UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2018

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File No. 000-33383

 

WIZARD WORLD, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		98-0357690
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

 

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)

 

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 past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or 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	[  ]	Accelerated filer	[  ]
Non-accelerated filer (Do not check if a smaller reporting company)	[  ]	Smaller reporting company	[X]
Emerging Growth Company	[  ]

 

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. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of May 14, 2018, there were 68,535,036 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements		F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		7
Item 4.	Controls and Procedures		7
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		7
Item 1A.	Risk Factors		7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		7
Item 3.	Defaults Upon Senior Securities		7
Item 4.	Mine Safety Disclosures		8
Item 5.	Other Information		8
Item 6.	Exhibits		8
Signatures			9

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

Wizard World, Inc.

 

March 31, 2018

 

Index to the Consolidated Financial Statements

 

Contents		Page(s)
Condensed Consolidated Balance Sheets at March 31, 2018 (unaudited) December 31, 2017		F-2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)		F-3
Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2018 (unaudited)		F-4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)		F-5
Notes to the Condensed Consolidated Financial Statements (unaudited)		F-6

 

 

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.

 

(i)

Debenture

 

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.

 

(ii)

Series A Warrants

 

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.

 

(iii)

Series B Warrants

 

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

 

 

Item 2. 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.

 

During the three months ended March 31, 2018, the Company was able to utilize the internal controls and operating procedures and techniques employed by the Company’s new management during 2017 in order to grow the business, by increasing revenues and controlling costs. With the recently reformed internal controls in place, management continued to carefully analyze new markets for the Company’s Comic Conventions. The Company continues to implement the policies put in place by management during 2017.

 

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 exhibitors and high-profile celebrities, and generally enhancing the entertainment value provided by the Conventions. Further, we continue to identify 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 materially 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 this regard, the Operating results for the First Quarter of 2018 disclosed, that the Total Operating Expenses in Quarter 1 2018 were $821,556 versus $1,663,824 in the First Quarter of 2017. Additionally, gross revenue increased by $469,090 over the same period one year ago.

 

In December 2017, the Company embarked on a cost containment strategy. The implementation of that strategy, which has been in place since January 2018, has significantly reduced corporate overhead. The efficiencies in Convention production in addition to the savings achieved in corporate overhead had a materially positive impact on the financial results for the First Quarter of 2018 and should have a likewise positive impact on subsequent quarters in 2018. The reduction in convention costs together with our cost containment strategy concerning corporate overhead in addition to other strategies employed by management, allowed the Company to achieve a positive swing of $1,565,303 from a loss from operations of $1,282,078 in the First Quarter of 2017 to income from operations of $283,276 in the First Quarter of 2018.

 

 

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 took place in Portland in April 2018 and similar sessions will take place in Columbus during the Second Quarter, (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. It is contemplated that these activities, in addition to other activities, will broaden the scope of the Company’s portfolio of revenue generating activities.

 

Additionally, the 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. The Company has aggregated the initial programming and Associated Television International is currently working to compile feeds for the initial programming.

 

Results of Operations

 

Summary of Statements of Operations for the Three Months Ended March 31, 2018 and 2017:

 

		Three Months Ended
		March 31, 2018				March 31, 2017
Convention revenue		$	3,991,166			$	3,447,957
ConBox revenue		$	-			$	74,119
Gross margin		$	1,104,832			$	381,746
Operating expenses		$	(821,556	)		$	(1,663,824	)
Income (loss) from operations		$	283,276			$	(1,282,078	)
Other expenses		$	(168,893	)		$	(84,683	)
Net income (loss) attributable to common shareholder		$	114,383			$	(1,366,268	)
Income (loss) per common share – basic		$	0.00			$	(0.02	)
Loss per common share – diluted		$	(0.01	)		$	(0.02	)

 

Convention Revenue

 

Convention revenue was $3,991,166 for the three months ended March 31, 2018, as compared to $3,447,957 for the comparable period ended March 31, 2017, an increase of $543,209. The increase in convention revenue is primarily attributable to enhanced marketing techniques and the qualitative enhancement of the Conventions. The Company ran three events during the three months ended March 31, 2018, as compared to three events during the comparable three months ended March 31, 2017. Average revenue generated per event in 2018 was $1,330,412 as compared to $1,149,319 during 2017.

 

ConBox Revenue

 

ConBox revenue was $0 for the three months ended March 31, 2018, as compared to $74,119 for the comparable three months ended March 31, 2017, a decrease of $74,119. The Company ceased ConBox operations in 2017 resulting in the decrease.

