make reference
to the subject matter of the disagreements in its reports on the financial statements for such year. During the fiscal years ended
December 31, 2016 and 2015, and in the subsequent interim period through December 19, 2017, the date of dismissal of RRBB, there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
Effective
on December 26, 2017, the Board approved the engagement of Maughan Sullivan LLC (“Maughan”), as the Company’s
new independent registered public accounting firm.
During
the fiscal year ended December 31, 2016, and the subsequent interim period prior to the engagement of Maughan, the Company has
not consulted Maughan regarding (i) the application of accounting principles to any specified transaction, either completed or
proposed; (ii) the type of audit opinion that might be rendered on the Company’s financial statements, and either a written
report was provided to the registrant or oral advice was provided that the new accountant concluded was an important factor considered
by the registrant in reaching a decision as to the accounting, auditing or financial reporting issue; or (iii) any matter that
was either the subject of a disagreement (as defined in Item 304(a)(1)(v)) or a reportable event (as defined in Item 304(a)(1)(v)).
Item
9A. Controls and Procedures.
(a)
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Pursuant
to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”),
of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange
Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded
that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated
to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding
required disclosure.
(b)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as required under
applicable United States securities regulatory requirements. Internal control over financial reporting is defined in Rule 13a-15(f)
or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s chief
executive and chief financial officers and effected by the Board, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
|
(1)
|
Pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the issuer;
|
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|
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(2)
|
Provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance
with authorizations of management and directors of the registrant; and
|
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(3)
|
Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s
assets that could have a material effect on the financial statements.
|
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. A system of
internal controls can provide only reasonable, not absolute, assurance that the objectives of the control system are met, no matter
how well the system is conceived or operated. Projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making
this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in 2013 in Internal Control Integrated Framework. Based on that evaluation under this framework, our management
concluded that our internal control over financial reporting was not effective because of the following material weaknesses in
our internal control over financial reporting.
|
(1)
|
Due
to our small number of accounting employees and resources, we have limited segregation of duties, as a result of which there
is insufficient independent review of duties performed; and
|
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(2)
|
In
addition, management has not completed a full documentation of all processes and procedures as it relates to internal controls
over financial reporting.
|
This
annual report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting because we are a “smaller reporting company.” Our management’s report was not subject
to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only
management’s report in this annual report.
(c)
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
The
Company is committed to improving financial organization. As part of this commitment, management and the Board performed an extensive
review of the Company’s policies and procedures as it relates to financial reporting and human resources in an effort to
mitigate future risks of potential misstatements. The former Chairman of the Board, Chief Executive Officer and Chief Accounting
Officer declined to participate in such review procedures. The Company will utilize the review findings to further develop, implement
and document sound internal controls and procedures surrounding the financial reporting and human resource processes.
Item
9B. Other Information.
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
The
information required by this Item is expected to be filed by amendment to this 10-K filing prior to April 30, 2018, which
is 120 days after the close of our fiscal year ended December 31, 2017, and is incorporated herein by reference.
Item
11. Executive Compensation.
The
information required by this Item is expected to be filed by amendment to this 10-K filing prior to April 30, 2018, which
is 120 days after the close of our fiscal year ended December 31, 2017, and is incorporated herein by reference.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The
information required by this Item is expected to be filed by amendment to this 10-K filing prior to April 30, 2018, which
is 120 days after the close of our fiscal year ended December 31, 2017, and is incorporated herein by reference.
Item
13. Certain Relationships and Related Transactions.
The
information required by this Item is expected to be filed by amendment to this 10-K filing prior to April 30, 2018, which
is 120 days after the close of our fiscal year ended December 31, 2017, and is incorporated herein by reference.
Item
14. Principal Accountant Fees and Services.
The
information required by this Item is expected to be filed by amendment to this 10-K filing prior to April 30, 2018, which
is 120 days after the close of our fiscal year ended December 31, 2017, and is incorporated herein by reference.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
Exhibit
No.
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Description
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2.1
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Share
Purchase and Share Exchange Agreement, dated November 5, 2010, by and among GoEnergy, Inc., Strato Malamas, an individual
and the majority stockholder of GoEnergy, Inc., Kick the Can Corp., a Nevada corporation, Kicking the Can, L.L.C., a Delaware
limited liability company and the majority shareholder of Kick the Can Corp., and certain shareholders of Kick the Can Corp.
that are signatories thereto (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC
on November 16, 2010).
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3.1
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Certificate
of Incorporation of GoEnergy, Inc. (as filed as Exhibit 1.1 to the Company’s Registration Statement on Form SB-2, filed
with the SEC on March 25, 2003).
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3.2
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Bylaws
(as filed as Exhibit 2.1 to the Company’s Registration Statement on Form SB-2, filed with the SEC on March 25, 2003).
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3.3
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Certificate
of Amendment to the Certificate of Incorporation of GoEnergy, Inc., dated December 6, 2010 (as filed as Exhibit 3.3 to the
Company’s Current Report on Form 8-K, filed with the SEC on December 13, 2010).
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3.4
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Certificate
of Correction, dated December 8, 2010 (as filed as Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed with
the SEC on December 13, 2010).
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3.5
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Second
Certificate of Correction filed January 20, 2011 (as filed as Exhibit 3.5 to the Company’s Current Report on Form 8-K,
filed with the SEC on January 25, 2011).
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3.6
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Certificate
to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series A Cumulative
Convertible Preferred Stock, $0.0001 par value per share (as filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on December 13, 2010).
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3.7
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Certificate
of Amendment to Certificate to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative
Rights of Series A Cumulative Convertible Preferred Stock, $.0001 par value per share (as filed as Exhibit 4.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on April 25, 2011).
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3.8
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Certificate
of Amendment to Certificate to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative
Rights of Series A Cumulative Convertible Preferred Stock, $.0001 par value per share (as filed as Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on March 30, 2012).
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3.9
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Amended
and Restated Series A Certificate of Designations, dated March 29, 2012 (as filed as Exhibit 3.1 to the Company’s Current
Report on Form 8-K, filed on March 30, 2012).
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3.10
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First
Amendment to the Bylaws of Wizard World, Inc. (as filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q,
filed with the SEC on November 21, 2016).
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4.1
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Form
of 2011 Series A Common Stock Purchase Warrant (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K,
filed with the SEC on April 25, 2011).
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4.2
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Form
of Convertible Promissory Note, dated August 19, 2011 (as filed as Exhibit 10.2 to the Company’s Current Report on Form
8-K, filed with the SEC on August 30, 2011).
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4.3
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Form
of Series A Common Stock Purchase Warrant (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on April 5, 2012).
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4.4
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Form
of Senior Convertible Debenture (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the
SEC on April 5, 2012).
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10.1
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Director
Agreement, dated January 18, 2011, by and between GoEnergy, Inc. and Vadim Mats (as filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed with the SEC on January 18, 2011).
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10.2
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Director
Agreement, dated March 23, 2011, by and between Wizard World, Inc. and Michael Mathews (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on March 25, 2011).
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10.3
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Consultant
Agreement, dated March 23, 2011, by and between Wizard World, Inc. and Michael Mathews (as filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed with the SEC on March 25, 2011).
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10.4
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Form
of 2011 Series A Subscription Agreement (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on April 25, 2011).
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10.5
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Director
Agreement, dated May 9, 2011, by between Wizard World, Inc. and Greg Suess (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on May 9, 2011).
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10.6
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2011
Stock Incentive and Award Plan (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
SEC on May 12, 2011)
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10.7
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Amendment
to the 2011 Incentive Stock and Award Plan (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on September 15, 2011).
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10.8
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2011
Amended and Restated Stock Incentive and Award Plan. (as filed as Exhibit 10.8 to the Company’s Annual Report on Form
10-K, filed with the SEC on April 16, 2012).
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10.9
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Form
of Non-Qualified Stock Option Agreement (as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed
with the SEC on May 12, 2011).
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10.10
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Director
Agreement, dated May 13, 2011, by and between Wizard World, Inc. and John M. Macaluso (as filed as Exhibit 10.10 to the Company’s
Annual Report on Form 10-K, filed with the SEC on April 16, 2012).
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10.11
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Director
Agreement, dated May 25, 2011, by and between Wizard World, Inc. and John Maatta (as filed as Exhibit 10.11 to the Company’s
Annual Report on Form 10-K, filed with the SEC on April 16, 2012).
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10.12
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Employment
Agreement, dated May 25, 2011, by and between Wizard World, Inc. and Gareb Shamus (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on May 31, 2011).
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10.13
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Form
of Subscription Agreement, dated August 19, 2011 (as filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K,
filed with the SEC on April 16, 2012).
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10.14
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Office
Service Agreement, dated January 18, 2011, by and between Kick the Can Corp. and NYC Office Suites (as filed as Exhibit 10.11
to the Company’s Current Report on Form 8-K, filed with the SEC on September 13, 2011).
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10.15
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Internet
Domain Name Assignment Agreement, dated January 2011, by and between Gareb Shamus Enterprises, Inc. and Kick the Can Corp.
(as filed as Exhibit 10.12 to the Company’s Current Report on Form 8-K, filed with the SEC on September 13, 2011).
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10.16
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Mid-Ohio
Acquisition Agreement, dated November 13, 2010, by and between Kicking the Can L.L.C and GCX Holdings LLC (as filed as Exhibit
10.15 to the Company’s Current Report on Form 8-K/A, filed with the SEC on November 16, 2011).
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10.17
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Form
of Senior Convertible Debenture, dated December 6, 2011 (as filed as Exhibit 10.17 to the Company’s Annual Report on
Form 10-K, filed with the SEC on April 16, 2012).
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10.18
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Subscription
Agreement, dated December 21, 2011, by and between the Company and the Michael Mathews 2011 Children’s GRAT (as filed
as Exhibit 10.18 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 16, 2012).
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10.19
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Consultant
Agreement, dated March 23, 2011, between Wizard World, Inc. and Michael Mathews (as filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed on March 25, 2011).
