As
filed with the Securities and Exchange Commission on October 10, 2018.
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
Wizard
Entertainment, Inc.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
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7900
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98-0357690
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(State
or other jurisdiction of
incorporation
or organization)
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|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
Number)
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662
N. Sepulveda Blvd., Suite 300
Los
Angeles, CA 90049
Telephone:
(310) 648-8410
(Address,
including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
John
D. Maatta
Chief
Executive Officer and President
662
N. Sepulveda Blvd., Suite 300
Los
Angeles, CA 90049
Telephone:
(310) 648-8410
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies
to:
Steven
D. Pidgeon
DLA
Piper LLP (US)
2525
East Camelback Road, Suite 1000
Phoenix,
Arizona 85016
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|
Michael
Francis
Christina
C. Russo
Akerman
LLP
350
E Las Olas Blvd, Suite 1600
Fort
Lauderdale, FL 33301
|
Approximate
date of commencement of the proposed sale of the securities to the public:
As soon as practicable after the Registration Statement
is declared effective.
If
any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. [X]
If
this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the
same offering. [ ]
If
this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
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|
[ ]
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
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|
[ ]
(Do not check if a smaller reporting company)
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Smaller
reporting company
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[X]
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|
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|
Emerging
growth company
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[ ]
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
[ ]
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
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Proposed
Maximum
Aggregate
Offering
Price
(1)(2)
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|
|
Amount
of Registration Fee
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Common
stock, par value $0.0001 per share
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$
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13,000,000
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$
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1,575.60
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Representative’s
Warrants to purchase common stock
(3)
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$
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—
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$
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—
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Shares
of common stock underlying the Representative’s Warrants
(4)
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$
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1,040,000
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$
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126.05
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Total
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$
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14,040,000
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$
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1,701.65
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(1)
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Estimated
solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities
Act of 1933.
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(2)
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Includes
common stock that the underwriters have the option to purchase to cover over-allotments, if any.
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(3)
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The
Registrant has agreed to issue warrants exercisable within five years after the effective date of this registration statement
representing 8% of the securities issued in the offering (the “
Representative’s Warrants
”) to Roth
Capital Partners, LLC, as representative of the underwriters. The Representative’s Warrants are exercisable at a per
share price equal to 115% of the common stock public offering price. See “
Underwriting
.” In accordance
with Rule 457(g) under the Securities Act, because the shares of the Registrant’s common stock underlying the Representative’s
Warrants are registered hereby, no separate registration fee is required with respect to the warrants registered hereby.
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(4)
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Represents
the maximum number of shares of the Registrant’s common stock issuable upon exercise of the Representative’s Warrants.
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The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject
to completion, dated October 10, 2018
Preliminary
Prospectus
Shares
Wizard
Entertainment, Inc.
Common
Stock
We
are offering $13,000,000 of shares of our common stock.
Our
common stock is currently quoted on the OTCQB under the symbol “WIZD”. We have applied to have our common stock listed
on the Nasdaq Capital Market under the same symbol. The closing of this offering is contingent upon the successful listing of
our common stock on the Nasdaq Capital Market. The last reported bid price of our common stock on the OTCQB on October 9,
2018, was $0.16 per share.
After
the consummation of this offering, Bristol Investment Fund, Ltd. and our management will beneficially own approximately [__]%
of our common stock on an as converted basis, or approximately [__] % of our common stock if the underwriters’ option to
purchase additional shares is exercised in full. As a result, we will be a “controlled company” within the meaning
of the corporate governance standards of The Nasdaq Capital Market. However, we do not intend to avail ourselves of the controlled
company exemption under the corporate governance standards of The Nasdaq Capital Market. See “
Certain Relationships and
Related Party Transactions
”, “
Description of Capital Stock
”, and “
Risk Factors—Risks
Relating to this Offering and Ownership of Our Common Stock—The ownership by our Executive Chairman of our common stock
will likely limit your ability to influence corporate matters.
”
The
offering is being underwritten on a firm commitment basis. We have granted the underwriters an option to buy up to an additional
[__] shares of common stock from us to cover over-allotments. The underwriters may exercise this option at any time and from time
to time during the 30-day period from the date of this prospectus
Investing
in our common stock involves risk. See “Risk Factors” beginning on page 9 to read about factors you should
consider before buying shares of our common stock.
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Per
Share
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Total
(1)
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Price
to public
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$
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[__]
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$
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[__]
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Underwriting
discounts and commissions
(2)
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$
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[__]
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$
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[__]
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Proceeds
to us, before expenses
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$
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[__]
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$
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[__]
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(1)
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Assumes
no exercise of the underwriters’ option to purchase additional shares of common stock described below. If the underwriters
exercise the option in full, the total underwriting discounts and commissions payable will be $[__] and the total proceeds
to us, before expenses, will be $[__].
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(2)
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See
“
Underwriting
” on page 59 of this prospectus for a description of the compensation payable to the
underwriters. We have agreed to issue to the representative of the underwriters warrants to purchase up to 8% of the aggregate
number of shares of common stock sold in this offering. The representative’s warrants will have an exercise price equal
to 115% of the public offering price per share of common stock sold in this offering. The registration statement of which
this prospectus forms a part also registers the issuance of the representative’s warrants and the shares of common stock
underlying the representative’s warrants.
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Neither
the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Delivery
of the shares of common stock will be made on or about [__], 2018.
Roth
Capital Partners
The
date of this prospectus is [__], 2018.
Table
of Contents
You
should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us
that we have referred to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different
information. If anyone provides you with additional, different, or inconsistent information, you should not rely on it.
For
investors outside the United States: We and the underwriters have not done anything that would permit this offering, or possession
or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States.
Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions
relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.
You
should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this
prospectus.
Certain
Trademarks, Trade Names, and Service Marks
This
prospectus contains trademarks, trade names and service marks that we use in our business. Each one of these trademarks, trade
names and service marks is either (i) our registered trademark, trade name or service mark, (ii) a trademark, trade name or service
mark for which we have a pending application, (iii) a trademark, trade name or service mark for which we claim common law rights
or (iv) a trademark, trade name or service mark that is owned by a third party and used by us under license. All other trademarks,
trade names or service marks appearing in this prospectus belong to their respective owners. Solely for convenience, trademarks,
trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but such references
are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the
right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other
parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a
relationship with, or endorsement or sponsorship of us by, these other parties.
Summary
This
summary highlights information contained in this prospectus and does not contain all of the information that you should consider
in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including
our consolidated financial statements and related notes thereto included elsewhere in this prospectus and the information in “Risk
Factors”, “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”.
As
used in this prospectus, “we”, “us”, “our”, “Wizard”, “the Company”,
or “our Company” refer to Wizard Entertainment, Inc., and references to “Conventions” refer collectively
to Kick the Can Corp. and its predecessors, Wizard Conventions, Inc., and Kicking the Can, L.L.C.
Our
Company
We
are a producer of “pop culture” live multimedia conventions across the United States. These live multimedia conventions
provide a social networking and entertainment venue for enthusiasts of movies, TV shows, video games, technology, toys, social
networking/gaming, comic books, and graphic novels. We intend to increase our presence in the digital space, through the creation
and distribution of high-quality and compelling content.
Our
objective is to create an expanded and qualitatively enhanced digital initiative to become a dominant voice for pop culture enthusiasts
across multiple media platforms. Key elements of our strategy include:
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producing
and distributing high-quality Pop-Culture/Comic Conventions (“
Comic Conventions
”) across the United States
to entertain fans and to allow for promotion of consumer products and entertainment;
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producing
and distributing high-quality content and leveraging the content created at the Comic Conventions through digital media outlets
such as websites, apps, emails, newsletters, Facebook, Twitter, Instagram, and YouTube, among others; and
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obtaining
sponsorships and promotions from media and entertainment companies for our digital initiative Comic Conventions, including:
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o
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expanding
our relationships with entertainment and media companies; and
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o
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utilizing
our digital assets to create and launch a revised and vibrant e-commerce venture.
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expand
operations to include fixed-site attractions that will be appealing to enthusiasts of pop-culture.
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Comic
Conventions
We
produce live Comic Conventions across the United States that provide a social networking and entertainment venue for enthusiasts
of movies, TV shows, video games, technology, virtual reality experiences, toys, social networking, gaming, comic books, and graphic
novels. Our Comic Conventions provide an opportunity for companies in the entertainment, toy, gaming, virtual reality, publishing
and retail business to carry out sales, marketing, product promotion, public relations, advertising, and sponsorship efforts.
We
have been producing Comic Conventions since July 1997. In 2017, we held 14 Comic Conventions in the following cities:
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Austin, TX
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Des Moines, IA
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New Orleans, LA
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Sacramento, CA
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Chicago, IL
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Madison, WI
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Oklahoma City, OK
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St Louis, MO
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Cleveland, OH
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Minneapolis, MN
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Philadelphia, PA
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Columbus, OH
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Nashville, TN
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Portland, OR
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Our
target audience includes men and women primarily in the 18 to 34 year-old demographic, together with families of all ages who
are fans of various types of entertainment and media, including movies, music, toys, video games, consumer electronics, computers,
and lifestyle products (e.g. clothes, footwear, digital devices, and mobile phones). Within the last year, we have added new attractions
at our events, including live music, anime, and programming for children. We continuously review our existing operations and procedures
relating to our Comic Conventions in order to ensure that we produce the best possible fan experience at our Comic Conventions.
At the same time, we have taken significant steps to maximize revenue and contain costs.
We
receive revenue from Comic Conventions primarily from three sources: (i) consumer admissions; (ii) exhibitor booth sales; and
(iii) national and/or regional sponsorships. Comic Conventions vary in cost to produce depending on the size and scope of the
convention.
Digital
Media
We
produce content for a number of digital media platforms, including our recently updated website, emails, newsletters, and Facebook,
YouTube, Twitter, and Instagram accounts, to create awareness of our Comic Conventions and provide updates to our fans and consumers.
We also use our website to provide the latest Wizard Entertainment news and information. While we derive little or no direct revenue
from these properties, they have the indirect benefit of supporting sales relating to our Comic Conventions, as well as helping
us secure additional sought after and high-profile talent. This helps us obtain additional admissions, booth sales and sponsorships
for our Comic Conventions. We intend to increase our presence in the digital space, through the creation and distribution of high-quality
and compelling content.
Competitive
Strengths
In
the live, regionally-based consumer conventions market, competitive strength is measured by the location and size of the region
or city, the frequency of live events per year, the VIP list (e.g. celebrities and artists), the number of paying attendees, the
physical size of the convention, the extent of the public relations outreach (through traditional media, digital media and social
media), and the quantity and quality of exhibitors and dealers. We believe that we have a strong competitive position because
our Comic Conventions take place in major cities across the United States throughout the year. Our numerous annual Comic Conventions
enable us to market our events throughout the entire year, create a large amount of high-quality content that can be distributed
through our digital media outlets, and market nationally as well as regionally. Our multiple locations also allow us to work with
more celebrities, artists and writers and host them in numerous cities.
There
are a number of Comic Convention providers that produce events across the country; however, on an annual basis, we produce a greater
number of Comic Conventions in the United States annually than any other organization.
We
believe that our Comic Conventions are well known and well respected in the Comic Convention and pop culture industry. We have
a reputation among fans, exhibitors, and celebrities for producing high-quality and well-attended conventions.
Growth
Strategy
We
plan to pursue expansion by converting the Company from a live-event business into a live event/media company adding content development
and other activities to our existing operations.
We
plan to organically develop new local attractions as adjuncts to our Comic Conventions, including a focused initiative to develop
new attractions as an adjunct to our existing conventions. We also seek to increase revenues of our existing Comic Conventions
through improving the fan experience by adding more entertainment, exhibitors, celebrities, panels, gaming tournaments, and opportunities
for VIP experiences. While increasing revenues we are working to reduce our operating costs. We aim to leverage our existing resources
and exposure, both online and at Comic Conventions, to generate revenue through new, complimentary business opportunities.
We
intend to increase revenue through increasing corporate sponsorships with experienced marketers by offering these advertisers
a wide range of promotional vehicles, both on-site and through our digital media and online offerings. We believe that we will
be able to further enhance our relationships with our existing dealers, exhibitors, celebrities, and VIPs while, at the same time,
developing new relationships with national brand marketers looking to connect with our growing audiences. Additionally, we are
seeking opportunities to expand our operations outside of the United States, especially in Asia and the Middle East.
In
addition to our core live event comic convention business, we are actively entering the media space by (i) developing intellectual
property with Sony Pictures Entertainment (“
Sony
”), (ii) programming two televisions networks in China, (iii)
developing location-based entertainment opportunities, (iv) exploring pop-up retail and merchandising opportunities, (v) pursuing
pop culture-related content under our “WizPop” brand, and (vi) expanding into alternative affinity-based attractions
which will co-locate with the core comic conventions.
To
help facilitate our growth, we have recently restructured our internal operations. We have also revamped our production methods
allowing us to produce Comic Conventions at a cost that is materially lower than the production cost that we had been spending.
Additionally, we have been successful in materially containing costs associated with corporate overhead. We believe these measures
will assist us in achieving our growth strategies.
Recent
Developments
On
December 1, 2016, we sold convertible notes (the “
Notes
”) to Bristol Investment Fund, Ltd. (“
Bristol
”),
an entity controlled by our Executive Chairman, pursuant to a securities purchase agreement (the “
Purchase Agreement
”)
for a cash purchase price of $2,500,000. Immediately prior to the completion of this offering, the Notes will be exchanged (the
“
Exchange
”) for our Series A Preferred Stock (the “
Preferred Stock
”), which will be convertible
into common stock, contain certain protective provisions, and have an initial aggregate liquidation value of approximately $2.9
million, representing the outstanding principal and accrued but unpaid interest on the Notes. After giving effect to this offering
and the exchange of Notes for Preferred Stock, Bristol and its affiliates will have the ability to control the outcome of matters
submitted to our stockholders for approval, including the election of our directors and the approval or rejection of any change
in control transaction. In connection with the Exchange, we entered into an agreement with Bristol to provide certain rights previously
granted to Bristol pursuant to the Purchase Agreement, including that the consent of the holders of a majority of the Preferred
Stock will be required for the incurrence of certain liens on the Company’s assets. In addition, upon Bristol’s request,
we will register the shares of common stock issuable upon conversion of the Preferred Stock or shares issued in payment of any
dividend on the Preferred Stock on a Registration Statement on Form S-3, once eligible to utilize such form. Following the consummation
of this offering, we expect to be a “controlled company” for the purposes of the Nasdaq Stock Market Rules. However,
we do not intend to avail ourselves of the controlled company exemption under the corporate governance standards of The Nasdaq
Capital Market. For a discussion of our relationship with Bristol and more details on Bristol’s ownership interest, see
“
Certain Relationships and Related Party Transactions
”, “
Description of Capital Stock
”,
and “
Risk Factors—Risks Relating to this Offering and Ownership of Our Common Stock—The ownership by our
Executive Chairman of our common stock will likely limit your ability to influence corporate matters
”.
During
2016, we underwent significant senior management restructuring. The restructuring included the appointment of a new Chief Executive
Officer, who entered into such role with experience at major movie studios and television networks. We also appointed an Executive
Chairman. Focused on reforming our operations and key operating controls, the new management team has worked extensively to position
us to successfully grow by, among other things, implementing operating controls and efficiencies, as well as an increased focus
on corporate strategy.
On
October 24, 2017, we announced alignment with CNLive to distribute advertising-supported linear programming and subscription video
on-demand (“
SVOD
”) streamed content to mobile devices in China. The alignment with CNLive, one of only seven
entities licensed to distribute content over mobile devices in China, provides us with a multi-year right and license to program
a 24/7, linear and SVOD services across all of mainland China, including Macao and Hong Kong.
On
February 12, 2018, we announced the formation of a working relationship with Sony. As part of the relationship, we will work with
Sony to jointly discover top artistic talent with the aim of incubating the next generation of movies, television, and digital
media. We also plan to explore other strategic initiatives with Sony in areas such as immersive entertainment, location-based
entertainment, programming and live events. Pursuant to an exclusive license with Sony we are producing a “Ghostbusters”
fan fest on June 8, 2019 celebrating the 35
th
anniversary of the “Ghostbusters” motion picture franchise.
On
February 27, 2018, we announced an agreement with Associated Television International (“
ATI
”), an Emmy-winning,
worldwide full-service production and distribution company. ATI will distribute a daily, four-hour wheel of programming under
the “WizPop” brand, to be streamed live in China via the CNLive platform.
On
[__], 2018, we effected a 1-for-[__] reverse stock split on our common stock. Share amounts set forth herein reflect the split.
Risks
Associated with Our Business
Our
business is subject to numerous risks described in “
Risk Factors
” immediately following this prospectus summary
and elsewhere in this prospectus. These risks represent challenges to the successful implementation of our strategy and to the
growth and future profitability of our business. Some of the more significant risks are:
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We
may never achieve or sustain profitability;
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We
may not be able to attract sufficient capital to finance all of our planned operations;
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We
may be unable to continue as a going concern;
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We
may fail to manage our expected growth which could cause a disruption of our operations and failure to generate revenues at
levels we expect;
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Our
collaboration agreements in the digital media space may not produce the anticipated commercial success;
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We
are subject to the terms of a letter agreement with Bristol, our principal stockholder, which may hinder our ability to raise
additional capital if and when needed.
