Item
1. Financial Statements.
Wizard
World, Inc.
March
31, 2018
Index
to the Consolidated Financial Statements
Wizard
World, Inc.
Condensed
Consolidated Balance Sheets
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,711,739
|
|
|
$
|
1,769,550
|
|
Accounts
receivable, net
|
|
|
273,586
|
|
|
|
336,030
|
|
Inventory
|
|
|
-
|
|
|
|
1,204
|
|
Prepaid
convention expenses
|
|
|
491,901
|
|
|
|
461,986
|
|
Prepaid
insurance
|
|
|
64,111
|
|
|
|
87,987
|
|
Prepaid
rent – related party
|
|
|
50,922
|
|
|
|
76,006
|
|
Prepaid
taxes
|
|
|
14,191
|
|
|
|
14,398
|
|
Other
prepaid expenses
|
|
|
41,840
|
|
|
|
18,117
|
|
Total
Current Assets
|
|
|
2,648,290
|
|
|
|
2,765,278
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
140,382
|
|
|
|
165,403
|
|
|
|
|
|
|
|
|
|
|
Security
deposit
|
|
|
9,408
|
|
|
|
9,408
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,798,080
|
|
|
$
|
2,940,089
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
2,300,945
|
|
|
$
|
2,800,118
|
|
Unearned
revenue
|
|
|
2,294,082
|
|
|
|
2,164,972
|
|
Convertible
promissory note – related party, net
|
|
|
1,211,045
|
|
|
|
1,116,979
|
|
Due
to CONtv joint venture
|
|
|
224,241
|
|
|
|
224,241
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
6,030,313
|
|
|
|
6,306,310
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
6,030,313
|
|
|
|
6,306,310
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
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
|
|
|
19,980,498
|
|
|
|
19,960,893
|
|
Accumulated
deficit
|
|
|
(23,207,088
|
)
|
|
|
(23,321,471
|
)
|
Non-controlling
interest
|
|
|
(12,498
|
)
|
|
|
(12,498
|
)
|
Total
Stockholders’ Deficit
|
|
|
(3,232,233
|
)
|
|
|
(3,366,221
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
2,798,080
|
|
|
$
|
2,940,089
|
|
See
accompanying notes to the condensed consolidated financial statements
Wizard
World, Inc.
Condensed
Consolidated Statements of Operations
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
As
Restated (Note 3)
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Convention
|
|
$
|
3,991,166
|
|
|
$
|
3,447,957
|
|
ConBox
|
|
|
-
|
|
|
|
74,119
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
3,991,166
|
|
|
|
3,522,076
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
2,886,334
|
|
|
|
3,140,330
|
|
Total
cost of revenues
|
|
|
2,886,334
|
|
|
|
3,140,330
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
1,104,832
|
|
|
|
381,746
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
457,285
|
|
|
|
1,005,330
|
|
Consulting
fees
|
|
|
116,086
|
|
|
|
129,253
|
|
General
and administrative
|
|
|
248,185
|
|
|
|
529,241
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
821,556
|
|
|
|
1,663,824
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
283,276
|
|
|
|
(1,282,078
|
)
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(168,893
|
)
|
|
|
(83,898
|
)
|
Loss
on disposal of equipment
|
|
|
-
|
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
Total
other expenses
|
|
|
(168,893
|
)
|
|
|
(84,683
|
)
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax provision
|
|
|
114,383
|
|
|
|
(1,366,761
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
114,383
|
|
|
|
(1,366,761
|
)
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to non-controlling interests
|
|
|
-
|
|
|
|
(493
|
)
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common stockholders
|
|
$
|
114,383
|
|
|
$
|
(1,366,268
|
)
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share - basic
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Loss
per share – diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic
|
|
|
68,535,036
|
|
|
|
68,535,036
|
|
Weighted
average common shares outstanding – diluted
|
|
|
81,755,740
|
|
|
|
68,535,036
|
|
See
accompanying notes to the condensed consolidated financial statements
Wizard
World, Inc.
Condensed
Consolidated Statements of Stockholders’ Deficit
For
the Three Months Ended March 31, 2018
(unaudited)
|
|
Preferred
Stock Par
|
|
|
Common
Stock Par
|
|
|
Additional
|
|
|
|
|
|
Non-
|
|
|
Total
Stockholders’
|
|
|
|
Value
$0.0001
|
|
|
Value
$0.0001
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,960,893
|
|
|
$
|
(23,321,471
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(
3,366,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,605
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,383
|
|
|
|
-
|
|
|
|
114,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,980,498
|
|
|
$
|
(23,207,088
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(3,232,233
|
)
|
See
accompanying notes to the consolidated financial statements
Wizard
World, Inc.