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10.20
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Employment
Agreement, dated March 19, 2012, by and between Wizard World, Inc. and John M. Macaluso, individually (as filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed on March 19, 2012).
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10.21
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Option
Agreement, dated March 19, 2012, by and between Wizard World, Inc. and John M. Macaluso, individually (as filed as Exhibit
10.2 to the Company’s Current Report on Form 8-K, filed on March 19, 2012).
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10.22
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Indemnification
Agreement, dated March 19, 2012, by and between Wizard World, Inc. and John M. Macaluso, individually (as filed as Exhibit
10.3 to the Company’s Current Report on Form 8-K, filed on March 19, 2012).
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10.23
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|
Form
of Subscription Agreement (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC
on April 5, 2012).
|
|
|
|
10.24
|
|
Second
Amended and Restated 2011 Incentive Stock and Award Plan (as filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on July 13, 2012).
|
|
|
|
10.25
|
|
Director
Agreement, dated March 17, 2013, by and between Wizard World, Inc. and Paul L. Kessler (as filed as Exhibit 10.25 to the Company’s
Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
10.26
|
|
Director
Agreement, dated March 17, 2013, by and between Wizard World, Inc. and Kenneth Shamus (as filed as Exhibit 10.26 to the Company’s
Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
|
|
|
10.27
|
|
Director
and Officer Indemnification, dated March 17, 2013, by and between Wizard World, Inc. and Paul L. Kessler (as filed as Exhibit
10.27 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
|
|
|
10.28
|
|
Director
and Officer Indemnification, dated March 17, 2013, by and between Wizard World, Inc. and Kenneth Shamus (as filed as Exhibit
10.28 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
|
|
|
10.29
|
|
Non-Qualified
Stock Option Agreement, dated March 17, 2013, by and between Wizard World, Inc. and Paul L. Kessler (as filed as Exhibit 10.29
to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2013)
.
|
|
|
|
10.30
|
|
Non-Qualified
Stock Option Agreement, dated March 17, 2013, by and between Wizard World, Inc. and Kenneth Shamus (as filed as Exhibit 10.30
to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
|
|
|
10.31
|
|
Form
of Commercial Real Estate Lease by and between Bristol Capital, LLC and 225 California Street, LLC, as lessors, and Wizard
World, Inc., as lessee (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
April 24, 2013).
|
|
|
|
10.32
|
|
Amended
and Restated Employment Agreement, dated September 16, 2014, by and between Wizard World, Inc. and John Macaluso, individually
(as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 19, 2014)
|
|
|
|
10.33
|
|
2011
Third Amended and Restated Stock Incentive and Award Plan. (as filed as Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed with the SEC on September 29, 2014)
|
10.34
|
|
Amended
and Restated Operating Agreement of CON TV, LLC, by and among Wizard World, Inc., Cinedigm Entertainment Corp., ROAR, LLC
and Bristol Capital, LLC (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
November 20, 2015)
|
|
|
|
10.35
|
|
Amended
and Restated License Agreement by and between Wizard World, Inc. and CON TV, LLC (as filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed with the SEC on November 20, 2015)
|
|
|
|
10.36
|
|
Amended
and Restated Services Agreement by and between Wizard World, Inc. and CON TV, LLC (as filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on November 20, 2015)
|
|
|
|
10.37
|
|
Employment
Agreement by and between Wizard World, Inc. and Randy Malinoff, individually (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on March 7, 2016)
|
|
|
|
10.38
|
|
Employment
Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
|
|
|
10.39
|
|
Non-Compete,
Non-Solicitation and Non-Disclosure Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as
filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
10.40
|
|
Indemnification
Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
|
|
|
10.41
|
|
Option
Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as filed as Exhibit 10.4 to the Company’s
Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
|
|
|
10.42
|
|
Employment
Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff (as filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.43
|
|
Non-Compete,
Non-Solicitation and Non-Disclosure Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff
(as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.44
|
|
Indemnification
Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff (as filed as Exhibit 10.3 to
the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.45
|
|
Non-Qualified
Stock Option Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff (as filed as Exhibit
10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.45
|
|
Form
of Securities Purchase Agreement by and between Wizard World, Inc. and Bristol Investment Fund, Ltd. (as filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 2, 2016)
|
|
|
|
10.46
|
|
Form
of 12% Senior Secured Convertible Debenture issued by Wizard World, Inc., in favor of Bristol Investment Fund, Ltd. (as filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on December 2, 2016)
|
10.47
|
|
Form
of Warrant issued by Wizard World, Inc. to Bristol Investment Fund, Ltd. (as filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on December 2, 2016)
|
|
|
|
10.48
|
|
Security
Agreement by and between Wizard World, Inc. (as filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed
with the SEC on December 2, 2016)
|
|
|
|
10.49
|
|
Consulting
Services Agreement by and between Wizard World, Inc. and Bristol Capital, LLC (as filed as Exhibit 10.4 to the Company’s
Current Report on Form 8-K, filed with the SEC on January 5, 2017)
|
|
|
|
16.1
|
|
Letter
of Rosenberg Rich Baker Berman & Company, dated December 28, 2017 (incorporated herein by reference to Exhibit 16.1 to
the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018)
|
|
|
|
21.1
|
|
Subsidiaries
(incorporated herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K) filed with the
SEC on April 17, 2017)
|
|
|
|
31.1
|
|
Certification
by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)
or Rule 15d-14(a))*
|
|
|
|
31.2
|
|
Certification
by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)
or Rule 15d-14(a))*
|
|
|
|
32.1
|
|
Certification
by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002*
|
|
|
|
32.2
|
|
Certification
by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 *
|
|
|
|
101.INS
|
|
XBRL
Instance Document *
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema *
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase *
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase *
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase *
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase *
|
*
filed herewith
Item
16. Form 10-K Summary.
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
|
WIZARD
WORLD, INC.
|
|
|
|
Date:
April 2, 2018
|
By:
|
/s/
John D. Maatta
|
|
Name:
|
John
D. Maatta
|
|
Title:
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
(Principal
Financial Officer)
|
|
|
(Principal
Accounting Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
John D. Maatta
|
|
Chief
Executive Officer, President, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Director
|
|
April
2, 2018
|
John
D. Maatta
|
|
|
|
|
|
|
|
|
|
/s/
Paul L. Kessler
|
|
Executive
Chairman
|
|
April
2, 2018
|
Paul
L. Kessler
|
|
|
|
|
|
|
|
|
|
/s/
Greg Suess
|
|
Director
|
|
April
2, 2018
|
Greg
Suess
|
|
|
|
|
|
|
|
|
|
/s/
Jordan Schur
|
|
Director
|
|
April
2, 2018
|
Jordan
Schur
|
|
|
|
|
|
|
|
|
|
/s/
Michael Breen
|
|
Director
|
|
April
2, 2018
|
Michael
Breen
|
|
|
|
|
Wizard
World, Inc.
December
31, 2017
Index
to the Consolidated Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent
Registered Public Accounting Firm
To the Stockholders and the Board of Directors
of Wizard World, Inc.:
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated
balance sheets of Wizard World, Inc. (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements
of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December
31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and
2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in
conformity with U.S. generally accepted accounting principles.
Change in Accounting
Principle
As discussed in Note 3 to the financial statements,
the Company has changed its method of accounting for Derivatives (Topic 815) in the fourth quarter of 2017 and the retrospective
application resulting in a restatement of the 2016 audited financial statements due to the early adoption of ASU 2017-11,
“Earnings
Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting
for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ MaughanSullivan LLC
We have served as the Company’s auditor
since 2017.
Manchester, VT
April 2, 2018
To the Board of Directors and
Stockholders of Wizard World, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Opinion on the Consolidated Financial Statements
We have audited, before the effects of the
adjustments to retrospectively apply the change in accounting described in Note 3, the consolidated balance sheet of Wizard World,
Inc. (the Company) as of December 31, 2016, and the related consolidated statements of operations, changes in stockholders’
equity, and cash flows for the year then ended, and the related notes (collectively referred to as the consolidated financial statements).
In our opinion, the 2016 consolidated financial statements, before the effects of the adjustments to retrospectively apply the
change in accounting described in Note 3, present fairly, in all material respects, the financial position of the Company as of
December 31, 2016, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
We were not engaged to audit, review, or apply
any procedures to the adjustments to retrospectively apply the change in accounting described in Note 3 and, accordingly, we do
not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.
Those adjustments were audited by Maughan Sullivan LLC. (The 2016 consolidated financial statements before the effects of the adjustments
discussed in Note 3 are not presented herein.)
Basis for Opinion
These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable
basis for our opinion.
/s/ Rosenberg Rich Baker Berman, P.A.
|
|
|
We have served as the Company’s auditor since 2015.
|
|
|
Somerset, New Jersey
|
|
|
April 17, 2017
|
|
|
Wizard
World, Inc.