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We
may not be able to prevent others from using our intellectual property, and may be subject to claims by third parties that
we infringe on their intellectual property;
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We
encounter competition in our business, and any failure to compete effectively could adversely affect our results of operations.
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If
we do not maintain and further develop and market our brand, we may not be able to attract sufficient audiences to our Comic
Conventions;
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We
may fail to attract a sufficient number of sponsors and pop culture advertisers;
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We
rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties
fail to perform or terminate any of their contractual arrangements with us for any reason or cease operations, or should we
fail to adequately identify key business relationships, our business could be disrupted and our reputation may be harmed
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We
may fail to attract high-profile celebrities and VIPs to our Comic Conventions;
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We
may not be able to secure or retain desirable dates and locations for our Comic Conventions;
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We
may fail to accurately monitor or respond to changing market trends and adapt our Comic Conventions and digital media offerings
accordingly; and
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A
decline in general economic conditions and disruption of financial markets may, among other things, reduce the discretionary
income of Comic Convention attendees and consumers or further erode advertising markets.
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Corporate
Information
We
were incorporated as GoEnergy, Inc. in Delaware in 2001, renamed as Wizard World, Inc. on December 6, 2010 and renamed as Wizard
Entertainment, Inc. on October 5, 2018. Our executive offices are located at 662 N. Sepulveda Blvd., Suite 300, Los Angeles,
California 90049, and our telephone number is (310) 648-8410. We maintain a website at www.wizardworld.com. The information contained
on, or that can be accessed through, our website is not a part of, and should not be considered as being incorporated by reference
into, this prospectus.
We
are a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant
to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission (the “
Commission
”). The Commission maintains an internet site that contains our public filings with
the Commission and other information regarding our company, at www.sec.gov. These reports and other information concerning our
company may also be accessed at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
Summary
of the Offering
Common
stock offered by us
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[__]
shares
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Offering
price
|
|
$[__]
per share
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Common
stock outstanding before this offering
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68,535,036
shares, as of June 30, 2018
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Common
stock to be outstanding after this offering
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[__]
shares. If the underwriters’ over-allotment option is exercised in full, the total number of shares of common stock
outstanding immediately after this offering would be [__].
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Over-allotment
option
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We
have granted a 30-day option to the underwriters to purchase up to [__] additional shares of common stock solely to cover
over-allotments, if any.
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Use
of proceeds
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We
intend to use the net proceeds of this offering for working capital and general corporate purposes. See “
Use of Proceeds
”
for further details.
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Lock-up
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|
Before
the completion of this offering, we and each of our officers and directors have agreed, subject to certain exceptions, not
to sell, offer, agree to sell, contract to sell, hypothecate, pledge, grant any option to purchase, make any short sale of,
or otherwise dispose of or hedge, directly or indirectly, any shares of common stock beneficially owned by them, or any securities
beneficially owned by them that are convertible into or exercisable or exchangeable for shares of common stock, for a period
of 180 days after the date of this prospectus, without the prior written consent of the underwriter. See “
Underwriting
”
for additional information.
|
|
|
|
Risk
factors
|
|
Investing
in our shares of common stock involves a high degree of risk. See “
Risk Factors
” for a discussion of factors
you should consider before making a decision to invest in our common stock.
|
|
|
|
Controlled
company
|
|
After
the completion of this offering, Mr. Kessler, our Executive Chairman, will continue to control a majority of our common stock,
on an as converted basis. We do not intend to avail ourselves of the controlled company exemption under the corporate governance
standards of The Nasdaq Capital Market.
|
|
|
|
Proposed
listing
|
|
Our
common stock is currently quoted on the OTCQB under the symbol “WIZD”. We have applied to have our common stock
listed on the Nasdaq Capital Market (the “
Nasdaq CM
”) under the same symbol. The closing of this offering
is contingent upon the successful listing of our common stock on Nasdaq CM.
|
The
number of shares of common stock to be outstanding immediately after this offering as shown above is based on 68,535,036 shares
of common stock outstanding as of June 30, 2018. This number of shares excludes, as of June 30, 2018:
|
●
|
3,743,000
shares of common stock issuable upon the exercise of outstanding stock options, having a weighted average exercise price of
$0.59 per share;
|
|
|
|
|
●
|
16,666,667
shares of common stock issuable upon the exercise of outstanding warrants, having a weighted exercise price of $0.15 per share;
|
|
|
|
|
●
|
an
aggregate of up to 11,257,000 shares of common stock reserved for future issuance under our equity incentive plans;
|
|
|
|
|
●
|
[__]
shares issuable upon conversion of the Preferred Stock issued in the Exchange; and
|
|
|
|
|
●
|
[__]
shares issuable upon the exercise of the Representative’s Warrant.
|
Unless
otherwise indicated, all information in this prospectus assumes:
|
●
|
That
the underwriters do not exercise their option to purchase up to an additional [__] shares of our common stock; and
|
|
|
|
|
●
|
No
options or shares of common stock were issued after June 30, 2018, and no outstanding equity awards were exercised after June
30, 2018.
|
Summary
Consolidated Financial and Operating Data
The
following table presents summary consolidated financial data for the periods and at the dates indicated. The summary consolidated
financial data as of December 31, 2016 and 2017, and for the years ended December 31, 2016 and 2017, have been derived from our
audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of
June 30, 2017 (as restated) and 2018, and for the six months ended June 30, 2017 (as restated) and 2018, have been derived from
our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our historical results are not
necessarily indicative of the results expected for any future period.
The
following information should be read in conjunction with “
Capitalization
”, “
Management’s Discussion
and Analysis of Financial Condition and Results of Operations
”, “
Business
” and our consolidated financial
statements and related notes included elsewhere in this prospectus.
|
|
Year
Ended December 31,
|
|
|
Six
Months ended June 30,
|
|
Statement
of operations data:
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
Convention
revenue
|
|
$
|
21,994,433
|
|
|
$
|
14,983,033
|
|
|
$
|
8,384,041
|
|
|
$
|
9,103,033
|
|
ConBox
revenue
(1)
|
|
$
|
707,101
|
|
|
|
84,580
|
|
|
$
|
84,580
|
|
|
$
|
-
|
|
Gross
profit
|
|
$
|
6,534,543
|
|
|
$
|
9,316
|
|
|
$
|
36,605
|
|
|
$
|
1,727,197
|
|
Operating
expenses
|
|
$
|
(7,716,789
|
)
|
|
$
|
(5,346,924
|
)
|
|
$
|
3,214,561
|
|
|
$
|
1,688,192
|
|
(Loss)
income from operations
|
|
$
|
(1,182,246
|
|
|
$
|
(5,337,608
|
)
|
|
$
|
(3,177,956
|
)
|
|
$
|
39,005
|
|
Other
expenses
|
|
$
|
(325,857
|
|
|
$
|
(395,887
|
)
|
|
$
|
(177,459
|
)
|
|
$
|
(429,894
|
)
|
Net
income (loss)
|
|
$
|
(1,508,103
|
)
|
|
$
|
(5,733,495
|
)
|
|
$
|
(3,355,415
|
)
|
|
$
|
(390,889
|
)
|
Income
(loss) per common share – basic and diluted
(2)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
|
|
At
December 31,
|
|
|
At
June 30,
|
|
Balance
sheet data:
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
Cash
and cash equivalents
|
|
$
|
4,401,217
|
|
|
$
|
1,769,550
|
|
|
$
|
2,918,778
|
|
|
$
|
1,457,735
|
|
Total
assets
|
|
$
|
5,835,129
|
|
|
$
|
2,940,089
|
|
|
$
|
4,337,820
|
|
|
$
|
2,238,770
|
|
Current
liabilities
|
|
$
|
2,736,953
|
|
|
$
|
6,306,310
|
|
|
$
|
4,294,930
|
|
|
$
|
6,002,600
|
|
Total
liabilities
(3)
|
|
$
|
3,764,129
|
|
|
$
|
6,306,310
|
|
|
$
|
4,320,408
|
|
|
$
|
6,002,600
|
|
|
|
Year
Ended December 31,
|
|
|
Six
Months Ended June 30,
|
|
Cash
flows from operating activities data:
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
Net
cash used in operating activities
|
|
$
|
(2,488,009
|
)
|
|
$
|
(2,533,595
|
)
|
|
$
|
(1,389,454
|
)
|
|
$
|
(303,887
|
)
|
Net
cash used in investing activities
|
|
$
|
(311,140
|
)
|
|
$
|
(98,072
|
)
|
|
$
|
(92,985
|
)
|
|
$
|
(7,928
|
)
|
Net
cash provided by financing activities
|
|
$
|
2,476,667
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
change in cash and cash equivalents
|
|
$
|
(322,482
|
)
|
|
$
|
(2,631,667
|
)
|
|
$
|
(1,482,439
|
)
|
|
$
|
(311,815
|
)
|
|
|
Year
Ended December 31,
|
|
|
Six
Months Ended June 30,
|
|
Other
financial data (unaudited):
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
Adjusted
EBITDA
(4)
|
|
$
|
(544,985
|
)
|
|
$
|
(4,894,287
|
)
|
|
$
|
(2,817,097
|
)
|
|
$
|
125,559
|
|
|
(1)
|
We
ceased the sale of merchandise under the ConBox brand name in 2017.
|
|
|
|
|
(2)
|
Reflects
the 1-for-[__] reverse stock split of our common stock that occurred on [__], 2018.
|
|
|
|
|
(3)
|
Immediately
prior to this offering, the Notes (with an aggregate outstanding amount of $[__], including accumulated but unpaid interest)
will be converted to the Preferred Stock.
|
|
(4)
|
In
addition to net income (loss) presented in accordance with GAAP, we use Adjusted EBITDA to measure our financial performance.
Adjusted EBITDA is a supplemental non-GAAP financial measure of operating performance and is not based on any standardized
methodology prescribed by GAAP. Adjusted EBITDA should not be considered in isolation or as alternatives to net income (loss),
cash flows from operating activities or other measures determined in accordance with GAAP. Also, Adjusted EBITDA is not necessarily
comparable to similarly titled measures presented by other companies.
|
|
|
|
|
|
We
define Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) depreciation and amortization, (iii) stock-based
compensation, and (iv) items that management believes are not part of our core operations. We present Adjusted EBITDA because
we believe its assists investors and analysts in comparing our operating performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of our core operating performance. Management and our board
of directors has begun to use Adjusted EBITDA to assess our financial performance and believe it is helpful in highlighting
trends because it excludes the results of decisions that are outside the control of management, while other measures can differ
significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate
and capital investments. We have begun to reference Adjusted EBITDA in our decision-making because it provides supplemental
information that facilitates internal comparisons to the historical operating performance of prior periods. In addition, we
have based certain of our forward-looking estimates and budgets on Adjusted EBITDA. Adjusted EBITDA has limitations as an
analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results
as reported under GAAP.
|
|
|
Year
Ended December 31,
|
|
|
Six
Months Ended June 30,
|
|
Reconciliation
of Adjusted EBITDA:
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
Net
loss:
|
|
$
|
(1,508,103
|
)
|
|
$
|
(5,733,495
|
)
|
|
$
|
(3,355,415
|
)
|
|
$
|
(390,889
|
)
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
26,481
|
|
|
$
|
395,102
|
|
|
$
|
176,674
|
|
|
$
|
429,894
|
|
Depreciation
|
|
$
|
159,101
|
|
|
$
|
147,832
|
|
|
$
|
85,538
|
|
|
$
|
48,274
|
|
Stock-based
compensation
|
|
$
|
777,536
|
|
|
$
|
296,274
|
|
|
$
|
276,106
|
|
|
$
|
38,280
|
|
Adjusted
EBITDA
|
|
$
|
(544,985
|
)
|
|
$
|
(4,894,287
|
)
|
|
$
|
(2,817,097
|
)
|
|
$
|
125,559
|
|
Risk
Factors
Relating
to Our Company
We
may never achieve or sustain profitability.
We
have historically operated at a loss, which has resulted in an accumulated deficit. There can be no assurance that we will ever
achieve profitability. Even if we do, there can be no assurance that we will be able to maintain or increase profitability on
a quarterly or annual basis. Failure to do so would continue to have a material adverse effect on our accumulated deficit, would
affect our cash flows, would affect our efforts to raise capital and is likely to result in a decline in our common stock price.
If
we need additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to
limit the scope of our operations.
We
have had to rely on a combination of cash flow from operations and new capital in order to sustain our business. As we move forward
to implement our growth strategies, we may experience increased capital needs. We may not, however, have sufficient capital to
fund our future operations without additional capital investments. If adequate additional financing is not available on reasonable
terms or at all, we may not be able to carry out our corporate strategy and we would be forced to modify our business plans (e.g.,
limit our expansion, limit our marketing efforts and/or decrease or eliminate capital expenditures), any of which may adversely
affect our financial condition, results of operations and cash flow. Such reduction could materially adversely affect our business
and our ability to compete.
Our
capital needs will depend on numerous factors, including, without limitation, (i) our profitability, (ii) our ability to respond
to a release of competitive products by our competitors, and (iii) the amount of our capital expenditures, including acquisitions.
Moreover, the costs involved may exceed those originally contemplated. Cost savings and other economic benefits expected may not
materialize as a result of any cost overruns or changes in market circumstances. Failure to obtain intended economic benefits
could adversely affect our business, financial condition and operating performances.
We
need to manage growth in operations to maximize our potential growth and achieve our expected revenues. Our failure to manage
growth can cause a disruption of our operations that may result in the failure to generate revenues at levels we expect.
In
order to maximize potential growth in our current markets, we may have to expand our operations. Such expansion will place a significant
strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to
improve our financial controls, operating procedures and management information systems. We will also need to effectively train,
motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from
generating the revenues we expect.
We
recently entered into collaboration arrangements in the digital media space. There can be no assurance they will produce commercial
success.
We
recently entered into collaboration arrangements to provide advertising-supported linear programming and SVOD content in China
and to jointly discover top artistic talent with the aim of incubating the next generation of movies and media. There can be no
assurance that these initiatives will achieve commercial success or, even if they do, that they will be profitable for the Company.
We
are subject to the terms of a letter agreement with Bristol, our principal stockholder, which may hinder our ability to raise
additional capital if and when needed.
In
connection with the exchange of certain outstanding indebtedness for shares of our Preferred Stock, we entered into an agreement
with Bristol, our principal stockholder, which will become effective upon the exchange. The agreement provides, among other things,
that Bristol may exchange its shares of Series A Preferred Stock as consideration in any future financing and the consent of Bristol
will be required for the incurrence of certain liens on the Company’s assets. These terms may hinder our ability to raise
additional capital on adequate terms, if at all. If we are not successful in raising sufficient additional capital as needed,
we may be compelled to reduce the scope of our operations and planned capital expenditures and/or sell or license certain assets
at inopportune times, which could have a material and adverse effect on our ability to pursue our business strategy and our future
financial condition.
Our
ability to use NOLs to reduce future tax payments may be limited if taxable income does not reach sufficient levels or there is
a change in ownership of the Company.
At
December 31, 2017, we had net operating loss carry-forwards (“
NOLs
”) of approximately $9.9 million for U.S.
federal tax purposes and also anticipate NOLs for state tax purposes. These NOLs expire at varying dates through 2036. To the
extent available, and to the extent that we generate taxable income, we intend to use these NOLs to reduce the corporate income
tax liability associated with our operations. Section 382 (“
Section 382
”) of the Internal Revenue Code of 1986,
as amended (the “
Code
”), generally imposes an annual limitation on the amount of NOLs that may be used to offset
taxable income when a corporation has undergone significant changes in stock ownership. In general, an ownership change, as defined
by Section 382, results from a transaction or series of transactions over a three-year period resulting in an ownership change
of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups, which are generally
outside of our control.
Relating
to Our Business and Industry
General
We
may not be able to prevent others from using our intellectual property, and may be subject to claims by third parties that we
infringe on their intellectual property.
We
regard the content that we plan to distribute via digital media to be important to our success. We plan to rely on non-disclosure
and other contractual provisions to protect our proprietary rights. We may also try to protect our intellectual property rights
by, among other things, searching the Internet to detect unauthorized use of our intellectual property.
However,
policing the unauthorized use of our intellectual property is often difficult and any steps we take may not, in every case, prevent
the infringement by unauthorized third parties. Further, there can be no assurance that our efforts to enforce our rights and
protect our intellectual property will be successful. We may need to resort to litigation to enforce our intellectual property
rights, which may result in substantial costs and diversion of resources and management attention.
Further,
although management does not believe that our products and services infringe on the intellectual rights of others, there is no
assurance that we will not be the target of infringement or other claims. Such claims, even if not true, could result in significant
legal and other costs and may be a distraction to our management or interrupt our business.
We
encounter competition in our business, and any failure to compete effectively could adversely affect our results of operations.
We
anticipate that our competitors will continue to expand and seek to obtain additional market share with competitive price and
performance characteristics. Aggressive expansion of our competitors or the entrance of new competitors into our markets could
have a material adverse effect on our business, results of operations and financial condition.
If
we do not compete successfully against new and existing competitors, we may lose our market share, and our operating results may
be adversely affected.
We
compete with other advertising service providers that may reach our target audience by means that are more effective than our
Comic Conventions and digital media. Further, if such other providers of advertising have a long operating history, large product
and service suites, more capital resources and broad international or local recognition, our operating results may be adversely
affected if we cannot successfully compete.