Condensed
Consolidated Statements of Cash Flows
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
As
Restated (Note 3)
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
114,383
|
|
|
$
|
(1,366,761
|
)
|
Adjustments
to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,021
|
|
|
|
43,459
|
|
Share-based
compensation
|
|
|
19,605
|
|
|
|
137,975
|
|
Loss
on disposal of equipment
|
|
|
-
|
|
|
|
785
|
|
Accretion
of debt discount
|
|
|
94,066
|
|
|
|
7,571
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
62,444
|
|
|
|
23,493
|
|
Inventory
|
|
|
1,204
|
|
|
|
(27,212
|
)
|
Prepaid
convention expenses
|
|
|
(29,915
|
)
|
|
|
(177,437
|
)
|
Prepaid
rent- related party
|
|
|
25,084
|
|
|
|
31,266
|
|
Prepaid
insurance
|
|
|
23,876
|
|
|
|
(12,928
|
)
|
Prepaid
taxes
|
|
|
207
|
|
|
|
-
|
|
Other
prepaid expenses
|
|
|
(23,723
|
)
|
|
|
(16,110
|
)
|
Security
deposits
|
|
|
-
|
|
|
|
(3,000
|
)
|
Accounts
payable and accrued expenses
|
|
|
(499,173
|
)
|
|
|
745,174
|
|
Unearned
revenue
|
|
|
129,110
|
|
|
|
(185,222
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(57,811
|
)
|
|
|
(798,947
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
-
|
|
|
|
(79,613
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Investing Activities
|
|
|
-
|
|
|
|
(79,613
|
)
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(57,811
|
)
|
|
|
(878,560
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of reporting period
|
|
|
1,769,550
|
|
|
|
4,401,217
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of reporting period
|
|
$
|
1,711,739
|
|
|
$
|
3,522,657
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to the condensed consolidated financial statements
Wizard
World, Inc.
March
31, 2018
Notes
to the Condensed Consolidated Financial Statements
(unaudited)
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.
Note
2 – Going Concern Analysis
Going
Concern Analysis
The
Company had income (loss) from operations of $283,276 and $(1,282,078) for the three months ended March 31, 2018 and 2017, respectively.
As of March 31, 2018, we had cash and working capital deficit $1,711,739 and $3,382,023, 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 and 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
condensed 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. However, based on the results of the First Quarter Operating Results where operating costs decreased by
49% and convention revenue increased by $543,209, Management’s strategies on a directional basis appear to be positive and
impactful.
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 - Unaudited Interim Financial Information
The
accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and
in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with
respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements furnished reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of
the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements
of the Company for the year ended December 31, 2017 and notes thereto contained in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2017, as filed with the SEC on April 2, 2018.
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).
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 March 31, 2018 and December 31, 2017, the aggregate non-controlling interest in ButtaFyngas was ($12,498). 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 March 31, 2018 and December 31, 2017,
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:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
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 three months ended March 31, 2018 and 2017, the Company recognized $0 losses from this venture, respectively. As of March
31, 2018 and December 31, 2017, the amount due to CONtv was $224,241.
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 $0 and $16,825 for the three months ended March 31, 2018 and 2017, 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 March 31,
2018. 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 March 31, 2018. 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 2015.
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 Three Months Ended
March 31, 2018
|
|
|
For
the Three Months Ended
March 31, 2017
|
|
|
|
|
|
|
|
|
Convertible
note
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
Common
stock options
|
|
|
4,043,000
|
|
|
|
4687,000
|
|
Common
stock warrants
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
|
|
|
|
|
|
|
|
|
Total
contingent shares issuance arrangement, stock options or warrants
|
|
|
37,376,334
|
|
|
|
38,020,334
|
|
Reclassification
Certain
prior period amounts have been reclassified to conform to current period presentation.
Recently
Issued Accounting Pronouncements
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
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
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
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.
Tabular
summaries of the revisions and the corresponding effects on the statement of earnings for the three months ended March 31, 2017
are presented below:
|
|
Consolidated
Statement of Operations
Three
Months Ended March 31, 2017
|
|
|
|
Previously
Reported
|
|
|
Revisions
|
|
|
Revised
Reported
|
|
Change
in fair value of derivative liabilities
|
|
$
|
1,883,441
|
|
|
$
|
(1,883,441
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
516,680
|
|
|
$
|
(1,883,441
|
)
|
|
$
|
(1,366,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per ordinary share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
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:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Computer
Equipment
|
|
$
|
43,087
|
|
|
$
|
43,087
|
|
Equipment
|
|
|
460,927
|
|
|
|
460,927
|
|
Furniture
and Fixtures
|
|
|
62,321
|
|
|
|
62,321
|
|
Leasehold
Improvements
|
|
|
22,495
|
|
|
|
22,495
|
|
|
|
|
588,830
|
|
|
|
588,830
|
|
Less:
Accumulated depreciation
|
|
|
(448,448
|
)
|
|
|
(423,427
|
)
|
|
|
$
|
140,382
|
|
|
$
|
165,403
|
|
Depreciation
expense was $25,021 and $43,459 for the three months ended March 31, 2018 and 2017, 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 three months ended March 31, 2018 and 2017, the Company recognized $0 in losses from this venture.
As
of March 31, 2018 and December 31, 2017, the Company’s investment in CONtv was $0.
As
of March 31, 2018 and December 31, 2017, the Company has a balance due to CONtv of $224,241.