Consolidated
Balance Sheets
|
|
December
31,
2017
|
|
|
December
31,
2016
|
|
|
|
|
|
|
As
Restated (Note 3)
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,769,550
|
|
|
$
|
4,401,217
|
|
Accounts
receivable, net
|
|
|
336,030
|
|
|
|
187,819
|
|
Inventory
|
|
|
1,204
|
|
|
|
-
|
|
Prepaid
convention expenses
|
|
|
461,986
|
|
|
|
704,711
|
|
Prepaid
insurance
|
|
|
87,987
|
|
|
|
96,076
|
|
Prepaid
rent – related party
|
|
|
76,006
|
|
|
|
181,796
|
|
Prepaid
taxes
|
|
|
14,398
|
|
|
|
13,984
|
|
Other
prepaid expenses
|
|
|
18,117
|
|
|
|
13,666
|
|
Total
Current Assets
|
|
|
2,765,278
|
|
|
|
5,599,279
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
165,403
|
|
|
|
215,948
|
|
|
|
|
|
|
|
|
|
|
Security
deposit
|
|
|
9,408
|
|
|
|
19,912
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,940,089
|
|
|
$
|
5,835,129
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
2,800,118
|
|
|
$
|
937,774
|
|
Unearned
revenue
|
|
|
2,164,972
|
|
|
|
1,574,938
|
|
Convertible
promissory note – related party, net
|
|
|
1,116,979
|
|
|
|
-
|
|
Due
to CONtv joint venture
|
|
|
224,241
|
|
|
|
224,241
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
6,306,310
|
|
|
|
2,736,953
|
|
|
|
|
|
|
|
|
|
|
Non-current
Liabilities:
|
|
|
|
|
|
|
|
|
Convertible
promissory note - related party, net
|
|
|
-
|
|
|
|
1,027,176
|
|
|
|
|
|
|
|
|
|
|
Total
Non-current Liabilities
|
|
|
-
|
|
|
|
1,027,176
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
6,306,310
|
|
|
|
3,764,129
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred
stock par value $0.0001: 20,000,000 shares authorized; 50,000 shares designated Series A convertible preferred stock par value
$0.0001: 50,000 shares designated; 39,101 shares issued and converted
|
|
|
-
|
|
|
|
-
|
|
Common
stock par value $0.0001: 80,000,000 shares authorized; 68,535,036 and 68,535,036
shares issued and outstanding, respectively
|
|
|
6,855
|
|
|
|
6,855
|
|
Additional
paid-in capital
|
|
|
19,960,893
|
|
|
|
19,664,619
|
|
Accumulated
deficit
|
|
|
(23,321,471
|
)
|
|
|
(17,588,657
|
)
|
Non-controlling
interest
|
|
|
(12,498
|
)
|
|
|
(11,817
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
(3,366,221
|
)
|
|
|
2,071,000
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
2,940,089
|
|
|
$
|
5,835,129
|
|
See
accompanying notes to the consolidated financial statements
Wizard
World, Inc.
Consolidated
Statements of Operations
|
|
For the Years Ended
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
As Restated (Note 3)
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Convention
|
|
$
|
14,983,033
|
|
|
$
|
21,994,433
|
|
ConBox
|
|
|
84,580
|
|
|
|
707,101
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
15,067,613
|
|
|
|
22,701,534
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
15,058,297
|
|
|
|
16,002,088
|
|
Write-off of obsolete inventory
|
|
|
-
|
|
|
|
164,903
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
15,058,297
|
|
|
|
16,166,991
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,316
|
|
|
|
6,534,543
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
3,018,087
|
|
|
|
4,468,149
|
|
Consulting fees
|
|
|
710,634
|
|
|
|
687,054
|
|
General and administrative
|
|
|
1,618,203
|
|
|
|
2,561,586
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,346,924
|
|
|
|
7,716,789
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,337,608
|
)
|
|
|
(1,182,246
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(395,102
|
)
|
|
|
(26,481
|
)
|
Loss on disposal of equipment
|
|
|
(785
|
)
|
|
|
(36,876
|
)
|
Loss on CONtv joint venture
|
|
|
-
|
|
|
|
(262,500
|
)
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(395,887
|
)
|
|
|
(325,857
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income tax provision
|
|
|
(5,733,495
|
)
|
|
|
(1,508,103
|
)
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,733,495
|
)
|
|
|
(1,577,103
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to non-controlling
interests
|
|
|
(681
|
)
|
|
|
67,258
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(5,732,814
|
)
|
|
$
|
(1,575,361
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic and diluted
|
|
|
68,535,036
|
|
|
|
52,775,488
|
|
See
accompanying notes to the consolidated financial statements
Wizard
World, Inc.
Consolidated
Statements of Stockholders’ Equity (Deficit)
For
the Years Ended December 31, 2017 and 2016
|
|
Preferred
Stock Par
|
|
|
Common
Stock Par
|
|
|
Additional
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Value
$0.0001
|
|
|
Value
$0.0001
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
51,368,386
|
|
|
$
|
5,138
|
|
|
$
|
17,341,268
|
|
|
$
|
(16,013,296
|
)
|
|
$
|
17,706
|
|
|
$
|
1,350,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
777,536
|
|
|
|
-
|
|
|
|
-
|
|
|
|
777,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued as debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
50
|
|
|
|
741
|
|
|
|
-
|
|
|
|
-
|
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
16,666,650
|
|
|
|
1,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued as debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,448,293
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,448,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of controlling interest of ConBox
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96,781
|
|
|
|
-
|
|
|
|
(96,781
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,575,361
|
)
|
|
|
67,258
|
|
|
|
(1,508,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2016 (as Restated Note 3)
|
|
|
-
|
|
|
|
-
|
|
|
|
68,535,036
|
|
|
|
6,855
|
|
|
|
19,664,619
|
|
|
|
(17,588,657
|
)
|
|
|
(11,817
|
)
|
|
|
2,071,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
296,274
|
|
|
|
-
|
|
|
|
-
|
|
|
|
296,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,732,814
|
)
|
|
|
(681
|
)
|
|
|
(5,733,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,960,893
|
|
|
$
|
(23,321,471
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(3,366,221
|
)
|
See
accompanying notes to the consolidated financial statements
Wizard
World, Inc.
Consolidated
Statements of Cash Flows
|
|
For
the Years Ended
|
|
|
|
December
31,
2017
|
|
|
December
31,
2016
|
|
|
|
|
|
|
As
Restated (Note 3)
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,773,495
|
)
|
|
$
|
(1,508,103
|
)
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
147,832
|
|
|
|
159,101
|
|
Write-off
of obsolete inventory
|
|
|
-
|
|
|
|
164,903
|
|
Loss
on disposal of equipment
|
|
|
785
|
|
|
|
36,876
|
|
Accretion
of debt discount
|
|
|
89,803
|
|
|
|
1,260
|
|
Loss
on CONtv joint venture
|
|
|
-
|
|
|
|
262,500
|
|
Share-based
compensation
|
|
|
296,274
|
|
|
|
777,536
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(148,211
|
)
|
|
|
219,323
|
|
Inventory
|
|
|
(1,204
|
)
|
|
|
(125,351
|
)
|
Prepaid
convention expenses
|
|
|
242,725
|
|
|
|
285,689
|
|
Prepaid
rent- related party
|
|
|
105,790
|
|
|
|
(181,796
|
)
|
Prepaid
insurance
|
|
|
8,089
|
|
|
|
(58,422
|
)
|
Prepaid
taxes
|
|
|
(414
|
)
|
|
|
280,000
|
|
Other
prepaid expenses
|
|
|
(4,451
|
)
|
|
|
(6,455
|
)
|
Security
deposits
|
|
|
10,504
|
|
|
|
1,154
|
|
Accounts
payable and accrued expenses
|
|
|
1,862,344
|
|
|
|
(639,665
|
)
|
Unearned
revenue
|
|
|
590,034
|
|
|
|
(2,156,559
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(2,533,595
|
)
|
|
|
(2,488,009
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(98,072
|
)
|
|
|
(169,802
|
)
|
Proceeds
received on disposal of equipment
|
|
|
-
|
|
|
|
8,662
|
|
Investment
in CONtv joint venture - net
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Investing Activities
|
|
|
(98,072
|
)
|
|
|
(311,140
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible promissory note and warrants
|
|
|
-
|
|
|
|
2,500,000
|
|
Payment
of debt issuance costs
|
|
|
-
|
|
|
|
(25,000
|
)
|
Proceeds
from the exercise of warrants
|
|
|
-
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided By Financing Activities
|
|
|
-
|
|
|
|
2,476,667
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(2,631,667
|
)
|
|
|
(322,482
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of reporting period
|
|
|
4,401,217
|
|
|
|
4,723,699
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of reporting period
|
|
$
|
1,769,550
|
|
|
$
|
4,401,217
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
200
|
|
Income
tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of controlling interest of ConBox
|
|
$
|
-
|
|
|
$
|
96,781
|
|
Warrants
issued for debt discount recorded on convertible debt
|
|
$
|
-
|
|
|
$
|
1,448,293
|
|
Common
stock issued for debt discount recorded on convertible note
|
|
$
|
-
|
|
|
$
|
791
|
|
See
accompanying notes to the consolidated financial statements
Wizard
World, Inc.
December
31, 2017
Notes
to the Consolidated Financial Statements
Note
1 – Organization and Operations
Wizard
World, Inc.
Wizard
World, Inc., formerly GoEnergy, Inc. (“Wizard World” or the “Company”) was incorporated on May 2, 2001,
under the laws of the State of Delaware. The Company, through its operating subsidiary, is a producer of pop culture and live
multimedia conventions across North America.
Kick
the Can Corp.
Kick
the Can Corp. was incorporated on September 20, 2010, under the laws of the State of Nevada.
Kicking
the Can, L.L.C.
Kicking
the Can, L.L.C. was formed on April 17, 2009, under the laws of the State of Delaware.
Acquisition
of Kick the Can Corp. / Wizard Conventions, Inc. Recognized as a Reverse Acquisition
On
December 7, 2010, the Company entered into and consummated a share exchange agreement (“Share Exchange Agreement”)
with successor, Kick the Can Corp. (“KTC Corp.”) and its predecessors Wizard Conventions, Inc. and Kicking the
Can, L.L.C. (collectively, “Conventions”). Pursuant to the Exchange Agreement, the Company issued 32,927,596 shares
of its common stock to the KTC Corp. shareholders in exchange for 100% of the issued and outstanding shares of KTC Corp. The shares
issued represented approximately 94.9% of the issued and outstanding common stock immediately after the consummation of the Share
Exchange Agreement.
As
a result of the controlling financial interest of the former stockholder of Conventions, for financial statement reporting purposes,
the merger between the Company and Conventions has been treated as a reverse acquisition with KTC Corp. deemed the accounting
acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with section
805-10-55 of the Financial Accounting Standards Board (‘FASB”) Accounting Standards Codification (“ASC”).
The reverse merger is deemed a capital transaction and the net assets of KTC Corp. (the accounting acquirer) are carried forward
to the Company (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process
utilizes the capital structure of the Company and the assets and liabilities of KTC Corp. which are recorded at historical cost.