Our
future success depends upon, in large part, our continuing ability to attract and retain qualified personnel.
Expansion
of our business and operations may require additional managers and employees with industry experience, in which case our success
will be dependent on our ability to attract and retain experienced management personnel and other employees. There can be no assurance
that we will be able to attract or retain qualified personnel. Competition may also make it more difficult and expensive to attract,
hire and retain qualified managers and employees. If we fail to attract, train and retain sufficient numbers of the qualified
personnel, our prospects, business, financial condition and results of operations will be materially and adversely affected.
Comic
Conventions
If
we do not maintain and develop our Wizard World Comic Convention brand, we will not be able to attract an audience to the Comic
Conventions.
We
attract audiences and advertisers partly through brand name recognition. We believe that establishing, maintaining and enhancing
our portfolio of Comic Conventions and the brands of our strategic partners will enhance our growth prospects. The promotion of
our Wizard World Comic Convention brand and those of our strategic partners will depend largely on our success in maintaining
a sizable and loyal audience, providing high-quality content and organizing effective marketing programs. If we fail to meet the
standards to which our consumers are accustomed, our reputation will be harmed and we may lose market share.
Our
future success depends on attracting sponsors and pop culture advertisers who will advertise at our Comic Conventions. If we fail
to attract a sufficient number of sponsors and pop culture advertisers, our operating results and revenues may not meet expectations.
One
of our important strategies is to create an integrated platform of tours on which sponsors and pop culture advertisers wishing
to reach our young male and female target audience may advertise. However, advertisers may find that our targeted demographic
does not consist of their desired consumers or a critical mass of consumers, decide to use a competitor’s services or decide
not to use our services for other reasons. If the sponsors and pop culture advertisers decide against advertising with us, we
may not realize our growth potential or meet investor expectations. Our future operating results and business prospects could
be adversely affected.
We
may not be able to respond to changing consumer preferences and our sales may decline.
We
operate in markets that are subject to change, including changes in customer preferences. New fads, trends and shifts in pop culture
could affect the type of live events customers will attend or the products consumers will purchase. Content in which we have invested
significant resources may fail to meet consumer demand at the time. A decrease in the level of media exposure or popularity of
the pop culture market or a loss in sales could have a material adverse effect on our business, prospects and financial condition.
We
rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties
fail to perform or terminate any of their contractual arrangements with us for any reason or cease operations, or should we fail
to adequately identify key business relationships, our business could be disrupted and our reputation may be harmed.
If
any of our business partners or contracting counterparties fails to perform or terminates their agreement(s) with us for any reason,
or if our business partners or contracting counterparties with which we have short-term agreements refuse to extend or renew the
agreement or enter into a similar agreement, our ability to carry on operations and cross-sell sales and marketing services among
different platforms may be impaired. In addition, we depend on the continued operation of our long-term business partners and
contracting counterparties and on maintaining good relations with them. If one of our long-term partners or counterparties is
unable (including as a result of bankruptcy or a liquidation proceeding) or unwilling to continue operating in the line of business
that is the subject of our contract, we may not be able to obtain similar relationships and agreements on terms acceptable to
us or at all. If a partner or counterparty fails to perform or terminates any of the agreements with us or discontinues operations,
and we are unable to obtain similar relationships or agreements, such events could have an adverse effect on our operating results
and financial condition. Further, if we are unable to timely produce our Comic Conventions or produce the same quality of Comic
Conventions to which our target demographic has been accustomed, the consequences could be far-reaching and harmful to our reputation,
existing business relationships and future growth potential.
We
may also need to form new strategic partnerships or joint ventures to access appropriate assets and industry know-how. Failing
to identify, execute and integrate such future partnerships or joint ventures may have an adverse effect on our business, growth,
financial condition, and cash flow from operations.
Our
future success depends on attracting high-profile celebrities and VIPs to our Comic Conventions. If we fail to attract such celebrities
and VIPs, our attendance may suffer and our operating results and revenues may be adversely impacted.
Our
ability to maintain our competitive position will be dependent on attracting high profile celebrities and VIPs to attend our Comic
Conventions. We attract our audience by providing opportunities to meet some of their favorite celebrities. Our failure to attract
such high-profile celebrities and VIPs may hurt the attendance at our Comic Conventions and as a result, our operations results
and revenues may be adversely impacted.
Digital
Media
We
could face a variety of risks of expanding into a new business.
We
expect to continue to expand into digital media and content creation. Risks of our entry into the new business line of digital
media, include, without limitation: (i) potential diversion of management’s attention and other resources, including available
cash, from our existing businesses; (ii) unanticipated liabilities or contingencies; (iii) the need for additional capital and
other resources to expand into this new line of business; and (iv) inefficient combination or integration of operational and management
systems and controls. Entry into a new line of business may also subject us to new laws and regulations with which we are not
familiar, and may lead to increased litigation and regulatory risk. Further, our business model and strategy are still evolving
and are continually being reviewed and revised, and we may not be able to successfully implement our business model and strategy.
We may not be able to attract a sufficiently large number of audience or customers, or recover costs incurred for developing and
marketing these products or services. If we are unable to successfully implement our growth strategies, our revenue and profitability
may not grow as we expect, our competitiveness may be materially and adversely affected, and our reputation and business may be
harmed.
In
developing and marketing the new business of digital media, we may invest significant time and resources. Initial timetables for
the introduction and development of our digital media business may not be achieved and price and profitability targets may not
prove feasible. Furthermore, any new line of business could have a significant impact on the effectiveness of our system of internal
controls. Failure to successfully manage these risks in the development and implementation of our new digital media business could
have a material adverse effect on our business, results of operations and financial condition.
We
will face significant competition in the digital media business. If we fail to compete effectively, we may lose users to competitors,
which could materially and adversely affect our ability to generate revenues from online advertising.
We
will face significant competition for online advertising revenues with other websites that sell online advertising services. In
addition, we indirectly compete for advertising budgets with traditional advertising media, such as television and radio stations,
newspapers and magazines, and major out-of-home media. Some of our competitors may have longer operating histories and significantly
greater financial, technical and marketing resources than we do, and in turn may have an advantage in attracting and retaining
users and advertisers.
Relating
to Being a Public Company
If
we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report
our financial results or prevent fraud may be adversely affected and investor confidence may be adversely impacted.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the Commission adopted rules requiring public companies
to include a report of management on our internal controls over financial reporting in their annual reports. Under current Commission
rules, our management may conclude that our internal controls over our financial reporting are not effective. Even if our management
concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm
may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented,
designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In the event that we are unable
to have effective internal controls, investors and others may lose confidence in the reliability of our financial statements and
our ability to obtain equity or debt financing as needed could suffer.
We
have identified material weaknesses in our internal control over financial reporting and, as a result of such weaknesses, our
management, with the participation of our principal executive officer and principal financial officer, concluded that our disclosure
controls and procedures and internal control over financial reporting were not effective as of December 31, 2017, December 31,
2016 and December 31, 2015. These material weaknesses were originally identified in connection with our assessment of the effectiveness
of internal control over financial reporting as of December 31, 2015, and were determined not to have been remediated as of December
31, 2017. To date, our remediation efforts to address this material weakness have included, among other things, hiring additional
qualified personnel and undertaking improvements to our systems and processes. No assurances can be given that our efforts will
sufficiently correct our material weakness or will prevent us from identifying or correcting a material weakness in the future.
Our independent registered accounting firm was not required nor did they include an attestation report regarding internal control
over financial reporting because we are a “smaller reporting company”.
In
addition, failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm
our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting
firm identify material weaknesses, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence
in our financial statements and harm our stock price. In addition, if we are unable to continue to comply with SOX 404, our non-compliance
could subject us to a variety of administrative sanctions, including the inability of registered broker-dealers to make a market
in our common stock, which would likely reduce our stock price.
Relating
to Our Industry
A
decline in general economic conditions and disruption of financial markets may, among other things, reduce the discretionary income
of consumers or further erode advertising markets, which could adversely affect our business.
Our
operations are affected by general economic conditions, which affect consumers’ disposable income. The demand for entertainment
and leisure activities tends to be highly sensitive to the level of consumers’ disposable income. Declines in general economic
conditions could reduce the level of discretionary income that our fans and potential fans have to spend on consumer products
and entertainment, which could adversely affect our revenues. Volatility and disruption of financial markets could limit our advertisers’,
sponsors’, and/or promoters’ ability to obtain adequate financing to maintain operations, and result in a decrease
in sales volume that could have a negative impact on our business, financial condition and results of operations. Continued softness
in the market could adversely affect our revenues or the financial viability of our distributors.
The
advertising market is particularly volatile and we may not be able to effectively adjust to such volatility.
Advertising
spending is volatile and sensitive to changes in the economy. Our advertising customers may reduce the amount they spend on our
media for a number of reasons, including, without limitation:
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a
downturn in economic conditions;
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|
a
deterioration of the ratings of their programs; or
|
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|
a
decline in advertising spending in general.
|
We
may be unable to maintain or increase our advertising fees and sales, which could negatively affect our ability to generate revenues
in the future. A decrease in demand for advertising in general, and for our advertising services in particular, could materially
and adversely affect our operating results.
Relating
to this Offering and Ownership of Our Securities
We
expect to become listed on the Nasdaq CM concurrently with this offering. If we fail to maintain this listing, our stock price
and ability to raise capital would be adversely affected.
Our
common stock is currently quoted on the OTCQB under the symbol “WIZD”. We have applied to have our common stock listed
on the Nasdaq CM under the same symbol. The closing of this offering is contingent upon the successful listing of our common stock
on the Nasdaq CM. If, after listing, we fail to satisfy the continued listing standards of the Nasdaq CM, such as the corporate
governance requirements (to the extent applicable to us), stockholder equity requirements, or the minimum closing bid price requirement,
Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common
stock and would impair your ability to sell or purchase common stock when you wish to do so. In the event of a delisting, we can
provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock
to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from
dropping below the minimum bid price requirement or prevent future non-compliance with the Nasdaq CM’s continued listing
standards.
Our
stock price is likely to be highly volatile because of our limited public float.
The
market price of our common stock is likely to be highly volatile because there has been a relatively thin trading market for our
stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell
shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility. Other
factors that could cause such volatility may include, among other things: actual or anticipated fluctuations in our operating
results; the absence of securities analysts covering us and distributing research and recommendations about us; overall stock
market fluctuations; economic conditions generally; announcements concerning our business or those of our competitors; our ability
to raise capital when we require it, and to raise such capital on favorable terms; conditions or trends in the industry; litigation;
changes in market valuations of other similar companies; announcements by us or our competitors of significant contracts, acquisitions,
strategic partnerships or joint ventures; future sales of common stock; actions initiated by the Commission or other regulatory
bodies; and general market conditions. Any of these factors could have a significant and adverse impact on the market price of
our common stock. These broad market fluctuations may adversely affect the trading price of our common stock.
If
you purchase shares of our common stock in this offering, you will suffer immediate dilution of your investment.
We
expect the public offering price of our common stock to be substantially higher than the pro forma net tangible book value per
share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share
that substantially exceeds our pro forma as adjusted net tangible book value per share after this offering. Based on the public
offering price of $[__] per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses
payable by us, you will experience immediate dilution of $[__] per share, representing the difference between our as adjusted
pro forma net tangible book value per share after this offering and the assumed public offering price.
In
addition, as of June 30, 2018, we had outstanding stock options to purchase 3,743,000 shares of common stock and outstanding warrants
to purchase 16,666,667 shares of our common stock. To the extent these outstanding options or warrants are exercised, there may
be further dilution to investors in this offering.
The
ownership by our Executive Chairman of our common stock will likely limit your ability to influence corporate matters.
Mr.
Paul Kessler, our Executive Chairman, is currently the beneficial owner of 71% of the issued and outstanding shares of our common
stock, and is expected to beneficially own [__]% of our common stock (or approximately [__]% if the underwriters’ option
to purchase additional shares is exercised in full) after the completion of this offering. Mr. Kessler may be deemed to beneficially
own the securities held by Bristol. Immediately prior to completion of this offering, Bristol will exchange the Notes for convertible
Preferred Stock that will vote with the common stock with each one share of Preferred Stock having voting rights equal to [__]
shares of common stock, giving him [__]% of the votes on any matter before the stockholders of the Company (or approximately [__]
if the underwriters’ option to purchase additional shares is exercised in full). As a result, Mr. Kessler has, and will
continue to have, significant influence over most matters that require approval by our stockholders, including the election of
directors and approval (or rejection) of significant corporate transactions, even if other stockholders oppose (or approve of)
them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our Company
that other stockholders may view as beneficial.
The
Preferred Stock is senior to the common stock, and carries certain other protective provisions, giving it priority on liquidation,
which could affect the trading price of the common stock.
At
closing of this offering, Bristol will exchange the Notes into shares of Preferred Stock. The Preferred Stock has a priority on
liquidation of the Company over the common stock and contains certain other protective provisions. These factors could depress
the price of the common stock.
Following
the completion of this offering, we will qualify as a “controlled company” within the meaning of the Nasdaq rules
and will qualify for exemptions from certain corporate governance requirements. While we do not intend to rely on these exemptions,
we may change our decision in the future.
Following
the completion of this offering, we will qualify as a “controlled company” within the meaning of the Nasdaq corporate
governance standards, because in excess of 50% of our voting power will be beneficially owned by Mr. Paul Kessler, our executive
chairman. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements,
including:
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the
requirement that a majority of our board of directors consists of independent directors;
|
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the
requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors
with a written charter addressing the committee’s purpose and responsibilities;
|
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the
requirement that we have a compensation committee that is composed entirely of independent directors with a written charter
addressing the committee’s purpose and responsibilities; and
|
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the
requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.
|
Following
this offering, we do not intend to take advantage of these exemptions. See “Corporate Governance”. However, we could
change our decision in the future. In such event, you would not have the same protections that these rules are intended to provide.
In
order to raise sufficient funds to expand our operations, we may have to issue additional securities at prices which may result
in substantial dilution to our shareholders.
If
we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership
will be reduced. In addition, these transactions may dilute the value of our common shares outstanding. We may also have to issue
securities that may have rights, preferences and privileges senior to our common stock.
Our
stock has been thinly traded, so an investor may be unable to sell at or near ask prices or at all.
The
shares of our common stock historically have been thinly traded, meaning that the number of persons interested in purchasing our
common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to
a number of factors, including the fact that we are a smaller reporting company that is relatively unknown to stock analysts,
stock brokers, institutional investors and others in the investment community who generate or influence sales volume. Even in
the event that we come to the attention of such persons, they would likely be reluctant to follow an unproven company such as
ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence,
our stock price may not reflect an actual or perceived value. Also, there may be periods of several days or more when trading
activity in our shares is minimal or non-existent, as is currently the case, as compared to a seasoned issuer that has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A
broader or more active public trading market for our common shares may not develop or if developed, may not be sustained. Due
to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money or otherwise desire
to liquidate your shares.
Currently,
there is a limited public market for our securities, and there can be no assurances that any public market will ever develop and,
even if developed, it is likely to be subject to significant price fluctuations.
Our
stock has been thinly traded, if at all. Consequently, there can be no assurances as to whether:
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any
market for our shares will develop;
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the
prices at which our common stock will trade; or
|
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the
extent to which investor interest in us will lead to the development of an active, liquid trading market.
|
Active
trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
Until
our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades
is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced
by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business,
including the impact of the factors referred to elsewhere in these risk factors, investor perception of our Company and general
economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of
our common stock.
Our
management has broad discretion as to the use of the net proceeds from this offering.
We
cannot specify with certainty the particular uses of the net proceeds we will receive from this offering, and these uses may vary
from our current plans. Our management will have broad discretion in the application of the net proceeds, including for any of
the purposes described in “
Use of Proceeds
”. Accordingly, you will have to rely upon the judgment of our management
with respect to the use of the proceeds. Our management may spend a portion or all of the net proceeds from this offering in ways
that holders of our common stock may not desire or that may not yield a significant return or any return at all. The failure by
our management to apply these funds effectively could harm our business.
We
are currently subject to the “penny stock rules” which may make our securities more difficult to sell.
We
are currently subject to the Commission’s “penny stock” rules as our securities sell below $5.00 per share and
we are not listed on a national securities exchange. The penny stock rules require broker-dealers to deliver a standardized risk
disclosure document prepared by the Commission which provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each
penny stock held in the customer’s account. In addition, the bid and offer quotations, and the broker-dealer and salesperson
compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given
to the customer in writing before or with the customer’s confirmation.
Furthermore,
the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for our securities
and the price at which they trade.
We
are not likely to pay cash dividends in the foreseeable future, and only appreciation of the price of our common stock, if any,
will provide a return to investors in this offering for the foreseeable future.
We
currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not
expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate. In addition,
the terms of any existing or future debt agreements we may enter into may preclude us from paying dividends. Because we do not
intend to declare cash dividends on our shares of common stock in the foreseeable future, stockholders must rely on appreciation
of the value of our common stock for any return on their investment.
Provisions
of our certificate of incorporation, our bylaws and Delaware law could make an acquisition of our Company, which may be beneficial
to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of our
board and management.