Note
6 – Related Party Transactions
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 three months ended March 31, 2018 and 2017, the Company incurred total expenses of $43,705 and $56,250, respectively, for
services provided by Bristol. At March 31, 2018 and December 31, 2017, the Company accrued $326,811 and $283,106, 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 leased
premises are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. 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 $50,922 and $76,006 remain
at March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018 and 2017, the Company incurred
total rent expense of $25,085 and $24,354, respectively, under the Sublease. See Note 7 for future minimum rent payments due.
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 $1,288,955 and $1,383,021 as of March 31, 2018 and December 31, 2017, 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 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. Effective January 1, 2018, Mr. Maatta has elected to receive 50% of the compensation
provided for his employment contract and is currently receiving $125,000 per year with the remainder of the balance deferred which
amount is included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.
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. Bristol has deferred payment of the monthly fees due from the Company as defined under the Consulting
Agreement. At March 31, 2018 and December 31, 2017, the Company accrued $326,811 and $283,106, respectively, of monthly fees
due to Bristol.
In
addition, the Company granted to Bristol options to purchase up to an aggregate of 600,000 shares of the Company’s common
stock.
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 leased premises are owned by an unrelated third party
and Bristol Capital Advisors passes the lease costs down to the Company. 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 $50,922 and $76,006 remain at March 31, 2018 and December 31, 2017, respectively.
During the three months ended March 31, 2018 and 2017, the Company incurred total rent expense of $25,085 and $24,354, respectively,
under the Sublease.
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
(remainder of year)
|
|
$
|
76,759
|
|
2019
|
|
|
104,899
|
|
2020
|
|
|
108,046
|
|
2021
|
|
|
83,054
|
|
|
|
$
|
372,758
|
|
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 three months ended March 31, 2018 and 2017, the Company recognized $0 losses from this venture, respectively. As of March
31, 2018 and December 31, 2017, the amount due to CONtv was $224,241.
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 dispute, 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 March 31, 2018 and December 31, 2017, 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.
Stock
Options
The
following is a summary of the Company’s option activity:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
– December 31, 2017
|
|
|
4,043,000
|
|
|
$
|
0.58
|
|
Exercisable
– December 31, 2017
|
|
|
3,328,000
|
|
|
$
|
0.57
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
– March 31, 2018
|
|
|
4,043,000
|
|
|
$
|
0.58
|
|
Exercisable
– March 31, 2018
|
|
|
3,403,000
|
|
|
$
|
0.56
|
|
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
|
|
1.85
years
|
|
$
|
0.58
|
|
|
3,403,000
|
|
$
|
0.56
|
|
At
March 31, 2018, the total intrinsic value of options outstanding and exercisable was $0.
The
Company recognized an aggregate of $19,605 and $137,975 in compensation expense during the three months ended March 31, 2018 and
2017, respectively, related to option awards. At March 31, 2018, unrecognized stock-based compensation was $85,451.
Stock
Warrants
The
following is a summary of the Company’s warrant activity:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
– December 31, 2017
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable
– December 31, 2017
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding
– March 31, 2018
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable
– March 31, 2018
|
|
|
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
|
|
3.67
years
|
|
$
|
0.15
|
|
|
16,666,667
|
|
$
|
0.15
|
|
At
March 31, 2018, the total intrinsic value of warrants outstanding and exercisable was $0.
There
were no new options or warrants granted during the three months ended March 31, 2018.
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 March 31, 2018, 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 2017. The Company evaluated performance of its operating segments based
on revenue and operating profit (loss). Segment information for the three months ended March 31, 2018 and 2017 and as of March
31, 2018 and December 31, 2017, are as follows:
|
|
Conventions
|
|
|
ConBox
|
|
|
Total
|
|
Three
Months ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,991,166
|
|
|
$
|
-
|
|
|
$
|
3,991,166
|
|
Cost
of revenue
|
|
|
(2,886,334
|
)
|
|
|
-
|
|
|
|
(2,886,334
|
)
|
Gross
margin
|
|
|
1,104,832
|
|
|
|
-
|
|
|
|
1,104,832
|
|
Operating
expenses
|
|
|
(821,556
|
)
|
|
|
-
|
|
|
|
(821,556
|
)
|
Operating
income
|
|
|
283,276
|
|
|
|
-
|
|
|
|
(283,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,447,957
|
|
|
$
|
74,119
|
|
|
$
|
3,522,076
|
|
Cost
of revenue
|
|
|
(3,084,502
|
)
|
|
|
(55,828
|
)
|
|
|
(3,140,330
|
)
|
Gross
margin
|
|
|
363,455
|
|
|
|
18,291
|
|
|
|
381,746
|
|
Operating
expenses
|
|
|
(1,580,173
|
)
|
|
|
(83,651
|
)
|
|
|
(1,663,824
|
)
|
Operating
loss
|
|
|
(1,216,718
|
)
|
|
|
(65,360
|
)
|
|
|
(1,282,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
237,586
|
|
|
$
|
-
|
|
|
$
|
237,586
|
|
Total
assets
|
|
|
2,798,080
|
|
|
|
-
|
|
|
|
2,798,080
|
|
Unearned
revenue
|
|
|
2,294,082
|
|
|
|
-
|
|
|
|
2,294,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|