The equity of the Company is the historical equity of KTC Corp. retroactively restated to reflect the number of shares issued
by the Company in the transaction. Because of the predecessor/successor relationship between the Company and KTC Corp., Conventions
ultimately became the accounting acquirer.
Wizard
World Digital, Inc.
On
March 18, 2011, the Company formed a wholly owned subsidiary called Wizard World Digital, Inc., a Nevada corporation (“Digital”).
Digital never commenced operations or has employees, and Digital is currently dormant, pending execution of a digital strategy.
Wiz
Wizard, LLC
On
December 29, 2014, the Company and a member of the Board of Directors (the “Board”) of the Company formed Wiz Wizard,
LLC (“Wiz Wizard”) under the law of the State of Delaware. The Company and the member of the Board each owned 50%
of the membership interest and agreed to allocate the profits and losses accordingly upon repayment of the initial capital contributions
on a pro rata basis. The Company consolidates its 50% equity interest and reports the remaining 50% equity interest owned by a
member of the Board as the non-controlling interest in Wiz Wizard as the management of the Company believes that the Company has
the control of Wiz Wizard. In addition, the Company and Wiz Wizard, launched ComicConBox (“ConBox”) in April 2015.
ConBox is a subscription-based premium monthly box service featuring collectibles, exclusives, toys, tech and gaming, licensed
artwork, superior comics and apparel, Comic Convention tickets, special VIP discounts and more, which will be shipped on or around
the end of every month. On February 4, 2016, the member of the Board assigned his fifty percent (50%) membership interest to the
Company. Consequently, Wiz Wizard is a wholly-owned subsidiary of the Company. The Company ceased Conbox operations in 2017.
ButtaFyngas
LLC
On
April 10, 2015, the Company and an unrelated third party formed ButtaFyngas, LLC (“ButtaFyngas”) under the law of
the State of Delaware. The Company and the unrelated party each own 50% of the membership interest and shall allocate the profits
and losses accordingly upon repayment of the initial capital contributions on a pro rata basis. The Company consolidates its 50%
equity interest and reports the remaining 50% equity interest owned by the third party as the non-controlling interest in ButtaFyngas.
Note
2 – Going Concern Analysis
Going
Concern Analysis
The Company had a loss from operations
of $5,337,608 and $1,182,246 for the year ended December 31, 2017 and 2016, respectively. As of December 31, 2017, we had
cash and working capital deficit $1,769,550 and $3,541,032, respectively. We have evaluated the significance of these
conditions in relation to our ability to meet our obligations, which had previously raised doubts about the Company’s
ability to continue as a going concern through March 2019. However, the Company believes that the effects of its cost savings
efforts with regard to corporate overhead and show production expenses commenced in 2017 are not reflected in the above
results, but should be evident in 2018.
In addition to its cost containment strategies,
the Company has announced three agreements to expand its future revenues: 1) An alignment with Sony Pictures Entertainment to
explore a number of strategic initiatives; 2) An agreement to program a linear advertising Supported channel and an SVOD
Channel in China on the CN Live platform; and, 3) A programming agreement with Associated Television International to launch the
Chinese networks.
Additionally,
if
necessary, management believes that both related parties
(management and members of the Board of Directors of the Company) and potential external sources of debt and/or equity financing
may be obtained based on management’s history of being able to raise capital from both internal and external sources coupled
with current favorable market conditions. Therefore, the accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.
The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein.
While the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the
ability to raise additional funds if necessary, there can be no assurances to that effect. The Company’s ability to continue
as a going concern is dependent upon the ability to further implement the business plan, generate sufficient revenues and to control
operating expenses.
Note
3 – Significant and Critical Accounting Policies and Practices
The
management of the Company is responsible for the selection and use of appropriate accounting policies and their application. Critical
accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition
and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to
make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting
policies and practices are disclosed below as required by generally accepted accounting principles.
Basis
of Presentation
The
Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”).
Use
of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The
preparation of financial statements in conformity with U.S. GAAP 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 dates of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
Principles
of Consolidation
The
consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and for the reporting
period(s) as follows:
Name
of consolidated
subsidiary or entity
|
|
State
or other jurisdiction
of
incorporation or
organization
|
|
Date
of incorporation
or formation (date of
acquisition, if
applicable)
|
|
Attributable
interest
|
|
|
|
|
|
|
|
|
|
KTC
Corp.
|
|
The
State of Nevada, U.S.A.
|
|
September
20, 2010
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Kicking
the Can L.L.C.
|
|
The
State of Delaware, U.S.A.
|
|
April
17, 2009
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Wizard
World Digital, Inc.
|
|
The
State of Nevada, U.S.A.
|
|
March
18, 2011
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Wiz
Wizard, LLC
|
|
The
State of Delaware, U.S.A.
|
|
December
29, 2014
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
ButtaFyngas,
LLC
|
|
The
State of Delaware, U.S.A.
|
|
April
10, 2015
|
|
|
50
|
%
|
All
inter-company balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment
in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components
of equity relating to the non–controlling interest.
As
of December 31, 2017, the aggregate non-controlling interest in ButtaFyngas was ($12,498). As of December 31, 2016, the aggregate
non-controlling interest in Wiz Wizard and ButtaFyngas was ($11,817). The non-controlling interest is separately disclosed on
the Consolidated Balance Sheet.
Cash
and Cash Equivalents
The
Company considers investments with original maturities of three months or less to be cash equivalents.
The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits.
Fair
Value of Financial Instruments
For
purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s
short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require
collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the
outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if
receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management.
The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded,
which is the face amount of the receivable net of the allowance for doubtful accounts. As of December 31, 2017 and 2016, the allowance
for doubtful accounts was $0 and $0, respectively.
Inventories
Inventories
are stated at average cost using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following:
|
|
December
31,
2017
|
|
|
December
31,
2016
|
|
Finished
goods
|
|
$
|
1,204
|
|
|
$
|
-
|
|
Property
and Equipment
Property
and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs
are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective
estimated residual values) over the estimated useful lives of the respective assets as follows:
|
|
Estimated
Useful
Life (Years)
|
|
|
|
|
|
Computer
equipment
|
|
|
3
|
|
|
|
|
|
|
Equipment
|
|
|
2-5
|
|
|
|
|
|
|
Furniture
and fixture
|
|
|
7
|
|
|
|
|
|
|
Leasehold
improvements
|
|
|
*
|
|
(*)
Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever period is shorter.
Upon
sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and
any gain or loss is reflected in the consolidated statements of operations.
Investments
- Cost Method, Equity Method and Joint Venture
In
accordance with sub-topic 323-10 of the FASB ASC (“Sub-topic 323-10”), the Company accounts for investments in common
stock of an investee for which the Company has significant influence in the operating or financial policies even though the Company
holds 50% or less of the common stock or in-substance common stock.
Method
of Accounting
Investments
held in stock of entities other than subsidiaries, namely corporate joint ventures and other non-controlled entities usually are
accounted for by one of three methods: (i) the fair value method (addressed in Topic 320), (ii) the equity method (addressed in
Topic 323), or (iii) the cost method (addressed in Subtopic 325-20). Pursuant to Paragraph 323-10-05-5, the equity method tends
to be most appropriate if an investment enables the investor to influence the operating or financial policies of the investee.
Investment
in CONtv
On
August 27, 2014, the Company entered into a joint venture and executed an Operating Agreement for CON TV LLC (“CONtv”)
with Cinedigm Entertainment Corp. (“Cinedigm”), ROAR, LLC (a related party partially owned by a member of the Board)
(“ROAR”) and Bristol Capital, LLC (a related party controlled by a member of the Board) (“Bristol Capital”).
The Company owned a 47.50% interest in the newly formed entity, CONtv. The Company was accounting for the interest in the joint
venture utilizing the equity method of accounting.
On
November 16, 2015, pursuant to that certain Amended and Restated Operating Agreement for CONtv by and among the aforementioned
parties (the “A&R Operating Agreement”), the Company’s ownership interest in CONtv was reduced to 10%. Pursuant
to the A&R Operating Agreement, the Company is only obligated to fund on-going costs in the amount of $25,000 in cash on an
on-going monthly basis for a period of 12 months following the effective date.
For
the years ended December 31, 2017 and 2016, the Company recognized $0 and $262,500 in losses from this venture, respectively.
As of December 31, 2017 and 2016, the investment in CONtv was $0.
Fair
Value of Financial Instruments
The
Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments
and disclosures about fair value of its financial instruments. ASC 820-10 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, ASC 820-10 establishes
a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.
The three (3) levels of fair value hierarchy defined by ASC 820-10 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.
|
|
|
|
Level
3
|
|
Pricing
inputs that are generally unobservable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
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. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid
expenses and other current assets, accounts payable and accrued expenses approximate their fair values because of the short maturity
of these instruments.
In
connection with the securities purchase agreement and debt transactions during the year ended December 31, 2016, the Company issued
warrants, to purchase common stock with an exercise price of $0.15 and a five-year term. Upon issuance of the warrants, the Company
evaluated the note agreement to determine if the agreement contained any embedded components that would qualify the agreement
as a derivative. The Company identified certain put features embedded in the warrants that potentially could result in a net cash
settlement in the event of a fundamental transaction, requiring the Company to classify the warrants as a derivative liability.
During the year ended December 31, 2017, the Company early adopted ASU 2017-11 on a retrospective basis (see below).
Transactions
involving related parties typically cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions
of competitive, free-market dealings may not exist. However, in the case of the convertible promissory note discussed in Note
6, the Company obtained a fairness opinion from an independent third party which supports that the transaction was carried out
at an arm’s length basis.
Revenue
Recognition and Cost of Revenues
The
Company follows Paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will
recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned
when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped
or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is
reasonably assured.
Convention
revenue is generally earned upon completion of the convention. Unearned convention revenue is deposits received for conventions
that have not yet taken place, which are fully or partially refundable depending upon the terms and conditions of the agreements.