Certain
provisions of our certificate of incorporation and bylaws, each to be effective immediately prior to completion of this offering,
could discourage, delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable,
including transactions in which you might otherwise receive a premium for your shares. Furthermore, these provisions could prevent
or frustrate attempts by our stockholders to replace or remove members of our Board. These provisions also could limit the price
that investors might be willing to pay in the future for our common stock, thereby depressing the market price of our common stock.
Stockholders who wish to participate in these transactions may not have the opportunity to do so. These provisions:
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allow
the authorized number of directors to be changed only by resolution of our Board of Directors;
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provide
that our stockholders may remove our directors only for cause;
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authorize
our Board to issue without stockholder approval shares of common stock, that, if issued, would dilute our stock ownership
and could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent
an acquisition that is not approved by our Board;
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authorize
our Board to issue without stockholder approval shares of preferred stock, the rights of which will be determined at the discretion
of the Board that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile
acquirer to prevent an acquisition that is not approved by our Board;
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establish
advance notice requirements for stockholder nominations to our Board or for stockholder proposals that can be acted on at
stockholder meetings;
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limit
who may call stockholder meetings;
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limit
the right of stockholders to act by written consent unless authorized by 66 2/3% of the total voting power of our then outstanding
capital stock; and
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require
the approval of the holders of 66 2/3% of the total votes of our capital stock entitled to vote in order to amend certain
provisions of our certificate of incorporation and bylaws.
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In
addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain
criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock,
from merging or combining with us for a prescribed period of time.
Our
Certificate of Incorporation provides for indemnification of officers and directors at our expense and limits their liability,
which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended
for the benefit of officers and/or directors.
Our
Certificate of Incorporation and applicable Delaware law provide for the indemnification of our directors and officers against
attorney’s fees and other expenses incurred by them in any action to which they become a party arising from their association
with or activities on our behalf. This indemnification policy could result in substantial expenditures by us that we will be unable
to recoup.
We
have been advised that, in the opinion of the Commission, indemnification for liabilities arising under federal securities laws
is against public policy as expressed in the Securities Act of 1933, as amended (the “
Securities Act
”), and
is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws,
other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense
of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities
being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit
to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter, if it
were to occur, is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely
to materially reduce the market and price for our shares if such a market ever develops.
Cautionary
Note Regarding Forward-Looking Statement
This
prospectus contains forward-looking statements. You can generally identify forward-looking statements by our use of forward-looking
terminology such as “anticipate”, “believe”, “continue”, “could”, “estimate”,
“expect”, “intend”, “may”, “might”, “plan”, “potential”,
“predict”, “seek”, or “should”, or the negative thereof or other variations thereon or comparable
terminology. In particular, statements about the markets in which we operate, including growth of our various markets, and our
expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance contained in this
prospectus under the headings “
Summary
”, “
Risk Factors
”, “
Management’s Discussion
and Analysis of Financial Condition and Results of Operations
”, and “
Business
” are forward-looking
statements.
We
have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe
these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions
and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors,
including those discussed in this prospectus under the headings “
Summary
”, “
Risk Factors
”,
“
Management’s Discussion and Analysis of Financial Condition and Results of Operations
”, and “
Business
”,
may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements
expressed or implied by these forward-looking statements, or could affect our share price. Some of the factors that could cause
actual results to differ materially from those expressed or implied by the forward-looking statements include:
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general
economic conditions;
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the
availability and adequacy of cash to meet our requirements;
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the
reputation of the sponsors, vendors, and VIPs to our Comic Conventions;
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our
ability to secure desirable dates and locations for our Comic Conventions;
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disruptions
in global or local travel conditions or terrorist actions and communicable diseases;
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our
ability to monitor and respond to changing market trends;
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our
ability to attract a sufficient number of sponsors and pop culture advertisers;
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our
ability to attract celebrities and VIPs to our Comic Conventions;
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competition
from existing convention operators or new competitors;
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risks
associated with our growth strategy;
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the
effect of shifts in marketing and advertising budgets to online initiatives;
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our
ability to retain our senior management team and our reliance on key full-time employees;
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the
use of third party agents whom we do not control;
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our
reliance on a limited number of outside contractors;
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changes
in legislation, regulation and government policy;
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risks
and costs associated with new Comic Convention launches;
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disruption
of our information technology systems;
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the
failure to maintain the integrity or confidentiality of employee or customer data;
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risks
associated with event cancellations or interruptions;
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risks
associated with material litigation;
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|
risks
associated with material weaknesses; and
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|
other
factors beyond our control.
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Given
these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking
statements contained in this prospectus are not guarantees of future performance and our actual results of operations, financial
condition, and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking
statements contained in this prospectus. In addition, even if our results of operations, financial condition, and liquidity, and
events in the industry in which we operate, are consistent with the forward-looking statements contained in this prospectus, they
may not be predictive of results or developments in future periods.
Any
forward-looking statement that we make in this prospectus speaks only as of the date of such statement. Except as required by
law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking
statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.
Use
of Proceeds
We
estimate that the net proceeds to us from the sale of our common stock offered hereby will be approximately $[__], after deducting
underwriting discounts and commissions and estimated offering expenses payable by us (or approximately $[__] if the underwriters’
option to purchase additional shares is exercised in full).
We
will retain broad discretion over the use of the net proceeds of this offering. We intend to use the net proceeds from this offering
for working capital and general corporate purposes. This expected use of proceeds represents our intentions based on current plans
and business conditions. Thus, as of the date of this prospectus and except as explicitly set forth herein, we cannot specify
with certainty all of the particular uses of the net proceeds from this offering. Pending application of the net proceeds as described
above, we intend to invest the net proceeds from this offering in short-term, interest-bearing obligations, investment-grade instruments,
certificates of deposit or direct or guaranteed obligations of the U.S. government.
Although
it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering and our existing
cash flow from operations will be sufficient to fund our operations for the next twelve months.
Dividend
Policy
We
have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There
are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by
Delaware law.
Price
Range of Common Stock
Our
common stock has been quoted on OTCQB under the symbol “WIZD”. We have applied for listing of our common stock on
the Nasdaq CM under the same symbol. The closing of this offering is contingent upon the successful listing of our common stock
on the Nasdaq CM.
The
last reported sale price for our common stock on October 9, 2018 was $0.16 per share. The table below sets forth
high and low bid prices for our common stock during the periods indicated as quoted on the OTCQB (as adjusted for the 1-for-[__]
reverse stock split). We note that over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. We refer you to “
Risk Factors—Risks Related
to this Offering and Ownership of Our Securities
” for additional discussions relating to the risks associated with our
common stock being traded on the OTCQB.
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2016
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2017
|
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2018
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High
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Low
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|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$
|
0.50
|
|
|
$
|
0.263
|
|
|
$
|
0.26
|
|
|
$
|
0.155
|
|
|
$
|
0.33
|
|
|
$
|
0.115
|
|
Second
Quarter
|
|
$
|
0.53
|
|
|
$
|
0.304
|
|
|
$
|
0.23
|
|
|
$
|
0.135
|
|
|
$
|
0.31
|
|
|
$
|
0.211
|
|
Third
Quarter
|
|
$
|
0.49
|
|
|
$
|
0.28
|
|
|
$
|
0.35
|
|
|
$
|
0.09
|
|
|
$
|
0.27
|
|
|
$
|
0.125
|
|
Fourth Quarter (through
October 9, 2018)
|
|
$
|
0.335
|
|
|
$
|
0.125
|
|
|
$
|
0.30
|
|
|
$
|
0.11
|
|
|
|
0.164
|
|
|
|
0.13
|
|
Dilution
If
you purchase our common stock in this offering, your interest will be diluted to the extent of the difference between the offering
price per share and the net tangible book value per share of our common stock after this offering. Our net tangible book value
as of June 30, 2018, was approximately $(3,718,830), or $(0.05) per share. Net tangible book value per share is determined by
dividing our total tangible assets, less total liabilities, by the number of shares of our common stock outstanding as of June
30, 2018. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the net tangible book value per share of our common stock immediately after this
offering.
After
giving effect to (i) the sale of [__] shares of our common stock in this offering at a public offering price of $[__] per share
and deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the 1-for-[__] reverse
stock split, our as adjusted net tangible book value as of June 30, 2018 would have been approximately $[__], or $[__] per share.
This would represent an immediate increase in net tangible book value of $[__] per share to existing stockholders and an immediate
dilution of $[__] per share to investors purchasing our common stock in this offering at the public offering price. The following
table illustrates this dilution on a per share basis:
Public
offering price per share
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$
|
|
|
Net
tangible book per share as of June 30, 2018
|
|
$
|
(0.05
|
)
|
|
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|
Increase
per share attributable to investors in this offering
|
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|
|
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|
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|
|
|
|
|
|
|
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|
As
adjusted net tangible book value per share after this offering
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|
Dilution
per share to investors in this offering
|
|
|
|
|
|
$
|
|
|
If
the underwriters’ option to purchase up to an additional [__] shares of our common stock is exercised in full at the public
offering price of $[__] per share, after deducting underwriting discounts and commissions and estimated offering expenses payable
by us, the as adjusted net tangible book value after this offering would be $[__] per share, representing an increase in net tangible
book value of $[__] per share to existing shareholders and immediate dilution in net tangible book value of $[__] per share to
investors participating in this offering at the public offering price.
The
number of shares of common stock to be outstanding immediately after this offering as shown above is based on 68,535,036 shares
of common stock outstanding as of June 30, 2018. This number of shares excludes, as of June 30, 2018:
|
●
|
3,743,000
shares of common stock issuable upon the exercise of outstanding stock options, having a weighted average exercise price of
$0.59 per share;
|
|
●
|
16,666,667
shares of common stock issuable upon the exercise of outstanding warrants, having a weighted exercise price of $0.15 per share;
|
|
●
|
an
aggregate of up to 11,257,000 shares of common stock reserved for future issuance under our equity incentive plans;
|
|
●
|
[__]
shares issuable upon conversion of the Preferred Stock issued in the Exchange; and
|
|
●
|
[__]
shares issuable upon the exercise of the Representative’s Warrant.
|
New
investors will experience further dilution if any of our outstanding options or warrants are exercised, new options are issued
and exercised or we issue additional shares of common stock, other equity securities or convertible debt securities in the future.
Capitalization
The
following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2018:
|
●
|
on
an actual basis; and
|
|
●
|
on
an as-adjusted basis to give effect to the sale by us pursuant to this offering of shares of our common stock, and the application
of the net proceeds from this offering as described in “
Use of Proceeds
”.
|
You
should read this table in conjunction with our audited consolidated financial statements and the related notes thereto appearing
in our Annual Report on Form 10-K for the year ended December 31, 2017 and the unaudited consolidated financial statements and
the related notes thereto appearing in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, all of which are
incorporated by reference herein.
As
of June 30, 2018
|
|
Actual
|
|
|
As
adjusted
(1)
|
|
Cash
and cash equivalents
|
|
$
|
1,457,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $0.0001 par value per share; 80,000,000 shares authorized; 68,535,036 shares issued and outstanding, actual; [__] shares
issued and outstanding, as adjusted
(2)
|
|
|
6,855
|
|
|
|
|
|
Preferred
stock, $0.0001 par value per share; 20,000,000 shares authorized; and no shares issued and outstanding, actual and as adjusted
|
|
|
-
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
19,999,173
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(23,712,360
|
)
|
|
|
|
|
Non-controlling
interest
|
|
|
(12,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ (deficit) equity
|
|
$
|
(3,718,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
|
|
$
|
2,238,770
|
|
|
|
|
|
|
(1)
|
If
the underwriters’ option to purchase up to an additional [__] shares of our common stock is exercised in full, (i) an
additional shares of common stock would be issued and we would receive approximately $[__] million in additional net proceeds;
and (ii) cash and cash equivalents, total stockholders’ equity and total capitalization would each also increase by
approximately $[__] million.
|
|
(2)
|
The
number of shares of common stock to be outstanding after this offering is based on 68,535,036 shares of common stock outstanding
as of June 30, 2018, and excludes, in each case as of June 30, 2018:
|
|
●
|
3,743,000
shares of common stock issuable upon the exercise of outstanding stock options, having a weighted average exercise price of
$0.59 per share;
|
|
●
|
16,666,667
shares of common stock issuable upon the exercise of outstanding warrants, having a weighted exercise price of $0.15 per share;
|
|
●
|
an
aggregate of up to 11,257,000 shares of common stock reserved for future issuance under our equity incentive plans;
|
|
●
|
[__]
shares issuable upon the conversion of the Preferred Stock issued in the Exchange; and
|
|
●
|
[__]
shares issuable upon the exercise of the Representative’s Warrant.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
THE
FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. 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 PROSPECTUS.
Overview
We
intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain
key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting
principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying
notes for the three and six months ended June 30, 2018 and 2017 and the years ended December 31, 2017 and 2016, included elsewhere
in this prospectus.
Our
objective is to create expanded and qualitatively enhanced offerings and initiatives to become a dominant voice for pop culture
enthusiasts across multiple media platforms. Key elements of our strategy include:
|
●
|
producing
and distributing high-quality Comic Conventions across the United States and internationally to entertain fans and to allow
for promotion of consumer products and entertainment;
|
|
|
|
|
●
|
producing
and distributing high-quality content and leveraging the content created at the Comic Conventions through digital media outlets
such as websites, apps, emails, newsletters, Facebook, Twitter, Instagram, and YouTube, among others;
|
|
|
|
|
●
|
obtaining
sponsorships and promotions from media and entertainment companies for our Comic Conventions, including:
|
|
o
|
expanding
our relationships with entertainment and media companies; and
|
|
|
|
|
o
|
utilizing
our digital assets to create and launch a revised and vibrant e-commerce venture.
|
|
●
|
expand
operations to include fixed-site attractions that will be appealing to enthusiasts of pop-culture.
|
We
produce Comic Conventions across the United States that provide a social networking and entertainment venue for enthusiasts of
movies, TV shows, video games, technology, virtual reality experiences, toys, social networking, gaming, comic books, and graphic
novels. Our Comic Conventions provide an opportunity for companies in the entertainment, toy, gaming, publishing and retail business
to carry out sales, marketing, product promotion, public relations, advertising, and sponsorship efforts.
During
2016, we underwent a significant senior management restructuring. The restructuring included the appointment of a new Chief Executive
Officer, entering his role with experience at major movie studios and television networks. We also appointed an Executive Chairman.
The new management team has reviewed key operating controls and taken several steps to reform our operating controls and procedures.
In addition, the management team consolidated our operations to a single office in order to improve our overall operational efficiency.
Operations
At
present, we are engaged primarily in the live event business and derive income from: (i) the production of Comic Conventions,
which involves the sales of admissions and exhibitor booth space, and (ii) sale of sponsorships and advertising. As we move forward,
we intend to recast the company as a hyphenate live event- media company. The entry into the media space will complement to our
core live event business, and will stand alone as producer of entertainment content across many platforms.
We
plan on continuing to qualitatively enhance and broaden our Comic Conventions by featuring a blend of live entertainment, programming
and content and celebrities that is unique in the industry. Further, we are (i) carefully researching and identifying new geographic
markets for our Comic Convention, (ii) preparing for offerings affinity-based offerings as a co-located adjunct to our Comic Conventions;
and (iii) examining price sensitivity in the markets where we hold our events with the intention of perfecting revenue models
based on scalable event pricing.
Concurrently
with our efforts in the domestic Comic Convention business, we are focused on international operations, entering the digital media
space and location-based entertainment sector, and producing live-event offerings that will appeal to fans beyond the pop-culture
genre.
We
currently expect to produce 14 live events during 2018, although that number of conventions may change as we evaluate locations
and venues.
Results
of Operations
Three
Months Ended June 30, 2018 Compared to the Three Months Ended June 30, 2017
Summary
of Statements of Operations for the Three Months Ended June 30, 2018 and 2017:
|
|
Three
Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
Convention
revenue
|
|
$
|
5,111,867
|
|
|
$
|
4,936,084
|
|
ConBox
revenue
|
|
$
|
-
|
|
|
$
|
10,461
|
|
Gross
margin
|
|
$
|
622,365
|
|
|
$
|
(345,141
|
)
|
Operating
expenses
|
|
$
|
(866,636
|
)
|
|
$
|
(1,550,737
|
)
|
Loss
from operations
|
|
$
|
(244,271
|
)
|
|
$
|
(1,895,878
|
)
|
Other
expenses
|
|
$
|
(261,001
|
)
|
|
$
|
(92,776
|
)
|
Net
loss attributable to common shareholder
|
|
$
|
(505,272
|
)
|
|
$
|
(1,988,504
|
)
|
Income
(loss) per common share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Convention
Revenue
Convention
revenue was $5,111,867 for the three months ended June 30, 2018, as compared to $4,936,084 for the comparable period ended June
30, 2017, an increase of $175,783. The increase in convention revenue is primarily attributable to enhanced marketing techniques
and the qualitative enhancement of the Conventions. We ran four events during the three months ended June 30, 2018, as compared
to five events during the comparable three months ended June 30, 2017. Average revenue generated per event in 2018 was $1,277,966
as compared to $987,216 during 2017.
ConBox
Revenue
ConBox
revenue was $0 for the three months ended June 30, 2018, as compared to $10,461 for the comparable three months ended June 30,
2017, a decrease of $10,461. We ceased ConBox operations in 2017 due to its ongoing costs resulting in the decrease.