 

Gross Profit

 

Gross profit percentage for the convention segment increased from a gross profit of 11% during the three months ended March 31, 2017, to a gross profit of 27% during the three months ended March 31, 2018. The gross profit percentage increase was attributable to enhanced marketing and show production techniques which allowed the Company to generate more revenue at the Conventions while decreasing the costs of producing the Conventions.

 

Gross profit percentage for the ConBox segment decreased from a gross profit of 25% during the three months ended March 31, 2017, to a gross profit of 0% during the three months ended March 31, 2018. The gross profit percentage decrease was attributable to the fact that the Company ceased ConBox operations in 2017.

 

 

Operating Expenses

 

Operating expenses for the three months ended March 31, 2018, were $821,556, as compared to $1,663,824 for the three months ended March 31, 2017. The change is attributable to a decrease in staffing and a correlating decrease in employee compensation, general and administrative expenses and consulting expenses. The $548,045 decrease in compensation is primarily attributable to a decline in both headcount and officer compensation. General and administrative expenses decreased by $281,056 since the prior year comparative period primarily due to a decrease in service fees and web development.

 

Income (Loss) from Operations

 

Income from operations for the three months ended March 31, 2018, was $283,276 as compared to a loss from operations of ($1,282,078) for the three months ended March 31, 2017. The positive variance was primarily attributable to the introduction of strategies by Management which increased gross revenue while containing Convention production costs which were excessive in addition to our cost containment strategy concerning corporate overhead. 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 Conventions should materially improve the operating results in 2018.

 

Other Expenses

 

Other expenses for the three months ended March 31, 2018 was $168,893, as compared to $83,898 for the three months ended March 31, 2017. During the three months ended March 31, 2018, the Company recorded interest of expense of $168,893 related to the convertible note and corresponding debt discount, compared to $83,898 during the three months ended March 31, 2017. For the three months ended March 31, 2018 and 2017, the Company recorded a loss of $0 and $785, respectively, upon the disposal of equipment.

 

Net Income (Loss) Attributable to Common Stockholder

 

Net income attributable to common stockholder for the three months ended March 31, 2018, was $114,383 or income per basic share of $0.00, compared to a net loss of $1,366,268 or loss per basic share of $0.03, for the three months ended March 31, 2017.

 

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 March 31, 2018 compared to December 31, 2017:

 

		March 31, 2018				December 31, 2017				Increase/(Decrease)
Current Assets		$	2,648,290			$	2,765,278			$	(116,988	)
Current Liabilities		$	6,030,313			$	6,306,310			$	(275,997	)
Working Capital (Deficit)		$	(3,382,023	)		$	(3,541,032	)		$	159,009

 

At March 31, 2018, we had a working capital deficit of $3,382,023, as compared to working capital deficit of $3,541,032, at December 31, 2017, an increase of $159,009. The change in working capital is primarily attributable to a decrease in cash and cash equivalents, accounts receivable and inventory offset by a slight increase in prepaid expenses. These changes in current assets were offset by an overall decrease in current liabilities.

 

 

Net Cash

 

Net cash used in operating activities for the three months ended March 31, 2018 and 2017 was $57,811 and $798,947, respectively. The net income (loss) for the three months ended March 31, 2018 and 2017, was $114,383 and ($1,366,761), respectively.

 

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, which commenced in 2017, should be evident in 2018.

 

In addition to its cost containment strategies, the Company has announced three agreements to expand its future revenues: 1) alignment with Sony Pictures Entertainment to explore a number of strategic initiatives; 2) agreement to program a linear advertising Supported channel and an SVOD Channel in China on the CN Live platform; and 3) programming agreement with Associated Television International to launch the Chinese networks.

 

Additionally, if necessary, additional debt and/or equity financing may be obtained through related parties (management and members of the Board of Directors of the Company) 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.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, the Company had no off-balance sheet arrangements.

 

Critical Accounting Policies

 

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2017 Annual Report.

 

Recent Accounting Pronouncements

 

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.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. 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) Changes in Internal Control over Financial Reporting.

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

The Company is committed to improving financial organization. As part of this commitment, management and the Board are currently performing an extensive review of the Company’s policies and procedures as it relates to financial reporting in an effort to mitigate future risks of potential misstatements. The Company will continue to focus on developing and documenting internal controls and procedures surrounding the financial reporting process, primarily through the use of account reconciliations, and supervision.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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.

 

Item 1A. Risk Factors.

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, filed with the SEC on April 2, 2018.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2018 that were not otherwise disclosed in a Current Report on Form 8-K.

 

Item 3. Defaults Upon Senior Securities.

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

Item 6. Exhibits.

 

Exhibit No.		Description
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.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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: May 14, 2018	By:	/s/ John D. Maatta
	Name:	John D. Maatta
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)
		(Principal Financial Officer)
		(Principal Accounting Officer)