Unearned
ConBox revenue is non-refundable up-front payments for products. These payments are initially deferred and subsequently recognized
over the subscription period, typically three months, and upon shipment of the product. The Company ceased ConBox operations
during 2017.
The
Company recognizes cost of revenues in the period in which the revenues was earned. In the event the Company incurs cost of revenues
for conventions that are yet to occur, the Company records such amounts as prepaid expenses and such prepaid expenses are expensed
during the period the convention takes place.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification.
While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of
revenue as incurred.
Shipping
and handling costs were $21,479 and $178,931 for the years ended December 31, 2017 and 2016, respectively.
Equity–based
compensation
The
Company recognizes compensation expense for all equity–based payments in accordance with ASC 718 “
Compensation
– Stock Compensation
”. Under fair value recognition provisions, the Company recognizes equity–based compensation
net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite
service period of the award.
Restricted
stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally
vest over the requisite service periods, typically over a four-year period (vesting on a straight–line basis). The fair
value of a stock award is equal to the fair market value of a share of Company stock on the grant date.
The
fair value of option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes
option valuation model requires the development of assumptions that are input into the model. These assumptions are the expected
stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock
and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s
Common stock over the expected option life and other appropriate factors. The expected option term is computed using the “simplified”
method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate expected term
of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term. Risk–free interest rates are calculated based on continuously compounded risk–free
rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends
on the Common stock of the Company and does not intend to pay dividends on the Common stock in the foreseeable future. The expected
forfeiture rate is estimated based on historical experience.
Determining
the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the
subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards
represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.
As a result, if factors change and the Company uses different assumptions, the equity–based compensation could be materially
different in the future. In addition, the Company is required to estimate the expected forfeiture rate and recognize expense only
for those shares expected to vest. If the actual forfeiture rate is materially different from the Company’s estimate, the
equity–based compensation could be significantly different from what the Company has recorded in the current period.
The
Company accounts for share–based payments granted to non–employees in accordance with ASC 505-40, “
Equity
Based Payments to Non–Employees
”. The Company determines the fair value of the stock–based payment as either
the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions
as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments
is reached, or (2) the date at which the counterparty’s performance is complete. The fair value of the equity instruments
is re-measured each reporting period over the requisite service period.
Income
Taxes
The
Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “
Income Taxes
.”
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
FASB
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December
31, 2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No
amounts were accrued for the payment of interest and penalties at December 31, 2017. The Company is currently not aware of any
issues under review that could result in significant payments, accruals or material deviation from its position. The Company is
subject to income tax examinations by major taxing authorities since inception.
The
Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These
potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions,
and compliance with federal, state, and city tax laws. The Company's management does not expect that the total amount of unrecognized
tax benefits will materially change over the next twelve months.
The
Company is no longer subject to tax examinations by tax authorities for years prior to 2014.
Earnings
per Share
Earnings
per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term
is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards
Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the
period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred
stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned)
from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation
of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect
the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options
or warrants.
The
following table shows the outstanding dilutive common shares excluded from the diluted net income (loss) per share calculation
as they were anti-dilutive:
|
|
Contingent
shares issuance
arrangement, stock options or warrants
|
|
|
|
For
the Year
Ended
December 31, 2017
|
|
|
For
the Year
Ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Convertible
note
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
Common
stock options
|
|
|
4,043,000
|
|
|
|
5,319,000
|
|
Common
stock warrants
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
|
|
|
|
|
|
|
|
|
Total
contingent shares issuance arrangement, stock options or warrants
|
|
|
37,376,334
|
|
|
|
38,652,334
|
|
Reclassification
Certain
prior period amounts have been reclassified to conform to current period presentation.
Recently
Issued Accounting Pronouncements
In
July 2015, the FASB issued the ASU No. 2015-11 “
Inventory (Topic 330)
:
Simplifying the Measurement of Inventory”
(“ASU 2015-11”)
.
The amendments in this ASU do not apply to inventory that is measured using last-in, first-out
(LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured
using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this ASU at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured
using LIFO or the retail inventory method. For public business entities, the amendments in this ASU are effective for fiscal years
beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted the standard during
the year ended December 31, 2017 and the adoption did not have a material effect on its consolidated financial statements and
disclosures.
In
February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842).”
Under ASU 2016-02, lessees will be required
to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the
right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of
financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting
companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted
using a modified retrospective approach. The Company is in the process of evaluating the effect of the new guidance on its consolidated
financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-10, “
Revenue from Contracts with Customers: Identifying Performance Obligations
and Licensing (Topic 606)
”. In March 2016, the FASB issued ASU No. 2016-08, “
Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross verses Net) (Topic 606)
”. These amendments provide additional
clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”.
The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance
obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides
a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual
property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal
versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10
and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which the Company intends to adopt for interim
and annual reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the standard and does
not expect the adoption will have a material effect on its consolidated financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-09, “
Compensation – Stock Compensation (Topic 718)
”. The FASB
issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based
payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption of the update is permitted. The Company adopted the standard during
the year ended December 31, 2017 and the adoption did not have a material effect on its consolidated financial statements and
disclosures.
In
May 2016, the FASB issued ASU No. 2016-12, “
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients”
, which narrowly amended the revenue recognition guidance regarding collectability, noncash
consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is
currently evaluating the standard and does not expect the adoption will have a material effect on its consolidated financial statements
and disclosures.
In
August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments”
(“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and
cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning
after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply,
in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently
in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.
In
October 2016, the FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity
transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective
for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the
update is permitted. The Company is currently evaluating the impact of the new standard.
In
November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”
, requiring that the statement
of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December
15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which
requires application of the guidance for all periods presented. The Company is currently evaluating the impact of the new standard.
In
May 2017, the FASB issued ASU 2017-09, “
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,”
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. The Company
is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.
In
July 2017, the FASB issued ASU 2017-11, “
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception”
. Part I of this update addresses the complexity of accounting
for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible
instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part
II of this update addresses the difficulty of navigating Topic 480,
Distinguishing Liabilities from Equity
, because of
the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of
the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities
and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting
effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The
Company early adopted the ASU 2017-11 in the three months ending December 31, 2017. See below.
Adoption
of ASU 2017-11
As
noted above, in connection with the securities purchase agreement and debt transactions during the year ended December 31, 2016,
the Company issued warrants, to purchase common stock with an exercise price of $0.15 and a five-year term. Upon issuance of the
warrants, the Company evaluated the note agreement to determine if the agreement contained any embedded components that would
qualify the agreement as a derivative. The Company identified certain put features embedded in the warrants that potentially could
result in a net cash settlement in the event of a fundamental transaction, requiring the Company to classify the warrants as a
derivative liability. The Company changed its method of accounting for the debt and warrants through the early adoption of ASU 2017-11
during the three months ended December 31, 2017 on a retrospective basis. Accordingly, the Company recorded the warrant derivative
and conversion option derivative liabilities to additional paid in capital upon issuance. Comparative disclosures
to 2016 audited numbers in the footnotes represent the restated amounts due to the early adoption.
The
following table provides a summary of the derivative liability activity as a result of the adoption of ASU 2017-11:
|
|
Warrants
|
|
|
Convertible
Note
|
|
|
Total
|
|
Balance
– December 31, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance
of derivative liabilities
|
|
|
5,206,444
|
|
|
|
2,294,435
|
|
|
|
7,500,879
|
|
Extinguishment
of derivative liability from exercise of warrants
|
|
|
(2,831,851
|
)
|
|
|
-
|
|
|
|
(2,831,851
|
)
|
Change
in fair value of derivative liability
|
|
|
825,544
|
|
|
|
1,004,165
|
|
|
|
1,829,709
|
|
Reclassified
derivative liabilities of adoption
|
|
|
(3,200,137
|
)
|
|
|
(3,298,000
|
)
|
|
|
(6,498,737
|
)
|
Balance
– December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Tabular
summaries of the revisions and the corresponding effects on the consolidated balance sheet as of December 31, 2016 and consolidated
statement of earnings for the year ended December 31, 2016 are presented below:
|
|
Consolidated
Balance Sheet
|
|
|
|
December
31, 2016
|
|
|
|
Previously
|
|
|
|
|
|
Revised
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
Reported
|
|
Convertible
promissory note – related party, net
|
|
$
|
1,456
|
|
|
$
|
1,025,720
|
|
|
$
|
1,027,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities – related party
|
|
|
6,498,737
|
|
|
|
(6,498,737
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital
|
|
|
21,132,386
|
|
|
|
(1,467,767
|
)
|
|
|
19,664,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(24,529,440
|
)
|
|
|
6,940,783
|
|
|
|
(17,588,657
|
)
|
|
|
Consolidated
Statement of Operations
Year
ended December 31, 2016
|
|
|
|
Previously
Reported
|
|
|
Revisions
|
|
|
Revised
Reported
|
|
Interest
expense
|
|
$
|
(26,676
|
)
|
|
$
|
195
|
|
|
$
|
(26,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liabilities
|
|
|
(1,829,709
|
)
|
|
|
1,829,709
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
expense
|
|
|
(5,110,879
|
)
|
|
|
5,110,879
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,448,886
|
)
|
|
$
|
6,940,783
|
|
|
$
|
(1,508,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
ordinary share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.03
|
)
|
In
September 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-13,
Revenue
Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).
The
new standard, among other things, provides additional implementation guidance with respect to Accounting Standards Codification
(ASC) Topic 606 and ASC Topic 842. ASU 2017-03 is effective for annual and interim fiscal reporting periods beginning after December
15, 2017. The Company is currently evaluating the impact of the new standard, but does not expect it to have a material impact
on its implementation strategies or its consolidated financial statements upon adoption.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying consolidated financial statements.