Gross
Profit
Gross
profit percentage for the convention segment increased from a gross profit percentage of (7)% during the three months ended June
30, 2017, to a positive gross profit percentage of 12% during the three months ended June 30, 2018. The gross profit percentage
increase was attributable to enhanced marketing and show production techniques which allowed us to generate more revenue at the
Conventions while decreasing the costs of producing the Conventions.
Operating
Expenses
Operating
expenses for the three months ended June 30, 2018, were $866,636, as compared to $1,550,737 for the three months ended June 30,
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 $467,895 decrease in compensation is primarily attributable to a decline in both headcount
and officer compensation. General and administrative expenses decreased by $126,154 from the prior year comparative period primarily
due to a decrease in service fees and web development.
Loss
from Operations
Loss
from operations for the three months ended June 30, 2018, was ($244,271) as compared to a loss from operations of ($1,895,878)
for the three months ended June 30, 2017. The positive variance was primarily attributable to the introduction of strategies by
our management which increased gross revenue while containing Convention production costs in addition to our cost containment
strategy concerning corporate overhead. We have addressed both issues. Additionally, we have augmented our marketing activities
to increase attendance at its conventions. During the fourth 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 is materially improving the operating results in 2018.
Other
Expenses
Other
expenses for the three months ended June 30, 2018 was $261,001, as compared to $92,776 for the three months ended June 30, 2017.
In each case, the expense was interest expense related to the convertible note and corresponding debt discount.
Net
Loss Attributable to Common Stockholder
Net
loss attributable to common stockholders for the three months ended June 30, 2018, was ($505,272) or loss per basic and diluted
share of ($0.01), compared to a net loss of ($1,988,504) or loss per basic and diluted share of ($0.03) for the three months ended
June 30, 2017.
Inflation
did not have a material impact on our 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 our results of operations.
Six
Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017
Summary
of Statements of Operations for the Six Months Ended June 30, 2018 and 2017:
|
|
Six
Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
Convention
revenue
|
|
$
|
9,103,033
|
|
|
$
|
8,384,041
|
|
ConBox
revenue
|
|
$
|
-
|
|
|
$
|
84,580
|
|
Gross
margin
|
|
$
|
1,727,197
|
|
|
$
|
36,605
|
|
Operating
expenses
|
|
$
|
(1,688,192
|
)
|
|
$
|
(3,214,561
|
)
|
Income
(loss) from operations
|
|
$
|
39,005
|
|
|
$
|
(3,177,956
|
)
|
Other
expenses
|
|
$
|
(429,894
|
)
|
|
$
|
(177,459
|
)
|
Net
loss attributable to common shareholder
|
|
$
|
(390,889
|
)
|
|
$
|
(3,354,772
|
)
|
Loss
per common share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
Convention
Revenue
Convention
revenue was $9,103,033 for the six months ended June 30, 2018, as compared to $8,384,041 for the comparable period ended June
30, 2017, an increase of $718,992. As mentioned earlier, the increase in convention revenue is primarily attributable to enhanced
marketing techniques and the qualitative enhancement of the Conventions. We ran seven events during the six months ended June
30, 2018, as compared to eight events during the comparable six months ended June 30, 2017. Average revenue generated per event
in 2018 was $1,300,433 as compared to $1,048,005 during 2017.
ConBox
Revenue
ConBox
revenue was $0 for the six months ended June 30, 2018, as compared to $84,580 for the comparable six months ended June 30, 2017,
a decrease of $84,580. We ceased ConBox operations due to its ongoing costs in 2017 resulting in the decrease.
Gross
Profit
Gross
profit percentage for the convention segment increased from a negative gross profit percentage of (1%) during the six months ended
June 30, 2017, to a positive gross profit of 19% during the six months ended June 30, 2018. As was the case for the three month
period ended June 30, 2018, the gross profit percentage increase was attributable to enhanced marketing and show production techniques
which allowed us to generate more revenue at the Conventions while decreasing the costs of producing the Conventions.
Operating
Expenses
Operating
expenses for the six months ended June 30, 2018, were $1,688,192, as compared to $3,214,561 for the six months ended June 30,
2017. As mentioned earlier, the change is attributable to a decrease in staffing and a correlating decrease in employee compensation,
general and administrative expenses and consulting expenses. The $1,015,940 decrease in compensation is primarily attributable
to a decline in both headcount and officer compensation. General and administrative expenses decreased by $407,210 from 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 six months ended June 30, 2018, was $39,005 as compared to a loss from operations of ($3,177,956) for
the six months ended June 30, 2017. As with the three month period ended June 30, 2018, positive variance was primarily attributable
to the introduction of strategies by Management which increased gross revenue while containing Convention production costs in
addition to our cost containment strategy concerning corporate overhead.
Other
Expenses
Other
expenses for the six months ended June 30, 2018 was $429,894, as compared to $177,459 for the six months ended June 30, 2017.
Other than a loss on the disposal of equipment in the amount of $785 during the six months ended June 30, 2017, all expense for
both periods was interest expense.
Net
Loss Attributable to Common Stockholders
Net
loss attributable to common stockholders for the six months ended June 30, 2018, was ($390,889) or loss per basic and diluted
share of ($0.01), compared to a net loss of ($3,354,772) or loss per basic and diluted share of ($0.05), for the six months ended
June 30, 2017.
Inflation
did not have a material impact on our 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 our results of operations.
Year
Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Summary
of Statements of Operations for the Year Ended December 31, 2017 and 2016:
|
|
Year
Ended December 31,
|
|
Statement
of operations data:
|
|
2017
|
|
|
2016
|
|
Convention
revenue
|
|
$
|
14,983,033
|
|
|
$
|
21,994,433
|
|
ConBox
revenue
|
|
$
|
84,580
|
|
|
|
707,101
|
|
Gross
profit
|
|
$
|
9,316
|
|
|
$
|
6,534,543
|
|
Operating
expenses
|
|
$
|
(5,346,924
|
)
|
|
$
|
(7,716,789
|
)
|
Loss
from operations
|
|
$
|
(5,337,608
|
)
|
|
$
|
(1,182,246
|
)
|
Other
expenses
|
|
$
|
(395,887
|
)
|
|
$
|
(325,857
|
)
|
Net
loss attributable to common shareholder
|
|
$
|
(5,733,495
|
)
|
|
$
|
(1,508,103
|
)
|
Loss
per common share – basic and diluted
(1)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.03
|
)
|
|
(1)
|
Reflects
the 1-for-[__] reverse stock split of our common stock that occurred on [__], 2018.
|
Prior
to 2018, the Company maintained operating segments: Conventions and Conbox. The Company ceased Conbox operations in 2017, which
is the principal reason for the decrease in ConBox operating results compared to 2016.
Convention
Revenue
Convention
revenue was $14,983,033 for the year ended December 31, 2017, as compared to $21,994,433 for the comparable period ended December
31, 2016, a decrease of $7,011,400. The decrease in convention revenue was primarily attributable to staging fewer shows than
the prior year. We ran fourteen events during the year ended December 31, 2017, as compared to sixteen events during the comparable
year ended December 31, 2016. Average revenue generated per event in 2017 was $1,070,217 as compared to $1,374,652 during 2016.
ConBox
Revenue
ConBox
revenue was $84,580 for the year ended December 31, 2017, as compared to $707,101 for the comparable year ended December 31, 2016,
a decrease of $622,521. We ceased the sale of merchandise under the ConBox brand name in 2017, which resulted in the decrease
in ConBox revenue.
Gross
Profit
Gross
profit percentage for the convention segment decreased from a gross profit of 31% during the year ended December 31, 2016, to
a gross profit of 0.1% during the year ended December 31, 2017. We produced fourteen events during the year ended December 31,
2017, as compared to sixteen events during the comparable year ended December 31, 2016. The gross profit percentage decrease was
attributable to decreased revenue at each show coupled with high production costs.
Gross
profit percentage for the ConBox segment increased from a negative gross profit percentage of 46% during the year ended December
31, 2016, to a gross profit of 5% during the year ended December 31, 2017. The gross profit percentage increase was attributable
to an overall decrease in fulfillment costs. We ceased the sale of merchandise under the ConBox brand name in 2017.
Operating
Expenses
Operating
expenses for the year ended December 31, 2017, was $5,346,924, as compared to $ 7,716,789 for the year ended December 31, 2016.
The change was attributable to a decrease in employee compensation and general and administrative expenses offset by a slight
increase in consulting expenses. The $1,450,062 decrease in compensation was primarily attributable to a decline in both headcount
and officer compensation. General and administrative expenses decreased by $943,383 since the prior year comparative period due
to a decrease in service fees, travel and web development.
Loss
from Operations
Loss
from operations for the year ended December 31, 2017, was $5,337,608 as compared to a loss from operations of $1,182,246 for the
year ended December 31, 2016. The loss was primarily attributable to issues related to production costs and corporate overhead
that could not be sustained. We have addressed both issues. In particular, during the fourth quarter of 2017, we dramatically
reduced our corporate overhead expenses. Additionally, we have augmented our marketing and talent departments to increase attendance
at our conventions.
Other
Expenses
Other
expenses for the year ended December 31, 2017, was $395,887, as compared to $325,857 for the year ended December 31, 2016. During
the year ended December 31, 2017, the Company recorded interest of expense of $395,102 related to the convertible note and corresponding
debt discount compared to $26,481 during the year ended December 31, 2016. We recorded a loss of $262,500 during the year ended
December 31, 2016 on the CONtv joint venture with Cinedigm compared to a loss of $0 during the year ended December 31, 2017. See
Footnote 5 to the Financial Statements included herein for more information. For the year ended December 31, 2017 and 2016, the
Company recorded a loss of $785 and $36,876, respectively, upon the disposal of equipment.
Net
Loss Attributable to Common Stockholder
Net
loss attributable to common stockholders for the year ended December 31, 2017, was $5,732,814 or loss per basic and diluted share
of $0.08, compared to a net loss of $1,575,361 or loss per basic and diluted share of $0.03, for the year ended December 31, 2016.
Liquidity
and Capital Resources
The
following table summarizes total current assets, liabilities and working capital at June 30, 2018 compared to December 31, 2017:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Increase/(Decrease)
|
|
Current
Assets
|
|
$
|
2,149,305
|
|
|
$
|
2,765,278
|
|
|
$
|
(615,973
|
)
|
Current
Liabilities
|
|
$
|
6,002,600
|
|
|
$
|
6,306,310
|
|
|
$
|
(303,710
|
)
|
Working
Capital (Deficit)
|
|
$
|
(3,853,295
|
)
|
|
$
|
(3,541,032
|
)
|
|
$
|
312,263
|
|
At
June 30, 2018, we had a working capital deficit of $3,853,295 as compared to working capital deficit of $3,541,032, at December
31, 2017, an increase of $312,263. The change in working capital is primarily attributable to a decrease in cash and cash equivalents,
accounts receivable and prepaid expenses. These changes in current assets were offset by an overall decrease in current liabilities.
The
following table summarizes total current assets, liabilities and working capital at December 31, 2017 compared to December 31,
2016:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
Increase/(Decrease)
|
|
Current
Assets
|
|
$
|
2,765,278
|
|
|
$
|
5,599,279
|
|
|
$
|
(2,833,991
|
)
|
Current
Liabilities
|
|
$
|
6,306,310
|
|
|
$
|
2,736,953
|
|
|
$
|
3,569,357
|
|
Working
Capital (Deficit)
|
|
$
|
(3,541,032
|
)
|
|
$
|
2,862,326
|
|
|
$
|
(6,403,358
|
)
|
At
December 31, 2017, we had a working capital deficit of $3,541,032, as compared to working capital of $2,862,326, at December 31,
2016, a decrease of $6,403,358. The change in working capital is primarily attributable to a decrease in cash and cash equivalents,
and prepaid expenses and an increase in accounts payable and accrued expenses, unearned revenue and convertible promissory notes.
These were offset in part by an increase in accounts receivable.
Cash
Flows
Net
cash used in operating activities for the six months ended June 30, 2018 and 2017 was $303,887 and $1,389,454, respectively. The
net loss for the six months ended June 30, 2018 and 2017, was ($390,889) and ($3,355,415), respectively.
Net
cash used in operating activities for the year ended December 31, 2017 and 2016, was $2,533,595 and $2,488,009, respectively.
Net cash used in investing activities was $98,072 and $311,140, respectively, for such periods; and net cash provided by financing
activities was $0 and $2,476,667for fiscal 2017 and fiscal 2016. See “
Certain Relationships and Related Party Transactions
”
for information about our capital raise in 2016.
Going
Concern Analysis
The
Company had income (loss) from operations of $39,005 and $(3,177,956) for the six months ended June 30, 2018 and 2017, respectively.
As of June 30, 2018, we had cash and working capital deficit of $1,457,735 and $3,853,295 respectively.
We
had a net loss of $5,733,495 and $1,508,103 for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017,
we had cash and a working capital deficit of $1,769,550 and $3,541,032, respectively.
We
have evaluated the significance of these conditions in relation to our ability to meet our obligations, which had previously raised
doubts about the Company’s ability to continue as a going concern through June 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,
are being made manifest in 2018.
In
addition to our cost containment strategies, we have announced three relationships intended to expand our 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 CNLive platform; and (3) a programming agreement with ATI to
launch the Chinese networks.
Additionally,
if necessary, management believes that both related parties (management and members of the Board of Directors) 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 we 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 we believe 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. Our 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 six months operating results where operating costs decreased by 47% and convention revenue
increased by $175,783, management’s strategies on a directional basis appear to be positive and impactful.
Off-Balance
Sheet Arrangements
As
of December 31, 2017 and June 30, 2018, we had no off-balance sheet arrangements.
Critical
Accounting Policies
We
believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “
Management’s
Discussion and Analysis of Financial Condition and Results of Operation
.”
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the reporting period(s). Actual results could differ from
those estimates.
Property
and Equipment
Property
and equipment is stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization is computed
on a straight-line basis over the estimated useful lives of the assets, varying from 3 to 5 years or, when applicable, the life
of the lease, whichever is shorter.
Impairment
charges, if any, are included in operating expenses in the accompanying statements of operations.
Income
Taxes
We
account for income taxes under Section 740-10-30 of the Financial Accounting Standards Board (“
FASB
”) Accounting
Standards Codification (“
ASC
”). Deferred income tax assets and liabilities are determined based upon differences
between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance
to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the statements of operations in the period that includes the enactment date.
We
adopted section 740-10-25 of the FASB ASC. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected
to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, we may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of
being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest
and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
consolidated balance sheets, as well as tax credit carry-backs and carryforwards. We periodically review the recoverability of
deferred tax assets recorded on our consolidated balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions.
In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by
tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Revenue
Recognition
We
follow paragraph 605-10-S99-1 of the FASB ASC for revenue recognition. We will recognize revenue when it is realized or realizable
and earned. We consider revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence
of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales
price is fixed or determinable, and (iv) collectability is reasonably assured.
Unearned
convention revenue is deposits received for conventions that have not yet taken place, which are fully or partially refundable
depending upon the terms and conditions of the agreements.
Unearned
ConBox revenue is non-refundable up-front payments for products. These payments are initially deferred and subsequently recognized
over the subscription period, typically three months, and upon shipment of the product. We ceased the sale of merchandise under
the ConBox brand name in 2017.
We
recognize cost of revenues in the period in which the revenues was earned. In the event we incur cost of revenues for conventions
that are yet to occur, we record such amounts as prepaid expenses and such prepaid expenses are expensed during the period the
convention takes place.
Equity–Based
Compensation
We
recognize compensation expense for all equity–based payments in accordance with ASC 718 “
Compensation – Stock
Compensation
”. Under fair value recognition provisions, we recognize 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 our discretion. 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 our common 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 our common stock over
the expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded
risk–free rates for the appropriate term. The dividend yield is assumed to be zero as we have never paid or declared any
cash dividends on our common stock and does not intend to pay dividends on our common stock in the foreseeable future. The expected
forfeiture rate is estimated based on historical experience.
Determining
the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the
subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards
represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.
As a result, if factors change and we use different assumptions, our equity–based compensation could be materially different
in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares
expected to vest. If our actual forfeiture rate is materially different from our estimate, the equity–based compensation
could be significantly different from what we recorded in the current period.
We
account for share–based payments granted to non–employees in accordance with ASC 505-40, “
Equity Based Payments
to Non–Employees
”. We determine the fair value of the stock–based payment as either the fair value of the
consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair
value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the
earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached,
or (2) the date at which the counterparty’s performance is complete. The fair value of the equity instruments is re-measured
each reporting period over the requisite service period.
Fair
Value of Financial Instruments
We
follow paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of our financial instruments and paragraph 820-10-35-37
of the FASB ASC to measure the fair value of our financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring
fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value
measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 are described below:
Level
1 – Quoted market prices available in active markets for identical assets or liabilities as of the reporting date;
Level
2 – Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reporting date; and
Level
3 – Pricing inputs that are generally observable inputs and not corroborated by market data.
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amount of our assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses, accounts payable
and accrued liabilities, and unearned revenue approximate their fair value because of the short maturity of those instruments.