Note
4 – Property and Equipment
Property
and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
|
|
December
31,
2017
|
|
|
December
31,
2016
|
|
Computer
Equipment
|
|
$
|
43,087
|
|
|
$
|
33,858
|
|
Equipment
|
|
|
460,927
|
|
|
|
390,656
|
|
Furniture
and Fixtures
|
|
|
62,321
|
|
|
|
45,198
|
|
Leasehold
Improvements
|
|
|
22,495
|
|
|
|
22,495
|
|
|
|
|
588,830
|
|
|
|
492,207
|
|
Less:
Accumulated depreciation
|
|
|
(423,427
|
)
|
|
|
(276,259
|
)
|
|
|
$
|
165,403
|
|
|
$
|
215,948
|
|
Depreciation
expense was $147,832 and $159,102 for the years ended December 31, 2017 and 2016, respectively.
Note
5 – Investment in CONtv Joint Venture
On
August 27, 2014, the Company entered into a joint venture and executed an Operating Agreement with Cinedigm, ROAR (a related party
co-founded by one of the Company’s directors) and Bristol Capital (a related party founded by the Company’s Chairman
of the Board). The Company owned a 47.50% interest in the newly formed entity, CONtv. The Company was accounting for the interest
in the joint venture utilizing the equity method of accounting.
On
November 16, 2015, the Company entered that certain A&R Operating Agreement by and among, the Company, Cinedigm, ROAR and
Bristol Capital, pursuant to which the Company’s interest in CONtv was reduced to a non-dilutable 10% membership interest.
Such agreement was deemed effective on the execution date; however, Cinedigm agreed to the Company recognizing only 10% of the
losses from the period July 1, 2015 through December 31, 2015. Pursuant to the A&R Operating Agreement, the Company is only
obligated to fund on-going costs in the amount of $25,000 in cash on an on-going monthly basis for a period of 12 months following
the effective date.
For
the years ended December 31, 2017 and 2016, the Company recognized $0 and $262,500 in losses from this venture, respectively.
As
of December 31, 2017 and 2016, the Company has a balance due to CONtv of $224,241.
Note
6 – Related Party Transactions
Wiz
Wizard
On
December 29, 2014, the Company and a member of the Board formed Wiz Wizard (d/b/a ConBox) in the State of Delaware. The Company
and the member of the Board each owned 50% of the membership interest and agreed to allocate the profits and losses accordingly
upon repayment of the initial capital contributions on a pro rata basis. On February 4, 2016, the member of the Board assigned
his fifty percent (50%) membership interest to the Company. The Company ceased ConBox operations in 2017.
Consulting
Agreement
On
December 29, 2016, the Company entered into a Consulting Services Agreement (the “Consulting Agreement”) with Bristol
Capital, LLC, a Delaware limited liability company (“Bristol”) managed by Paul L. Kessler, the Chairman of the Company.
Pursuant to the Consulting Agreement, Mr. Kessler will serve as Executive Chairman of the Company. The initial term of the Agreement
is from December 29, 2016 through March 28, 2017 (the “Initial Term”). The term of the Consulting Agreement will be
automatically extended for additional terms of 90-day periods each (each a “Renewal Term” and together with the Initial
Term, the “Term”), unless either the Company or Bristol gives prior written notice of non-renewal to the other party
no later than thirty (30) days prior to the expiration of the then current Term.
During
the Term, the Company will pay Bristol a monthly fee (the “Monthly Fee”) of Eighteen Thousand Seven Hundred Fifty
and No/100 Dollars ($18,750).
In
addition, the Company will grant to Bristol options to purchase up to an aggregate of 600,000 shares of the Company’s common
stock.
During
the year ended December 31, 2017 and 2016, the Company incurred total expenses of $208,106 and $80,132, respectively, for services
provided by Bristol. At December 31, 2017 and 2016, the Company accrued $208,106 and $75,000, respectively, of monthly fees due
to Bristol.
Operating
Sublease
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (“Sublease”) with Bristol Capital Advisors,
LLC (“Bristol Capital Advisors”), an entity controlled by the Company’s Chairman of the Board. The term of the
Sublease is for 5 years and 3 months beginning on July 1, 2016 with monthly payments of $8,118. Upon execution of the Sublease,
the Company paid a security deposit of $9,137 and $199,238 for prepaid rent of which $76,006 and $181,796 remain at December
31, 2017 and 2016, respectively. During the year ended December 31, 2017 and 2016, the Company incurred total rent
expense of $98,877 and $24,354, respectively, under the Sublease. See Note 7 for future minimum rent payments due.
Outsourced
Marketing
During
the year ended December 31, 2017, the Company utilized outsourced marketing support from a company affiliated with ROAR, which
is partially owned by a member of the Board. The Company had expenses of $7,500 and $5,809 during the years ended December 31,
2017 and 2016. As of December 31, 2017 and 2016, the outstanding liability due to ROAR was $2,250 and $0, respectively.
Securities
Purchase Agreement
Effective
December 1, 2016, the Company entered into the Purchase Agreement with Bristol Investment Fund, Ltd. (the “
Purchaser
”),
an entity controlled by the Chairman of the Company’s Board of Directors, pursuant to which the Company sold to the Purchaser,
for a cash purchase price of $2,500,000, securities comprising: (i) the Debenture, (ii) Series A Warrants, and (iii) Series B
Warrants. Pursuant to the Purchase Agreement, the Company paid $25,000 to the Purchaser and issued to the Purchaser 500,000
shares of Common Stock with a grant date fair value of $85,000 to cover the Purchaser’s legal fees. The Company recorded
as a debt discount of $25,791 related to the cash paid and the relative fair value of the shares issued to Purchaser for legal
fees.
The
Debenture with an initial principal balance of $2,500,000, due December 30, 2018 (the “Maturity Date”), will accrue
interest on the aggregate unconverted and then outstanding principal amount of the Debenture at the rate of 12% per annum. Interest
is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2017, (ii) on each date the Purchaser
converts, in whole or in part, the Debenture into Common Stock (as to that principal amount then being converted), and (iii) on
the day that is 20 days following the Company’s notice to redeem some or all of the of the outstanding principal of the
Debenture (only as to that principal amount then being redeemed) and on the Maturity Date. The Debenture is convertible into shares
of the Company’s Common Stock at any time at the option of the holder, at an initial conversion price of $0.15 per share,
subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the initial conversion
price of $0.15 and (ii) 50% of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the
applicable conversion date.
The
Series A Warrants to acquire up to 16,666,667 shares of Common Stock at the Series A Initial Exercise Price of $0.15 and expiring
on December 1, 2021. The Warrants may be exercised immediately upon the issuance date, upon the option of the holder.
The
Series B Warrants to acquire up to 16,666,650 shares of Common Stock at the Series B Initial Exercise Price of $0.15 and expiring
on December 1, 2021. The Series B Warrants were exercised immediately upon the issuance date. The Company received gross proceeds
of $1,667 upon exercise of the warrants.
Upon
issuance of the note, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted for it using
the relative fair value of $1,448,293 as debt discount on the consolidated balance sheet. The debt discount is amortized over
the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates
the interest method. The amortization of debt discount is included as a component of interest expense in the consolidated statements
of operations. There was unamortized debt discount of $1,383,021 and $1,472,824 as of December 31, 2017 and 2016, respectively,
which includes the debt discount recorded upon execution of the Securities Purchase Agreement discussed above.
Note
7 – Commitments and Contingencies
Employment
Agreements
Appointment
of Executive Vice President and Chief Operating Officer
On
November 8, 2016, the Company formally entered into an employment agreement (the “Malinoff Employment Agreement”)
with Randall S. Malinoff in connection with his appointment as the Company’s Executive Vice President and Chief Operating
Officer on July 14, 2016 (the “Effective Date”) to serve for a period of two years from the Effective Date. In connection
with such appointment, Mr. Malinoff will receive an annual base salary of $225,000 and will be eligible for a performance-based
bonus at the discretion of the Board.
On
November 8, 2016, pursuant to the terms of the Malinoff Employment Agreement, the Company granted six hundred thousand (600,000)
options to purchase shares of the Company’s common stock.
On
July 5, 2017, Mr. Malinoff departed from the Company. Mr. Malinoff is currently engaged in a dispute with the Company. The dispute
pertains to his departure from the Company. Both Mr. Malinoff and the Company have retained counsel to engage on the issues in
controversy. As of December 31, 2017, all of Mr. Malinoff’s options have been cancelled.
Appointment
of President and Chief Executive Officer
On
April 22, 2016, the Board approved the appointment of Mr. John D. Maatta as the Company’s President and Chief Executive
Officer, effective as of May 3, 2016. Mr. Maatta will continue to serve as a member of the Board. In addition, the Board granted
Mr. Maatta options to purchase up to an aggregate of 1,100,000 shares of the Company’s common stock, subject to the terms
and conditions of the Third Amended and Restated 2011 Stock Incentive and Award Plan. Mr. Maatta formally entered into his Employment
Agreement with the Company on July 17, 2016.
Mr.
Maatta received the following, with effective dates as defined below:
|
1)
|
upon
the effectiveness of the Maatta Appointment on May 3, 2016, three hundred thousand (300,000) options to purchase shares of
the Company’s common stock at an exercise price of $0.50 per share, such options to vest only upon a Change in Control
(as defined in Mr. Maatta’s Employment Agreement) during Mr. Maatta’s tenure as President and Chief Executive
Officer;
|
|
|
|
|
2)
|
upon
the effectiveness of the Maatta Appointment on May 3, 2016, eight hundred thousand (800,000) options to purchase shares of
the Company’s common stock, such options to vest, at the applicable exercise price, as follows:
|
|
a.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.50 per share and shall vest immediately;
|
|
|
|
|
b.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.50 per share and shall vest by September 30, 2016;
|
|
c.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.50 per share and shall vest by December 31, 2016;
|
|
|
|
|
d.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.55 per share and shall vest by March 31, 2017;
|
|
|
|
|
e.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.55 per share and shall vest by June 30, 2017;
|
|
|
|
|
f.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.55 per share and shall vest by September 30, 2017;
|
|
|
|
|
g.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.60 per share and shall vest by December 31, 2017;
and
|
|
|
|
|
h.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.60 per share and shall vest by March 31, 2018.
|
Consulting
Agreement
As
discussed in Note 6, on December 29, 2016, the Company entered into a Consulting Services Agreement (the “Consulting Agreement”)
with Bristol managed by Paul L. Kessler, the Chairman of the Company. Pursuant to the Consulting Agreement, Mr. Kessler will serve
as Executive Chairman of the Company. The initial term of the Agreement is from December 29, 2016 through March 28, 2017 (the
“Initial Term”). The term of the Consulting Agreement will be automatically extended for additional terms of 90-day
periods each (each a “Renewal Term” and together with the Initial Term, the “Term”), unless either the
Company or Bristol gives prior written notice of non-renewal to the other party no later than thirty (30) days prior to the expiration
of the then current Term.