Recent
Accounting Pronouncements
In
July 2015, the FASB issued the Accounting Standards Update (“
ASU
”) No. 2015-11 “
Inventory (Topic 330):
Simplifying the Measurement of Inventory
”. The amendments in this ASU do not apply to inventory that is measured using
last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory
that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this
ASU at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course
of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged
for inventory measured using LIFO or the retail inventory method. For public business entities, the amendments in this ASU are
effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted
the standard during the year ended December 31, 2017 and the adoption did not have a material effect on its consolidated financial
statements and disclosures.
In
February 2016, the FASB issued ASU 2016-02, “
Leases (Topic 842)
”. Under ASU 2016-02, lessees will be required
to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the
right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of
financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting
companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted
using a modified retrospective approach. We are in the process of evaluating the effect of the new guidance on its consolidated
financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-10, “
Revenue from Contracts with Customers: Identifying Performance Obligations
and Licensing (Topic 606)
”. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross verses Net) (Topic 606)”. These amendments provide additional
clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”.
The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance
obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides
a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual
property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal
versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10
and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which we intend to adopt for interim and annual
reporting periods beginning after December 15, 2017. We adopted the standard during the six months ended June 30, 2018 and the
adoption did not have a material effect on our consolidated financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-09, “
Compensation – Stock Compensation (Topic 718)
”. The FASB
issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based
payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption of the update is permitted. We adopted the standard during the year
ended December 31, 2017 and the adoption did not have a material effect on our 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. We are currently
evaluating the standard and do not expect the adoption will have a material effect on its consolidated financial statements and
disclosures.
In
August 2016, the FASB issued ASU 2016-15, “
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments
”. ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented
and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The
new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required
to apply the amendments prospectively as of the earliest date practicable. We adopted the standard during the six months ended
June 30, 2018 and the adoption did not have a material effect on our 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. We are currently evaluating the impact of the new standard.
In
November 2016, the FASB issued ASU 2016-18, “
Statement of Cash Flows (Topic 230)
”, requiring that the statement
of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December
15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which
requires application of the guidance for all periods presented. We adopted the standard during the six months ended June 30, 2018
and the adoption did not have a material effect on our consolidated financial statements and disclosures.
In
May 2017, the FASB issued ASU 2017-09, “
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
”,
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. We adopted the standard
during the six months ended June 30, 2018 and the adoption did not have a material effect on our consolidated financial statements
and disclosures.
In
July 2017, the FASB issued ASU 2017-11, “
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception
”. Part I of this update addresses the complexity of accounting
for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible
instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part
II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence
of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite
deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain
mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This
ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. We early adopted
the ASU 2017-11 in the three months ending December 31, 2017.
Management
made the decision to early adopt ASU 2017-11, which required retrospective adjustment causing the 2016 audited financial statements
to be restated. See Footnote 3 to the Financial Statements. The comparative financial information disclosed in the Form 10-K including
the audited 2016 financial statements represent the restated amounts. The comparative financial information disclosed in the June
30, 2018 Form 10-Q including the unaudited financial statements for the six months ended June 30, 2017 represent the restated
amounts.
In
September 2017, the FASB issued ASU No. 2017-13, “
Revenue Recognition (Topic 605), Revenue from Contracts with Customers
(Topic 606), Leases (Topic 840), and Leases (Topic 842)
”. The new standard, among other things, provides additional
implementation guidance with respect to Accounting Standards Codification (ASC) Topic 606 and ASC Topic 842. ASU 2017-03 is effective
for annual and interim fiscal reporting periods beginning after December 15, 2017. We are currently evaluating the impact of the
new standard but do not expect it to have a material impact on our implementation strategies or our consolidated financial statements
upon adoption.
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.
Business
Our
Company
We
are a producer of “pop culture” live multimedia conventions across the United States. These live multimedia conventions
provide a social networking and entertainment venue for enthusiasts of movies, TV shows, video games, technology, toys, social
networking/gaming, comic books, and graphic novels. We intend to increase our presence in the digital space, through the creation
and distribution of high-quality and compelling content.
Our
objective is to create expanded and qualitatively enhanced offerings and initiatives to become a dominant voice for pop culture
enthusiasts across multiple media platforms. Key elements of our strategy include:
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producing
and distributing high-quality Comic Conventions across the United States and internationally to entertain fans and to allow
for promotion of consumer products and entertainment;
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producing
and distributing high-quality content and leveraging the content created at the Comic Conventions through digital media outlets
such as websites, apps, emails, newsletters, Facebook, Twitter, Instagram, and YouTube, among others; and
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obtaining
sponsorships and promotions from media and entertainment companies for our Comic Conventions, including:
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o
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expanding
our relationships with entertainment and media companies; and
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utilizing
our digital assets to create and launch a revised and vibrant e-commerce venture.
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expand
operations to include fixed-site attractions that will be appealing to enthusiasts of pop-culture.
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Comic
Conventions
We
produce Comic Conventions across the United States that provide a social networking and entertainment venue for enthusiasts of
movies, TV shows, video games, technology, virtual reality experiences, toys, social networking, gaming, comic books, and graphic
novels. Our Comic Conventions provide an opportunity for companies in the entertainment, toy, gaming, publishing and retail business
to carry out sales, marketing, product promotion, public relations, advertising, and sponsorship efforts.
We
have been producing Comic Conventions since July 1997. In 2017, we held 14 Comic Conventions in the following cities:
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Austin, TX
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Des Moines, IA
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New Orleans, LA
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Sacramento, CA
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Chicago, IL
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Madison, WI
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Oklahoma City, OK
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St Louis, MO
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Cleveland, OH
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Minneapolis, MN
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Philadelphia, PA
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Columbus, OH
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Nashville, TN
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Portland, OR
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Our
target audience includes men and women primarily in the 18 to 34 year-old demographic, together with families of all ages who
are fans of various types of entertainment and media, including movies, music, toys, video games, consumer electronics, computers,
and lifestyle products (e.g. clothes, footwear, digital devices, and mobile phones). Within the last year, we have added new attractions
at our events, including live music, anime, and programming for children. We continuously review our existing operations and procedures
relating to our Comic Conventions in order to ensure that we produce the best possible fan experience at our Comic Conventions,
while seeking to maximize revenue and contain costs. At the same time, we have taken significant steps to maximize revenue and
contain costs.
We
receive revenue from Comic Conventions primarily from three sources: (i) consumer admissions; (ii) exhibitor booth sales; and
(iii) national and/or regional sponsorships. Comic Conventions vary in cost to produce depending on the size and scope of the
convention.
Digital
Media
We
produce content for a number of digital media platforms, including our recently updated website, emails, newsletters, and Facebook,
YouTube, Twitter, and Instagram accounts, to create awareness of our Comic Conventions and provide updates to our fans and consumers.
We also use our website to provide the latest Wizard Entertainment news and information. While we derive little or no direct revenue
from these properties, they have the indirect benefit of supporting sales relating to our Comic Conventions, as well as helping
us secure additional sought after and high profile talent. This helps us obtain additional admissions, booth sales and sponsorships
for our Comic Conventions. We intend to increase our presence in the digital space, through the creation and distribution of high-quality
and compelling content.
Sponsorships
and Advertising
We
sell sponsorship and advertising opportunities to businesses seeking to reach our core target audience of active entertainment
consumers.
Sponsorships
and Promotions
We
provide sponsorship opportunities that allow advertisers a wide range of promotional vehicles on-site and through our public relations
efforts. For example, we offer advertisers the ability to: (i) display signage at our Comic Conventions, (ii) include their desired
logos on all direct mail that is sent in connection with one or more Comic Conventions, (iii) be included in press releases to
the media, (iv) obtain sponsor tags on the radio spots or in the print or online ads where we advertise, and (v) obtain advertising
space in our digital media. We also provide the opportunity for advertisers to sponsor events at the Comic Conventions, such as
costume contests or gaming tournaments and the ability to brand “step-and-repeats” for photo opportunities, meet and
greets with celebrities, VIP packages, and “goody” bag giveaways. Sponsors pay a fee based upon the position of their
advertising media and the exposure it will receive. We are able to increase our revenue by utilizing a strategic floor layout
that maximizes the amount of highly profitable booth, advertising, and sponsorship opportunities. We are actively engaged in enhancing
our capabilities to facilitate sponsorship opportunities.
Marketing
Our
Comic Conventions are marketed through a variety of media outlets, including social media, websites, public relations, television,
radio, out-of-home, email, “street-teams”, flyers, and postcards. Our Comic Conventions usually obtain publicity through
coverage of the events at our Comic Conventions by local television stations, radio stations, newspapers, national press, fan
websites, blogs, and social network channels such as Twitter, Facebook, Instagram, and Snapchat. We often do not pay for the publicity.
For example, we typically invite local television stations to our Comic Conventions so that they can interview the celebrities
featured at our Comic Conventions, providing our Comic Conventions with incidental publicity. In addition, we often arrange for
celebrities to call into local radio stations. As a result, we receive on-air promotion of our events and the radio station reaches
a larger audience who want to tune in to hear our celebrities. We also receive on-air promotion by exchanging air time for admission
giveaways to our Comic Conventions.
Competitive
Strengths
In
the live, regionally-based consumer conventions market, competitive strength is measured by the location and size of the region
or city, the frequency of live events per year, the guest and VIP list (e.g. celebrities and artists), the number of paying attendees,
the physical size of the convention, the extent of the public relations outreach (through traditional media, digital media and
social media), and the quantity and quality of programming, live entertainment, exhibitors and dealers. We believe that we have
a strong, if not unique, competitive position because our Comic Conventions take place in major cities across the United States
throughout the year. Our numerous annual Comic Conventions enable us to market our events throughout the entire year, create high-quality
content that can be distributed through our digital media outlets, and market nationally as well as regionally. Our multiple locations
also allow us to work with more celebrities, artists and writers and host them in numerous cities. Additionally, we are focused
on the strategy of developing innovative and competitive revenue models which modulate the manner in which tickets are sold to
our events.
There
are a number of Comic Convention providers that produce events across the country; however, we produce more Comic Conventions
in the United States annually than any other organization.
We
also believe that our Comic Conventions are well known and well respected in the Comic Convention and pop culture industry. We
have a reputation among fans, exhibitors, and celebrities for producing high-quality and well-attended conventions.
Growth
Strategy
We
plan to pursue expansion by converting the Company from a live-event business into a live event-/media company adding content
development and other activities to our existing operations.
We
plan to organically develop new Comic Conventions. We also seek to increase revenues of our existing Comic Conventions through
improving the fan experience by providing entertainment, programming, exhibitors, celebrities, panels, gaming tournaments, and
opportunities for VIP experiences that will be appealing to core base of fans. We aim to leverage our existing resources and exposure,
both online and at Comic Conventions, to generate revenue through new, co-located complimentary business opportunities.
We
intend to increase revenue through increasing corporate sponsorships with experienced marketers by offering these advertisers
a wide range of promotional vehicles, both on-site and through our digital media and online offerings. We believe that we will
be able to further enhance our relationships with our existing dealers, exhibitors, celebrities, and VIPs while, at the same time,
developing new relationships with national and specialty brand marketers looking to connect with our growing audiences. Additionally,
we are seeking opportunities to expand our operations outside of the United States, especially in Asia and the Middle East.
In
addition to our core live event comic convention business, we are actively entering the media space by: (i) developing intellectual
property with Sony, (ii) programming two televisions networks in China, (iii) developing location-based entertainment opportunities,
(iv) exploring pop-up retail and merchandising opportunities, (v) producing and distributing pop culture-related content under
our “WizPop” brand, and (vi) expanding into alternative affinity-based attractions which will co-locate with the core
comic conventions.
To
help facilitate our growth, we have recently restructured our internal operations. We have also revamped our production methods
allowing us to produce Comic Conventions at a cost that is materially lower than the production cost that we had been spending.
Additionally, we have been successful in materially containing costs associated with corporate overhead. We believe these measures
will assist us in achieving our growth strategies.
Intellectual
Property
We
have a portfolio of trademarks and service marks and maintain a catalog of copyrighted works. Such marks include “Wizard
World”, “Where Pop FI Comes to Life”, “Wizard World Girls”, and “WizPop”. Our trademarks,
if not renewed, are scheduled to expire between 2021 and 2029.
Employees
We
currently have 18 full-time equivalent employees. Additionally, we engage two consultants providing us with greater competence
in our core operating areas.
Regulation
Typically,
we do not have to obtain permits to operate the Comic Conventions. The convention centers that host our Comic Conventions obtain
any required permits and cover fire safety and occupancy matters as part of our rental agreement. Crowd control varies by location
and is either provided by the convention center’s personnel or by a third-party security service recommended by the convention
center. The convention centers do, however, require liability insurance, which we have obtained and maintained.
Legal
Proceedings
A
complaint for breach of contract and various disability discrimination claims was filed by our former Chief Operating Officer,
Randy Malinoff, after we terminated him for cause. We believe that the matter, which is set for trial in 2019, is without merit.
We currently intend to proceed to trial on this matter.
Additionally
we have filed suit against a former vendor alleging a number of claims on behalf of the Company with regard to convention decorator
services that were provided to the Company.
With
the exception of the foregoing dispute, we are not involved in any disputes and do not have any litigation matters pending that
we believe could have a materially adverse effect on our financial condition or results of operations.
Recent
Developments
On
December 1, 2016, we sold convertible notes (the “
Notes
”) to Bristol Investment Fund, Ltd. (“
Bristol
”),
an entity controlled by our Executive Chairman, pursuant to a securities purchase agreement (the “
Purchase Agreement
”)
for a cash purchase price of $2,500,000. Immediately prior to the completion of this offering, the Notes will be exchanged (the
“
Exchange
”) for our Series A Convertible Preferred Stock (the “
Preferred Stock
”), which
will be convertible into common stock, contain certain protective provisions, and have an initial aggregate liquidation value
of approximately $2.9 million, representing the outstanding principal and accrued but unpaid interest on the Notes. After giving
effect to this offering and the exchange of Notes for Preferred Stock, Bristol and its affiliates will have the ability to control
the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval or
rejection of any change in control transaction. In connection with the Exchange, we entered into an agreement with Bristol to
provide certain rights previously granted to Bristol pursuant to the Purchase Agreement, including that the consent of the holders
of a majority of the Preferred Stock will be required for the incurrence of certain liens on the Company’s assets. In addition,
upon Bristol’s request, we will register the shares of common stock issuable upon conversion of the Preferred Stock or shares
issued in payment of any dividend on the Preferred Stock on a Registration Statement on Form S-3, once eligible to utilize such
form. Following the consummation of this offering, we expect to be a “controlled company” for the purposes of the
Nasdaq Stock Market Rules. For a discussion of our relationship with Bristol and more details on Bristol’s ownership interest,
see “
Certain Relationships and Related Party Transactions
”, “
Description of Capital Stock
”,
and “
Risk Factors—Risks Relating to this Offering and Ownership of Our Common Stock—The ownership by our
Executive Chairman of our common stock will likely limit your ability to influence corporate matters
”.
During
2016, we underwent significant senior management restructuring. The restructuring included the appointment of a new Chief Executive
Officer, who entered into such role with experience at major movie studios and television networks. We also appointed an Executive
Chairman. Focused on reforming our operations and key operating controls, the new management team has worked extensively to position
us to successfully grow by, among other things, implementing newly constituted internal accounting, marketing, and talent departments.
On
October 24, 2017, we announced alignment with CNLive to distribute advertising-supported linear programming and subscription video
on-demand (“
SVOD
”) streamed content to mobile devices in China. The alignment with CNLive, one of only seven
entities licensed to distribute content over the internet in China, provides us with a multi-year right and license to program
a 24/7, linear and SVOD services across all of mainland China, including Macao and Hong Kong.
On
February 12, 2018, we announced the formation of a working relationship with Sony Pictures Entertainment (“
Sony
”).
As part of the relationship, we will work with Sony to jointly discover top artistic talent with the aim of incubating the next
generation of movies, television, and digital media. We also plan to explore other strategic initiatives with Sony in areas such
as immersive entertainment, location-based entertainment, programming and live events.
On
February 27, 2018, we announced an agreement with Associated Television International (“
ATI
”), an Emmy-winning,
worldwide full-service production and distribution company. ATI will distribute a daily, four-hour wheel of programming under
the “WizPop” brand, to be streamed live in China via the CNLive platform.
On
[__], 2018, we effected a 1-for-[__] reverse stock split on our common stock. Share amounts set forth herein reflect the split.
Corporate
Information
We
were incorporated as GoEnergy, Inc. in Delaware in 2001, renamed as Wizard World, Inc. in December 2010, and renamed as Wizard
Entertainment, Inc. in September 2018. Our executive offices, which we sublease from BAC, are located at 662 N. Sepulveda Blvd.,
Suite 300, Los Angeles, California 90049, and our telephone number is (310) 648-8410.
We
maintain a website at www.wizardworld.com. The information contained on, or that can be accessed through, our website is not a
part of, and should not be considered as being incorporated by reference into, this prospectus.
For
certain historical information about us, see Note 1 to the Consolidated Financial Statements.
We
are a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant
to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission. The Commission
maintains an internet site that contains our public filings with the Commission and other information regarding our company, at
www.sec.gov. These reports and other information concerning our company may also be accessed at the Commission’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330.
Corporate
Governance
Governance
Matters
Attendance
at Board, Committee and Annual Stockholders’ Meetings
The
Board held one formal meeting, and acted by unanimous written consent one time in 2017. No committee of the Board met separately
during 2017. We expect each director to attend every meeting of the Board and the committees on which the director serves. In
2017, all directors then serving attended the meetings and signed the consent of the Board. Although we have no formal policy,
we encourage each of the directors to attend the annual meeting of stockholders.
Director
Independence
In
general, the Nasdaq Stock Market Rules require that a majority of a listed company’s directors be independent and that a
compensation committee and nominating committee of the board of directors composed solely of independent directors be established.
However, these standards are not applicable to any company where more than 50% of the voting power is held by one individual or
group. Mr. Kessler, our Executive Chairman, currently controls 71% of the total voting power of our common stock, and is expected
to control [__]% (or approximately [__]% if the underwriters’ option to purchase additional shares is exercised in full)
of the total voting power of our stock after the completion of this offering. Accordingly, we are a “controlled company”
and are exempt from those rules. We do not intend to take advantage of these exemptions.
Additionally,
we will be subject to Nasdaq Stock Market Rules requiring that the Audit Committee (i) be composed solely of independent directors;
(ii) be directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting
firm, which must report directly to the audit committee; (iii) establish procedures to receive, retain, and treat complaints regarding
accounting, internal accounting controls and auditing matters, and for employees’ confidential, anonymous submissions of
concerns regarding questionable accounting or auditing matters; (iv) have the authority to engage independent counsel and other
advisors when the committee determines such outside advice is necessary; and (v) be adequately funded by us. Prior to completion
of this offering, our Audit Committee will be in compliance with these standards.
The
Nasdaq Stock Market Rules listing standards have both objective tests and a subjective test for determining who is an “independent
director” of each listed company. The objective tests state, among other things, that a director is not considered independent
if he or she is an employee of ours or is a partner in or executive officer of an entity to which we made, or received, payments
in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that
year, or $200,000, whichever is greater. The subjective test states that an independent director must be a person who lacks a
relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. As of August 31, 2018, Greg Suess, Jordan Schur, and Michael Breen qualify as “independent”
in accordance with the Nasdaq Stock Market Rules.
Corporate
Code of Ethics
The
Board is committed to legal and ethical conduct in fulfilling its responsibilities. Our Board expects all directors, as well as
officers and employees, to act ethically at all times. All directors, officers, and employees must adhere to our Code of Business
Conduct and Ethics. We have implemented a Whistleblower Policy and provide multiple ways in which perceived unethical conduct
can be anonymously reported. The Code of Business Conduct and Ethics and the Whistleblower Policy are posted on Internet website
under the “
Investor Relations—Corporate Governance
” tab.
Communications
with the Board of Directors
Our
Board recommends that stockholders initiate any communication with the Board in writing and send it to the attention of our Corporate
Secretary by mail to: Board of Directors, Wizard Entertainment, Inc., 662 N. Sepulveda Blvd., Suite 300, Los Angeles, California
90049, or by e-mail to jdmaatta@wizardworld.com. This process will assist the Board in reviewing and responding to stockholder
communications in an appropriate manner. Our Board has instructed our Corporate Secretary to review such correspondence and, in
his discretion, not to forward items if he deems them to be of a commercial or frivolous nature or otherwise inappropriate for
our Board’s consideration.
Committees
of the Board of Directors
Audit
Committee
The
Audit Committee assists our Board in its general oversight of our financial reporting, internal controls, and audit functions,
and is responsible for the appointment, retention, compensation, and oversight of the work of our independent registered public
accounting firm. The Audit Committee is also responsible for reviewing and approving related party transactions, discussing risk
management with management, and maintaining and enforcing our Code of Ethics.
The
Audit Committee’s job is one of oversight. Management is responsible for our financial reporting process including its system
of internal control, and for the preparation of consolidated financial statements in accordance with U.S. generally accepted accounting
principles (“
GAAP
”). Our independent registered public accounting firm is responsible for auditing our financial
statements. It is the Audit Committee’s responsibility to monitor and review these processes. It is not the Audit Committee’s
duty or responsibility to conduct auditing or accounting reviews. Therefore, the Audit Committee has relied on management’s
representation that the financial statements have been prepared with integrity and objectivity and in conformity with U.S. GAAP
and on the representations of the independent registered public accounting firm included in their report on our consolidated financial
statements.
The
members of the Audit Committee are Michael Breen (chair), Gregory Suess and Jordan Schur, all of whom are independent under the
Nasdaq Stock Market Rules. The Board has determined that Michael Breen also meets the Commission’s qualifications to be
an “audit committee financial expert”. Under the rules promulgated by the Commission, the designation or identification
of a person as an audit committee financial expert does not impose on such person any duties, obligations or liabilities that
are greater than the duties, obligations and liabilities imposed on such person as a member of the Audit Committee and the Board
in the absence of such designation or identification. The Board has determined that all members of the Audit Committee are financially
literate and experienced in business matters and are capable of (1) understanding U.S. GAAP and financial statements, (2) assessing
the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (3) analyzing
and evaluating our financial statements, (4) understanding our internal controls and procedures for financial reporting, and (5)
understanding audit committee functions.
The
Audit Committee operates under a written charter adopted by our Board. A copy of the Audit Committee’s charter is available
on our website under the “
Investor Relations—Corporate Governance
” tab.
Compensation
Committee
The
Compensation Committee has authority for reviewing and determining salaries, performance-based incentives, and other matters related
to the compensation of our executive officers, and administering our stock option plans, including reviewing, amending, and granting
stock options to our executive officers and key employees.
The
members of the Compensation Committee are Gregory Suess (chair), Michael Breen and Jordan Schur, each of whom are independent.
Although we expect to be a “controlled company”, as of the close of this offering within the meaning of Nasdaq corporate
governance standards, and do not need to comply with the independence requirements regarding compensation committees, we plan
to do so.
The
Compensation Committee operates under a formal charter that governs its duties and standards of performance. A copy of the Compensation
Committee’s charter is available on our website under the “
Investor Relations—Corporate Governance
”
tab.
Nominating
and Corporate Governance Committee
The
primary responsibilities of the Nominating and Corporate Governance Committee (the “
Governance Committee
”)
are to identify individuals qualified to become members of the Board, select or recommend director nominees for each election
of directors, develop and recommend to the Board criteria for selecting qualified director candidates, and provide oversight in
the evaluation of the Board and each committee.
The
members of the Nominating and Corporate Governance Committee are [•] (chair), [•] and [•], each of whom are independent.
Although we expect to be a “controlled company”, as of the close of this offering within the meaning of Nasdaq corporate
governance standards, and do not need to comply with the independence requirements regarding compensation committees, we plan
to do so.
The
Governance Committee is responsible for reviewing with the Board, from time to time, the appropriate skills and characteristics
required of Board members in the context of the current makeup of the Board. This assessment includes understanding of and experience
in business, consulting and solution companies and finance experience. The Governance Committee reviews these factors, among others,
in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities
and emphasis of the Nominations Subcommittee and of the Board may change from time to time to take into account changes in business
and other trends, and the portfolio of skills and experience of current and prospective Board members.
Consideration
of new candidates for our Board typically involves a series of internal discussions, review of information concerning candidates,
and interviews with selected candidates. Board members or executive officers typically suggest candidates for nomination to the
Governance Committee. If appropriate, the Governance Committee may retain a professional search firm to identify potential director
candidates. Nominating and Corporate Governance Committee considers candidates proposed by stockholders and evaluates them using
the same criteria as for other candidates. A stockholder seeking to recommend a prospective nominee for the consideration the
Governance Committee must do so by giving notice in writing to the Governance Committee at [__]. Any such notice must, for any
given annual meeting, be delivered to the Governance Committee not less than 120 days prior to the anniversary of the preceding
year’s annual meeting. The notice must state (1) the name and address of the stockholder making the recommendations, (2)
the name, age, business address, and residential address of each person recommended, (3) the principal occupation or employment
of each person recommended, (4) the class and number of shares of our common stock that are beneficially owned by each person
recommended and by the recommending stockholder, (5) any other information concerning the persons recommended that must be disclosed
in nominee and proxy solicitations in accordance with Regulation 14A of the Securities Exchange Act of 1934, and (6) a signed
consent of each person recommended stating that he or she consents to serve as a director if elected.
The
Nominating and Governance Committee operates under a written charter, a copy of which is available on our website under the “Investor
Relations—Corporate Governance” tab.
Directors
and Executive Officers
Our
Board of Directors and Executive Officers
John
D. Maatta, age 66, Chief Executive Officer, President and Director
John
D. Maatta has been a member of our Board since May 25, 2011, serving as Chairman of the Board from February 5, 2016 through April
22, 2016. Mr. Maatta has served as our Chief Executive Officer and President since May 3, 2016. Prior to joining us, Mr. Maatta
was engaged in the practice of law from October 2014 to January 2016. Mr. Maatta also served as Executive Vice President of The
CW Television Network from January 2006 to October 2014, prior to which he was the Chief Operating Officer of The CW Network,
which is America’s fifth broadcast network and a network that focuses substantially on targeting young adults between the
ages of 18 and 34. From September 2005 through September 2006, Mr. Maatta served as the Chief Operating Officer of The WB, a Warner
Bros. television network (“
The WB
”), where he had direct oversight of all business and operations departments,
such as business affairs, finance, network distribution (which included The WB 100+ station group), technology, legal, research,
network operations, broadcast standards and human resources. While Chief Operating Officer at The WB, Mr. Maatta also served as
The WB’s General Counsel. Mr. Maatta is currently a director of Trader Vic’s, Inc., a Polynesian-style restaurant
chain, a position he has held since 1998. Mr. Maatta received a Bachelor of Arts in Government from the University of San Francisco
in 1974, and a Juris Doctorate from the University of California, Hastings College of the Law, in 1977. Between 2013 and 2016
Mr. Maatta served as the President of UNICEF for the Southern California region, and is a current member of the UNICEF Southern
California Board and the Chairman of the UNICEF Chinese Children’s Initiative. Mr. Maatta is also a member of the Southern
California Board of the Asia Society.
The
Board believes that Mr. Maatta is qualified to serve as a director as a result of his knowledge of the Company and its industry
and extensive leadership experience.
Paul
L. Kessler, age 57, Executive Chairman
Paul
L. Kessler was appointed as Executive Chairman of the Company on December 29, 2016. Mr. Kessler is Principal, Portfolio Manager
and Founder of Bristol Capital Advisors, LLC. His investments have focused on emerging growth public companies, private equity,
venture capital, and private companies on the path to becoming public. Mr. Kessler has guided and overseen hundreds investment
transactions in his career, as lead, co-lead, or syndicate investor.
Mr.
Kessler has broad experience in financing private and public emerging growth companies as well as negotiating, structuring and
re-structuring investment transactions. Mr. Kessler has worked on numerous mergers, acquisitions, divestitures, venture capital,
private equity, re-structuring and other capital market activities. He has actively worked with executives and boards of companies
on corporate governance, capital formation, and oversight, strategic repositioning and alignment of interests with shareholders.
Mr.
Kessler co-founded Start Engine, LLC, incubating or starting over 60 technology companies while evolving into its current status
as a leading US-based Crowd Funding platform. He is a lead investor and Advisor to ‘Act One Ventures’ a UCLA/LA based
accelerator and founding Advisor to MedTech Innovator, a leading US based medical technology accelerator.
Mr.
Kessler has been a guest speaker on tops including financing emerging growth public companies and at a variety of forums, including
Activist Investing in Europe, The Deal Corporate Governance Conference, The Pipe’s Conference, Los Angeles Venture Association
(LAVA), Wall Street Reporter’s Pipe Conference, UCLA Anderson School of Management, and Pepperdine University’s Graziadio
School of Business and Management. He has attended courses at various colleges and universities, including Harvard Business School’s
Executive Education Program, Stanford Business School’s Executive Directors Consortium, and UCLA’s Extension Program.
The
Board believes that Mr. Kessler is qualified to serve as a director as a result of his extensive experience in finance, sourcing
and identifying investment opportunities, and negotiating, structuring and re-structuring investment transactions with emerging
growth companies both private and public companies.
Greg
Suess, age 46, Director
Greg
Suess has served as a director of our Company since May 9, 2011. In 2018, he co-founded Activist Artists Management (“Activist”),
a management and consulting company that focuses on media and entertainment and provides comprehensive management services for
its clients, including talent and brand management, managing partnerships, strategic alliances and marketing strategies that engage
consumers through entertainment, music and lifestyle experiences. Mr. Suess is, and has been since inception, a partner at Activist.
Since 1997, Mr. Suess has been with the law firm of Glaser, Weil, Fink, Howard, Avchen & Shapiro, LLP, where he is currently
Partner and focuses on general corporate law and media and entertainment. Mr. Suess holds a Bachelor of Science from the University
of Southern California (Lloyd Greif Center for Entrepreneurial Studies), and holds a JD/MBA from Pepperdine University. He is
a member of the State Bar of California.
The
Board believes that Mr. Suess is qualified to serve as a director as a result of his extensive experience and background in the
media and entertainment industry complements the Company’s events business and its new initiatives and will provide a significant
contribution to the Company’s growth.
Michael
Breen, age 55, Director
Michael
Breen has been a director of our Company since March 2017. Mr. Breen is an English qualified solicitor and was the Managing Director
of the Sports and Entertainment Division of Bank Insinger de Beaufort N.V., a wealth management organization and part of the BNP
Paribas Group, one of the world’s largest banks. Mr. Breen was an equity partner with the law firm Clyde & Co, where
he specialized in all aspects of sports and entertainment law. Mr. Breen also has extensive experience in event-based entertainment,
having been responsible for the legal documentation relating to the world-famous UK music awards known as the Brit Awards. Mr.
Breen holds an Honours LLB degree in law from the University College of Wales, Aberystwyth.
The
Board believes that Mr. Breen is qualified to serve as a director as a result of his extensive experience and background in the
entertainment industry and entertainment law.
Jordan
Schur, age 54, Director
Jordan
Schur has been a director of our Company since March 2017. Mr. Schur is a veteran of the music and film industries. In 1994, Mr.
Schur created Flip Records, a record label that sold over seventy million records. In 1999, Mr. Schur was appointed President
of Geffen Records at Universal Music Group, where he merged the original Geffen Records with MCA Records and DreamWorks Records.
The expanded company went on to become a market leader, generating over Two Billion Dollars in sales. In 2006, Mr. Schur left
Geffen and founded Suretone Records which drove several artists to number one on iTunes and Soundscan in the U.S. and around the
world. Mr. Schur entered the film industry in 2008, founding Mimran Schur Pictures and going on to become a successful film producer.
In 2012, Mr. Schur founded Suretone Pictures, where he released several notable films. In 2014, Mr. Schur, in partnership with
Cinsay, created and launched Suretone Live, the world’s first syndicatable e-commerce and social media driven film, television,
and music content destination. Mr. Schur holds a Bachelor’s degree from Boston College.
The
Board believes that Mr. Schur is qualified to serve as a director as a result of his extensive experience and background in the
music and film industry.
Executive
and Director Compensation
Our
named executive officers, consisting of our principal executive officer and the next two most highly compensated executive officers
as of December 31, 2017, were:
|
●
|
John
D. Maatta, Chief Executive Officer and President;
|
|
●
|
Paul
L. Kessler, Executive Chairman; and
|
|
●
|
Randall
S. Malinoff, former Executive Vice President and Chief Operating Officer
|
Summary
Compensation Table
The
following table sets forth all of the compensation awarded to, earned by, or paid to our named executive officers during fiscal
2017 and 2016.
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)(1)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
D. Maatta(2)
|
|
|
2017
|
|
|
$
|
138,269
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74,980
|
|
|
$
|
—
|
|
|
$
|
213,249
|
|
Chief
Executive Officer
|
|
|
2016
|
|
|
$
|
165,277
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
121,953
|
|
|
$
|
—
|
|
|
$
|
287,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
L. Kessler(3)
|
|
|
2017
|
|
|
$
|
6,480
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34,883
|
|
|
$
|
—
|
|
|
$
|
41,363
|
|
Executive
Chairman
|
|
|
2016
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall
S. Malinoff (4)
|
|
|
2017
|
|
|
$
|
108,846
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,392
|
|
|
$
|
—
|
|
|
$
|
147,238
|
|
Former
Executive Vice President and Chief Operating Officer
|
|
|
2016
|
|
|
$
|
168,462
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65,613
|
|
|
$
|
—
|
|
|
$
|
234,075
|
|
|
(1)
|
In
accordance with SEC rules, this column reflects the aggregate grant date fair value of the option awards granted during the
years indicated, computed in accordance with Financial Accounting Standard Board ASC Topic 718 for stock-based compensation
transactions, or ASC 718. Assumptions used in the calculation of these amounts are included in Note 7 to our consolidated
financial statements included elsewhere in this prospectus. These amounts do not reflect the actual economic value that will
be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options or the
sale of the common stock underlying such stock options.
|
|
(2)
|
Mr.
Maatta was appointed as our Chief Executive Officer effective May 3, 2016. Mr. Maatta served as our non-executive Chairman
from February 5, 2016 through April 22, 2016.
|
|
(3)
|
Mr.
Kessler served as our non-executive Chairman from April 22, 2016 through December 29, 2016. On December 29, 2016, we appointed
Mr. Kessler as our Executive Chairman. Mr. Kessler serves as Executive Chairman pursuant to a consulting agreement between
Bristol Capital, LLC and the Company. See “
Certain Relationships and Related Party Transactions
” for a
description of the consulting agreement with Bristol Capital, LLC.
|
|
(4)
|
Mr.