During
the Term, the Company will pay Bristol a monthly fee (the “Monthly Fee”) of Eighteen Thousand Seven Hundred Fifty
and No/100 Dollars ($18,750). For services rendered by Bristol prior to entering into the Consulting Agreement, the Company will
pay Bristol the Monthly Fee, pro-rated, for the time between September 1, 2016 and December 29, 2016. Bristol may also receive
an annual bonus as determined by the Compensation Committee of the Company’s Board of Directors (the “Board”)
and approved by the Board. At December 31, 2017 and 2016, the Company accrued $208,106 and $75,000 of monthly fees due to
Bristol, respectively.
In
addition, the Company will grant to Bristol options to purchase up to an aggregate of 600,000 shares of the Company’s common
stock in accordance with the following vesting schedule and at the applicable exercise prices therein:
Bristol
received the following, with effective dates as defined below:
|
1)
|
upon
the effectiveness of the Consulting Agreement on December 29, 2016, seventy-five thousand (75,000) options to purchase shares
of the Company’s common stock at an exercise price of $0.50 per share, such options to vest upon execution of the agreement;
|
|
|
|
|
2)
|
upon
the effectiveness of the Consulting Agreement on December 29, 2016, five hundred twenty-five thousand (525,000) options to
purchase shares of the Company’s common stock, such options to vest, at the applicable exercise price, as follows:
|
|
a.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.50 per share and shall vest immediately;
|
|
|
|
|
b.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.55 per share and shall vest by March 31, 2017;
|
|
|
|
|
c.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.55 per share and shall vest by June 30, 2017;
|
|
d.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.55 per share and shall vest by September 30, 2017;
|
|
|
|
|
e.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.60 per share and shall vest by December 31, 2017;
|
|
|
|
|
f.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.60 per share and shall vest by March 31, 2018; and
|
|
|
|
|
g.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.60 per share and shall vest by June 30, 2018.
|
Operating
Lease
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (“Sublease”) with Bristol Capital Advisors,
an entity controlled by the Company’s Chairman of the Board. The term of the Sublease is for 5 years and 3 months beginning
on July 1, 2016 with monthly payments of $8,118. Upon execution of the Sublease, the Company paid a security deposit of $9,137
and $199,238 for prepaid rent of which $76,006 and $181,796 remain at December 31, 2017 and 2016, respectively.
During the year ended December 31, 2017 and 2016, the Company incurred total rent expense of $98,877 and $24,354 under the Sublease,
respectively. See below for future minimum rent payments due.
Future
minimum lease payments inclusive of related tax required under the non-cancelable operating lease are as follows:
Fiscal
year ending December 31:
|
|
|
|
2018
|
|
$
|
101,844
|
|
2019
|
|
|
104,899
|
|
2020
|
|
|
108,046
|
|
2021
|
|
|
83,054
|
|
|
|
$
|
397,843
|
|
Obligation
to Fund CONtv
As
discussed in Note 3, on November 16, 2015, pursuant to that certain A&R Operating Agreement for CONtv, the Company’s
ownership interest in CONtv was reduced to 10%. In addition, the Company is only obligated to fund on-going costs in the amount
of $25,000 in cash on an on-going monthly basis for a period of 12 months following the effective date.
For
the years ended December 31, 2017 and 2016, the Company recognized $0 and $262,500 in losses from this venture, respectively.
As
of December 31, 2017 and 2016, the Company has a balance due to CONtv of $224,241.
Stephen
Shamus Lawsuit
On
October 28, 2016, the Company filed a Complaint (the “SDNY Complaint”) and commenced a lawsuit in the United States
District Court, Southern District of New York, against Stephen Shamus, the former Chief Marketing Officer of the Company whose
employment was terminated on October 27, 2016 (the “SDNY Lawsuit”). In the SDNY Lawsuit, the Company alleges, among
other things, breach of fiduciary duty, misappropriation of corporation assets, breach of contract, and conversion, against Mr.
Shamus relating to the Company’s assertion that he used his position with the Company to improperly obtain memorabilia at
the Company’s Comic Conventions which he would then sell and retain the profits from for his own benefit. On November 16,
2016, Mr. Shamus filed an Answer to the SDNY Complaint with counterclaims against the Company (the “SDNY Counterclaim”).
The SDNY Counterclaim alleges breach of contract and unjust enrichment against the Company and seeks compensatory damages in the
form of cash.
The
lawsuit was concluded on February 15, 2017 with no financial impact on the Company’s financial statements.
Gareb
Shamus Lawsuit
On
December 16, 2016, the Company filed a Complaint (the “DNJ Complaint”) and commenced a lawsuit in the United States
District Court, District of New Jersey (the “DNJ Lawsuit”), against Gareb Shamus, the founder and former Chief Executive
Officer of the Company; Pivot Media LLC and 4 Brothers LLC, entities owned and operated by Gareb Shamus; Stephen Shamus, the former
Chief Marketing Officer of the Company whose employment was terminated on October 27, 2016; Kenneth Shamus, a former director
of the Company; Eric Weisblum; GEM Funding LLC; It’s All Normal LLC; and various other defendants (collectively, the “DNJ
Defendants”). In the DNJ Complaint, the Company alleged that the DNJ Defendants violated Section 13(d) of the Securities
and Exchange Act of 1934 and SEC Rules 13d-1 and 13d-5. The Company sought an injunction to compel the DNJ Defendants to make
complete disclosure under Section 13(d) of the Exchange Act and to cure their past violations. The DNJ Lawsuit was concluded on
February 15, 2017 with no financial impact on the Company’s financial statements.
Silverman
Lawsuit
On
January 11, 2017, Arden B. Silverman (“Silverman”), d/b/a Capital Asset Protection, filed a complaint (the “Silverman
Complaint”) and commenced a lawsuit against the Company in the Superior Court of California, County of Los Angeles –
Central District (the “Silverman Lawsuit”). Silverman brought the claim after being assigned the right title and interest
in a claim against the Company by Rogers & Cowan, Inc., a California corporation (Rogers & Cowan). The Silverman Complaint
alleges the Company owes $42,600 plus attorney’s fees to Silverman for services provided by Rogers & Cowan to the Company.
On April 10, 2017, the Company filed a cross Cross-Complaint in the Silverman Lawsuit against Rogers and Cowan, among others (the
“Cross-Complaint”). The Cross-Complaint seeks in excess of $90,000 from Rogers & Cowan, among others, and alleges,
fraud, negligent misrepresentation, breach of written agreement; breach of covenant of good faith and fair dealings, and violations
of Cal. Bus. & Prof. Code §§17200 et seq. The matters at issue in the Silverman lawsuit were resolved by way of
a mutual settlement with no financial impact on the Company’s financial statements in June 2017.
Malinoff
Dispute
Randall
Malinoff, the Company’s former Chief Operating Officer, who departed from on the Company as of July 5, 2017, is currently
engaged in a dispute with the Company. A complaint for breach of contract and various disability discrimination claims was filed
after the Company terminated him for cause. The Company believes that the matter, which is set for trial in 2019, is wrongful
and is without merit. The Company currently intends to proceed to trial on this matter.
With
the exception of the foregoing disputes, the Company is not involved in any disputes and does not have any litigation matters
pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results
of operations.
Note
8 – Stockholders’ Equity (Deficit)
The
Company’s authorized capital stock consists of 100,000,000 shares, of which 80,000,000 are for shares of common stock, par
value $0.0001 per share, and 20,000,000 are for shares of preferred stock, par value $0.0001 per share, of which 50,000 have been
designated as Series A Cumulative Convertible Preferred Stock.
As
of December 31, 2017 and 2016, there were 68,535,036 shares of common stock issued and outstanding. Each share of the common stock
entitles its holder to one vote on each matter submitted to the shareholders.
Equity
Incentive Plan
On
May 9, 2011, the Board approved, authorized and adopted (subject to stockholder approval) the 2011 Incentive Stock and Award Plan
(the “Plan”). The Plan was amended on September 14, 2011, April 11, 2012, July 9, 2012 and September 25, 2014. The
Plan provides for the issuance of up to 15,000,000 shares of common stock, par value $.0001 per share, of the Company through
the grant of non-qualified options (the “Non-qualified Options”), incentive options (the “Incentive Options”)
and together with the Non-qualified Options, the (“Options”) and restricted stock (the “Restricted
Stock”) to directors, officers, consultants, attorneys, advisors and employees.
The
Plan shall be administered by a committee consisting of two or more independent, non-employee and outside directors (the “Committee”).
In the absence of such a Committee, the Board shall administer the Plan.
Each
Option shall contain the following material terms:
|
(i)
|
the
exercise price, which shall be determined by the Committee at the time of grant, shall not be less than 100% of the Fair Market
Value (defined as the closing price on the final trading day immediately prior to the grant on the principal exchange or quotation
system on which the common stock is listed or quoted, as applicable) of the common stock of the Company,
provided
that
if the recipient of the Option owns more than ten percent (10%) of the total combined voting power of the Company, the exercise
price shall be at least 110% of the Fair Market Value;
|
|
|
|
|
(ii)
|
the
term of each Option shall be fixed by the Committee,
provided
that such Option shall not be exercisable more than five
(5) years after the date such Option is granted, and
provided further
that with respect to an Incentive Option, if
the recipient owns more than ten percent (10%) of the total combined voting power of the Company, the Incentive Option shall
not be exercisable more than five (5) years after the date such Incentive Option is granted;
|
|
|
|
|
(iii)
|
subject
to acceleration in the event of a Change of Control of the Company (as further described in the Plan), the period during which
the Options vest shall be designated by the Committee or, in the absence of any Option vesting periods designated by the Committee
at the time of grant, shall vest and become exercisable in equal amounts on each fiscal quarter of the Company through the
four (4) year anniversary of the date on which the Option was granted;
|
|
(iv)
|
no
Option is transferable and each is exercisable only by the recipient of such Option except in the event of the death of the
recipient; and
|
|
|
|
|
(v)
|
with
respect to Incentive Options, the aggregate Fair Market Value of common stock exercisable for the first time during any calendar
year shall not exceed $100,000.
|
Each
award of Restricted Stock is subject to the following material terms:
|
(i)
|
no
rights to an award of Restricted Stock is granted to the intended recipient of Restricted Stock unless and until the grant
of Restricted Stock is accepted within the period prescribed by the Committee;
|
|
|
|
|
(ii)
|
Restricted
Stock shall not be delivered until they are free of any restrictions specified by the Committee at the time of grant;
|
|
|
|
|
(iii)
|
recipients
of Restricted Stock have the rights of a stockholder of the Company as of the date of the grant of the Restricted Stock;
|
|
|
|
|
(iv)
|
shares
of Restricted Stock are forfeitable until the terms of the Restricted Stock grant have been satisfied or the employment with
the Company is terminated; and
|
|
|
|
|
(v)
|
the
Restricted Stock is not transferable until the date on which the Committee has specified such restrictions have lapsed.
|
Stock
Options
The
following is a summary of the Company’s option activity:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
– January 1, 2016
|
|
|
9,933,500
|
|
|
$
|
0.70
|
|
Exercisable
– January 1, 2016
|
|
|
4,332,500
|
|
|
$
|
0.41
|
|
Granted
|
|
|
2,000,000
|
|
|
$
|
0.55
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
(6,614,500
|
)
|
|
$
|
-
|
|
Outstanding
– December 31, 2016
|
|
|
5,319,000
|
|
|
$
|
0.57
|
|
Exercisable
– December 31, 2016
|
|
|
1,640,500
|
|
|
$
|
0.47
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
(1,276,000
|
)
|
|
$
|
-
|
|
Outstanding
– December 31, 2017
|
|
|
4,043,000
|
|
|
$
|
0.58
|
|
Exercisable
– December 31, 2017
|
|
|
3,328,000
|
|
|
$
|
0.57
|
|
|
|
|
Options
Outstanding
|
|
|
|
|
Options
Exercisable
|
|
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.40
- 1.50
|
|
|
4,043,000
|
|
2.10
years
|
|
$
|
0.58
|
|
|
3,328,000
|
|
$
|
0.57
|
|
At
December 31, 2017, the total intrinsic value of options outstanding and exercisable was $0 and $0, respectively.
The
Company recognized an aggregate of $296,274 and $777,536 in compensation expense during the years ended December 31, 2017 and
2016, respectively, related to option awards. At December 31, 2017, unrecognized stock-based compensation was $310,519.
Stock
Warrants
The
following is a summary of the Company’s warrant activity:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
– January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Exercisable
– January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
33,333,317
|
|
|
$
|
0.08
|
|
Exercised
|
|
|
(16,666,650
|
)
|
|
$
|
0.00
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
– December 31, 2016
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable
– December 31, 2016
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding
– December 31, 2017
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable
– December 31, 2017
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
|
|
|
Warrants
Outstanding
|
|
|
|
|
Warrants
Exercisable
|
|
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.15
|
|
|
16,666,667
|
|
4.67
years
|
|
$
|
0.15
|
|
|
16,666,667
|
|
$
|
0.15
|
|
At
December 31, 2017, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.
There
were no new options or warrants granted during the year ended December 31, 2017. The following table summarizes the range of assumptions
the Company utilized to estimate the fair value of the options and warrants issued during the year ended December 31, 2016:
Assumptions
|
|
December
31, 2016
|
|
Expected
term (years)
|
|
|
2.40-5.00
|
|
Expected
volatility
|
|
|
90%-115
|
%
|
Risk-free
interest rate
|
|
|
0.87%
- 1.96
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
The
expected warrant term is based on the contractual term. The expected option term is computed using the “simplified”
method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate expected term
of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term. The expected volatility is based on historical-volatility of the Company when stock
prices were publicly available. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the
expected term of the related option at the valuation date. Dividend yield is based on historical trends.
Note
9 – Credit Risk
Financial
instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash
equivalents. As of December 31, 2017, substantially all of the Company’s cash and cash equivalents were held by major financial
institutions and the balance in certain accounts exceeded the maximum amount insured by the Federal Deposits Insurance Corporation
(“FDIC”). However, the Company has not experienced losses on these accounts and management believes that the Company
is not exposed to significant risks on such accounts.
Note
10 – Segment Information
The
Company maintained operating segments; Conventions and Conbox. The Company ceased Conbox operations in 2017, which is the principal
reason for the decrease in operating results compared to 2016
.
The Company evaluated performance of its operating segments based on revenue and operating profit (loss). Segment information
for the years ended December 31, 2017 and 2016 and as of December 31, 2017 and 2016, are as follows:
|
|
Conventions
|
|
|
ConBox
|
|
|
Total
|
|
Year
ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,983,033
|
|
|
$
|
84,580
|
|
|
$
|
15,067,613
|
|
Cost
of revenue
|
|
|
(14,978,136
|
)
|
|
|
(80,161
|
)
|
|
|
(15,058,297
|
)
|
Gross
margin
|
|
|
4,897
|
|
|
|
4,419
|
|
|
|
10,371,076
|
|
Operating
expenses
|
|
|
(5,314,391
|
)
|
|
|
(32,533
|
)
|
|
|
(5,346,924
|
)
|
Operating
loss
|
|
|
(5,309,494
|
)
|
|
|
(28,114
|
)
|
|
|
(5,337,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
21,994,433
|
|
|
$
|
707,101
|
|
|
$
|
22,701,534
|
|
Cost
of revenue
|
|
|
(14,972,190
|
)
|
|
|
(1,029,898
|
)
|
|
|
(16,002,088
|
)
|
Gross
margin
|
|
|
(164,903
|
|
|
|
-
|
|
|
|
(164,903
|
|
Operating
expenses
|
|
|
(6,857,340
|
)
|
|
|
(322,797
|
)
|
|
|
6,534,543
|
)
|
Operating
profit (loss)
|
|
|
(7,627,847
|
)
|
|
|
(88,942
|
|
|
|
(7,716,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
336,030
|
|
|
$
|
-
|
|
|
$
|
336,030
|
|
Total
assets
|
|
|
2,940,089
|
|
|
|
-
|
|
|
|
2,940,089
|
|
Unearned
revenue
|
|
|
2,164,972
|
|
|
|
-
|
|
|
|
2,164,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
128,561
|
|
|
$
|
59,258
|
|
|
$
|
187,819
|
|
Total
assets
|
|
|
5,775,871
|
|
|
|
59,258
|
|
|
|
5,835,129
|
|
Unearned
revenue
|
|
|
1,479,392
|
|
|
|
95,546
|
|
|
|
1,574,938
|
|
Note
11 – Income Tax Provision
Deferred
Tax Assets
On
December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Bill”) was signed into law. Prior to the enactment of
the Tax Reform Bill, the Company measured its deferred tax assets at the federal rate of 34%. The Tax Reform Bill reduced the
federal tax rate to 21% resulting in the re-measurement of the deferred tax asset as of December 31, 2017. Beginning January 1,
2018, the lower tax rate of 21% will be used to calculate the amount of any federal income tax due on taxable income earned during
2018.
At
December 31, 2017, the Company has available for U.S. federal income tax purposes a net operating loss (“NOL”) carry-forwards
of approximately $9,919,000 that may be used to offset future taxable income through the fiscal year ending December 31, 2036.
If not used, these NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50%
ownership change as determined under the regulations. The Company plans on undertaking a detailed analysis of any historical and/or
current Section 382 ownership changes that may limit the utilization of the net operating loss carryovers. No tax benefit has
been reported with respect to these net operating loss carry-forwards in the accompanying consolidated financial statements since
the Company believes that the realization of its net deferred tax asset of approximately $2,083,000 was not considered more likely
than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a valuation allowance
of $2,083,000.
Deferred
tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the
deferred tax assets because of the uncertainty regarding its realizability. In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which
temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration
of all the information available, Management believes that significant uncertainty exists with respect to future realization of
the deferred tax assets and has therefore established a full valuation allowance. The valuation allowance increased by approximately
$590,000 and $249,000 for the years ended December 31, 2017 and 2016, respectively.
The
Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain
positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position
must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or
expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to
as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of
tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation
to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If
applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other
expenses – Interest expense” in the statement of operations. Penalties would be recognized as a component of “General
and administrative.”
No
material interest or penalties on unpaid tax were recorded during the years ended December 31, 2017 and 2016, respectively.
As of December 31, 2017 and 2016, no liability for unrecognized tax benefits was required to be reported. The Company does not
expect any significant changes in its unrecognized tax benefits in the next year.
Components
of deferred tax assets are as follows:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Net
deferred tax assets – Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
income tax benefit from NOL carry-forwards
|
|
$
|
2,083,000
|
|
|
$
|
1,493,000
|
|
Less
valuation allowance
|
|
|
(2,083,000
|
)
|
|
|
(1,493,000
|
)
|
Deferred
tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
Tax Provision in the Consolidated Statements of Operations
A
reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income
taxes is as follows:
|
|
For
the Year
Ended
December 31,
2017
|
|
|
For
the Year
Ended
December 31,
2016
|
|
|
|
|
|
|
|
|
Federal
statutory income tax rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
Change
in valuation allowance on net operating loss carry-forwards
|
|
|
(21.0
|
%)
|
|
|
(34.0
|
%)
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|