Malinoff was appointed as our Interim Chief Operating Officer effective as of March 2, 2016 and appointed Executive Vice President
and Chief Operating Officer on July 14, 2016. Mr. Malinoff resigned from all of his positions in July 2017.
|
Employment
Arrangements with Our Named Executive Officers
John
D. Maatta
In
connection with the appointment of John D. Maatta as our President and Chief Executive Officer, we and Mr. Maatta entered into
an employment agreement, effective as of May 3, 2016 (the “
Maatta Employment Agreement
”). The initial term
of the Maatta Employment Agreement is for a period of two years, commencing on May 3, 2016. The term of the Maatta Employment
Agreement will be automatically extended for additional terms of one year each, unless either we or Mr. Maatta gives prior written
notice of non-renewal to the other party no later than sixty days prior to the expiration of the then current term.
During
the term of the Maatta Employment Agreement, we will pay Mr. Maatta an annual base salary of $250,000. In addition, Mr. Maatta
may receive an annual bonus as determined by the Compensation Committee of the Board and approved by the Board. Mr. Matta also
received options to purchase shares of our common stock, vesting in quarterly increments. Mr. Maatta declined acceptance of any
cash bonus for the years ended December 31, 2016 and 2017. Effective January 1, 2018, Mr. Maatta voluntarily elected to accept
cash compensation of $125,000 per year, with the remaining $125,000 per year deferred until such date as we and Mr. Maatta mutually
agree.
Randall
S. Malinoff
Effective
as of July 14, 2016, 2016, we entered into an employment agreement with Randall S. Malinoff, with an annual base salary of $225,000
and eligibility for performance-based bonuses. Mr. Malinoff departed from the Company in July 2017. All outstanding options previously
awarded to Mr. Malinoff have been cancelled.
Equity
Compensation Plans
Below
is a description of our compensation plan adopted in 2011, and our compensation plan adopted in 2016.
2011
Incentive Stock and Award Plan
On
May 9, 2011, our Board approved, authorized and adopted (subject to stockholder approval) the 2011 Incentive Stock and Award Plan
(the “
2011 Plan
”). The 2011 Plan was amended on September 14, 2011, April 11, 2012, July 9, 2012 and September
25, 2014. The Plan provides for the issuance of up to 15,000,000 shares of our common stock through the grant of non-qualified
options, incentive options and restricted stock to our directors, officers, consultants, attorneys, advisors and employees. The
2011 Plan has been administered by the Board since its adoption.
Each
option issued under the 2011 Plan contains the following terms:
|
●
|
the
exercise price, which shall be determined at the time of grant, shall not be less than 100% of the Fair Market Value (defined
as the closing price on the final trading day immediately prior to the grant on the principal exchange or quotation system
on which the common stock is listed or quoted, as applicable) of our common stock, provided that if the recipient of the option
owns more than 10% of our total combined voting power or of any subsidiary, the exercise price shall be at least 110% of the
Fair Market Value;
|
|
●
|
the
term of each option shall be fixed by the Board, provided that such option shall not be exercisable more than five years after
the date such option is granted, and provided further that with respect to an incentive option, if the recipient owns more
than ten percent (10%) of our total combined voting power or of any subsidiary, the incentive option shall not be exercisable
more than five years after the date such incentive option is granted;
|
|
●
|
subject
to acceleration in the event of a change of control of the Company (as further described in the 2011 Plan), the period during
which the options vest shall be designated by the Board or, in the absence of any option vesting periods designated by the
Board at the time of grant, shall vest and become exercisable in equal amounts on each fiscal quarter through the four-year
anniversary of the date on which the option was granted;
|
|
●
|
no
option is transferable and each is exercisable only by the recipient of such option except in the event of the death of the
recipient (if such recipient is a natural person); and
|
|
●
|
with
respect to incentive options, the aggregate Fair Market Value of common stock exercisable for the first time during any calendar
year shall not exceed $100,000.
|
Each
award of restricted stock issued under the 2011 Plan will be subject to the following terms:
|
●
|
no
rights to an award of restricted stock is granted to the intended recipient of restricted stock unless and until the grant
of restricted stock is accepted within the period prescribed by the Board;
|
|
●
|
a
certificate or certificates issued evidencing shares of restricted stock shall not be delivered until they are free of any
restrictions specified by the Board at the time of grant;
|
|
●
|
upon
the acceptance and issuance of a certificate or certificates, recipients of restricted stock have the rights of a stockholder
of the Company as of the date of the grant of the restricted stock;
|
|
●
|
shares
of restricted stock are forfeitable until the terms of the restricted stock grant have been satisfied or the employment with
us is terminated; and
|
|
●
|
the
restricted stock is not transferable until the date on which the Board has specified such restrictions have lapsed.
|
As
of December 31, 2017, we issued the following stock options and grants under the 2011 Plan:
Plan
category
|
|
Number
of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights and
number
of shares
of restricted stock
|
|
|
Weighted
average
exercise price of outstanding
options, warrants
and rights (1)
|
|
|
Number
of
securities
remaining available
for future issuance
|
|
Equity
compensation approved by security holders under the Plan
|
|
|
3,319,000
|
|
|
$
|
0.59
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,319,000
|
|
|
$
|
0.59
|
|
|
|
-
|
|
(1)
|
Excludes
shares of restricted stock issued under the Plan.
|
2016
Incentive Stock Award Plan
On
August 12, 2016, Board unanimously approved, authorized and adopted (subject to stockholder approval) the 2016 Incentive Stock
and Award Plan (the “
2016 Plan
”) to replace the expired Third Amended and Restated 2011 Incentive Stock and
Award Plan. The 2016 Plan provides for the issuance of up to 5,000,000 shares of our common stock through the grant of nonqualified
options, incentive options and restricted stock to our directors, officers, consultants, attorneys, advisors and employees. Until
a committee consisting of two or more independent, non-employee directors is appointed to administer the 2016 Plan, the Board
shall administer the Plan.
Each
option issued under the 2016 Plan will contain the following terms:
|
●
|
the
exercise price for an Incentive Option (as defined in the Plan), which shall be determined at the time of grant, shall not
be less than 100% of the Fair Market Value (defined as the closing price on the final trading day immediately prior to the
grant on the principal exchange or quotation system on which the common stock is listed or quoted, as applicable) of our common
stock, provided that if the recipient of the option owns more than ten percent (10%) of our total combined voting power, the
exercise price shall be at least 110% of the Fair Market Value, and provided further that with respect to the Nonqualified
Option (as defined in the Plan), the purchase price of each share of stock purchasable under a Nonqualified Option shall be
at least 100% of the Fair Market Value of such share of stock on the date that Nonqualified Option is granted, unless the
Committee, in its sole and absolute discretion, determines to set the purchase price of such Nonqualified Option below Fair
Market Value;
|
|
●
|
the
term of each option shall be fixed by the Board, provided that such option shall not be exercisable more than ten years after
the date such option is granted, and provided further that with respect to an Incentive Option, if the recipient owns more
than ten percent (10%) of our total combined voting power, the Incentive Option shall not be exercisable more than five years
after the date such Incentive Option is granted;
|
|
●
|
subject
to acceleration in the event of a change of control of the Company (as further described in the Plan), the period during which
the options vest shall be designated by the Board or, in the absence of any option vesting periods designated by the Board
at the time of grant, shall vest and become exercisable in equal amounts on each fiscal quarter through the four-year anniversary
of the date on which the option was granted;
|
|
●
|
no
option is transferable and each is exercisable only by the recipient of such option except in the event of the death of the
recipient (if such recipient is a natural person); and
|
|
●
|
with
respect to Incentive Options, the aggregate Fair Market Value of common stock exercisable for the first time during any calendar
year shall not exceed $100,000.
|
Each
award of restricted stock issued under the 2016 Plan will be subject to the following terms:
|
●
|
no
rights to an award of restricted stock is granted to the intended recipient of restricted stock unless and until the grant
of restricted stock is accepted within the period prescribed by the Board;
|
|
●
|
certificate(s)
evidencing the restricted stock shall not be delivered until they are free of any restrictions specified by the Board at the
time of grant;
|
|
●
|
recipients
of restricted stock have the rights of a stockholder of the Company as of the date of the grant of the restricted stock;
|
|
●
|
shares
of restricted stock are forfeitable until the terms of the restricted stock grant have been satisfied or the employment with
us is terminated prior to such restrictions being satisfied; and
|
|
●
|
the
restricted stock is not transferable until the date on which the Board has specified such restrictions have lapsed.
|
As
of December 31, 2017, we issued the following stock options and grants under the 2016 Plan:
Plan
category
|
|
Number
of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights and
number
of shares
of restricted stock
|
|
|
Weighted
average
exercise price of outstanding
options, warrants
and rights
|
|
|
Number
of
securities
remaining available
for future issuance
|
|
Equity
compensation approved by security holders under the Plan
|
|
|
2,000,000
|
|
|
$
|
0.55
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,000,000
|
|
|
$
|
0.55
|
|
|
|
3,000,000
|
|
Outstanding
Equity Awards at Fiscal Year-End
The
table below summarizes our outstanding equity awards at the end of fiscal 2017:
2017
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
OPTION
AWARDS
|
Name
(a)
|
|
Number
of
Securities
Underlying
Unexercised Options
(#)
Exercisable
(b)
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised Unearned
Options
(#)
(d)
|
|
|
Option
Exercise
Price
($)
(e)
|
|
|
Option
Expiration
Date
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
D. Maatta
Chief Executive
Officer and President
|
|
|
600,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
$
|
0.60
|
|
|
|
5/11/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
L. Kessler
Executive Chairman
|
|
|
450,000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
$
|
0.60
|
|
|
|
12/29/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall
S Malinoff,
Former Executive
Vice President and Chief Operating Officer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
At
this time, we only grant stock options as equity-based compensation and, as a result, had no stock awards outstanding at the end
of fiscal 2017.
Director
Agreements
The
Company has entered into director agreements with each of its directors except Mr. Schur and Mr. Breen. The Company plans to enter
into director Agreements with Mr. Schur and Mr. Breen in the near future. Each director agreement commences on the date that the
respective director was appointed a member of the Board and continues through the Company’s next annual stockholders’
meeting, unless automatically renewed at the option of the Board on such date that such director is re-elected to the Board. Pursuant
to the director agreements that were entered into with our directors, each director is granted a non-qualified option to purchase
up to 150,000 shares of the Company’s common stock.
In
conjunction with the director agreements, we entered into an indemnification agreement with each director that is effective during
the term that such director serves as a member of the Board until six years thereafter. The indemnification agreement indemnifies
the director to the fullest extent permitted under Delaware law for any claims arising out of, or resulting from, among other
things, (i) any actual, alleged or suspected act or failure to act as a director or agent of the Company and (ii) any actual,
alleged or suspected act or failure to act in respect of any business, transaction, communication, filing, disclosure or other
activity of the Company. Further, the director is indemnified for any losses pertaining to such claims, provided, however, that
the losses not include expenses incurred by the director in respect of any claim as which such director shall have been adjudged
liable to the Company, unless the Delaware Chancery Court rules otherwise.
Director
Compensation
Non-employee
members of the Board (i) for their participation in meetings of the Board and its committees, are paid $1,000 for each in person
meeting, and $250 to $500 per telephonic meeting, depending on the length of the telephonic meeting, and (ii) are provided a monthly
retainer of $750 per month.
The
following summary compensation table sets forth all compensation awarded to, earned by, or paid to our non-executive directors
by us during the year ended December 31, 2017.
Name
|
|
Fees
Earned or Paid in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Breen
|
|
$
|
6,750
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vadim
Mats
(1)
|
|
$
|
3,000
|
|
|
|
—
|
|
|
|
17,645
|
|
|
$
|
—
|
|
|
|
20,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jordan
Schur
|
|
$
|
6,750
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg
Suess
|
|
$
|
9,750
|
|
|
$
|
—
|
|
|
$
|
27,579
|
|
|
$
|
—
|
|
|
$
|
37,329
|
|
|
(1)
|
Mr.
Mats resigned from the Board on March 23, 2017.
|
On
September __, 2018, the Board approved the grant of equity awards to its directors. Each of Messrs. Suess, Breen and Schur received
option awards to purchase 300,000 shares of common stock with an exercise price of $[●]. The options vest in full on the
first anniversary of the grant date. In addition, the Board awarded for their past service as directors 200,000 shares of restricted
stock to Messrs. Breen and Schur and 400,000 shares of restricted stock to Messrs. Suess, Kessler and Maatta, all of which were
vested in full upon grant.
Following
the completion of this offering, the Board intends to engage a compensation consultant to advise on the compensation for non-employee
directors for service on the Board.
Principal
Stockholders
The
following table shows information within our knowledge with respect to the beneficial ownership of our common stock as of June
30, 2018, for:
|
●
|
of
our directors;
|
|
●
|
each
Named Executive Officer;
|
|
●
|
each
person or group of affiliated persons whom we know to beneficially own more than 5% of our common stock; and
|
|
●
|
all
of our directors, director nominees and executive officers as a group.
|
Beneficial
ownership and percentage ownership are determined in accordance with the Commission’s rules. In computing the number of
shares a person beneficially owns and the corresponding percentage ownership of that person, shares of common stock underlying
options, warrants and convertible instruments that are exercisable within 60 days of June 30, 2018, are considered to be outstanding.
The shares underlying these options, warrants and convertible instruments are considered to be outstanding for purposes of calculating
the percentage ownership of the person, entity or group that holds those options, warrants and convertible instruments but are
not considered to be outstanding for purposes of calculating the percentage ownership of any other person, entity or group. To
our knowledge, except as indicated in the footnotes to this table and subject to community property laws where applicable, the
persons named in the table below have sole voting and investment power with respect to all shares of our common stock shown as
beneficially owned by them. The table is based on 68,535,036 shares of our common stock outstanding as of April 30, 2018. The
address for those individuals for which an address is not otherwise indicated is: c/o Wizard Entertainment, Inc., 662 N. Sepulveda
Blvd., Suite 300, Los Angeles, California 90049.
|
|
Common
Stock
Beneficially Owned
|
|
|
Common
Stock Beneficially Owned Post-Offering
|
|
Name
of Beneficial Owner
|
|
Number
of Shares
|
|
|
Percentage
of Class
|
|
|
Number
of Shares
|
|
|
Percentage
of Class
|
|
Directors
and Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
D. Maatta
Chief Executive
Officer, President, Director
|
|
|
900,000
|
(1)
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Paul
L. Kessler
Executive
Chairman
Bristol
Investment Fund, Ltd
Bristol
Capital, LLC
Bristol
Capital Advisors Profit Sharing Plan
|
|
|
[___]
|
(2)
|
|
|
[__]%
|
|
|
|
|
|
|
|
|
|
Michael
Breen
Director
|
|
|
—
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Jordan
Schur
Director
|
|
|
—
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Greg
Suess
Director
|
|
|
385,053
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors as a group
|
|
|
[__]
|
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
*
|
Less
than 1% of the outstanding common stock
|
|
|
|
|
(1)
|
Includes
shares issuable upon exercise of an option for 1,100,000 shares of common stock, of which approximately 900,000 have vested.
|
|
(2)
|
The
total consists of: (i) 48,803,836 shares of commons stock owned by Bristol, (ii) 489,000 shares owned by Bristol Capital,
LLC, (iii) 78,700 shares owned by Mr. Kessler, and (iv) 787,000 shares owned by Bristol Capital Advisors Profit Sharing Plan
(“
BCA PSP
”). This total includes shares issuable upon exercise of an option for 600,000 shares of common
stock, of which approximately 525,000 shares have vested. This total includes shares issuable upon exercise of options for
450,000 shares of common stock, of which all shares have vested.
1
This total includes shares issuable upon exercise
of a warrant for 16,666,667 shares of common stock, of which all shares have vested. This total includes shares issuable upon
conversion of the Preferred Stock for
[__]
shares of common stock. Mr. Kessler, as manager of the investment advisor
to Bristol, manager of Bristol Capital, and manager of BCA PSP, has the power to vote and dispose of the shares owned by Bristol,
Bristol Capital, and BCA PSP, as well as the shares owned my Mr. Kessler himself. Mr. Kessler disclaims beneficial ownership
of the Shares owned by Bristol.
|
|
(3)
|
Includes
shares issuable upon exercise of an option for 300,000 shares of common stock, all of which have vested.
|
1
Please
confirm option totals and vesting.
Certain
Relationships and Related Party Transactions
We
present all possible transactions between us and our officers, directors and 5% stockholders, and our affiliates, to our Board
for their consideration and approval. Any such transaction will require approval by a majority of the disinterested directors
and such transactions will be on terms no less favorable than those available to disinterested third parties. Upon completion
of this offering and the listing of our common stock on the Nasdaq CM, the Audit Committee will review and approve all related
party transactions. During the years ended December 31, 2017 and 2016, we had the following transactions with related persons
reportable under Item 404 of Regulation S-K:
On
June 16, 2016, we entered into a Standard Multi-Tenant Sublease (“
Sublease
”) with Bristol Capital Advisors,
LLC (“
BCA
”), an entity controlled by our Executive Chairman. 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, we paid a security deposit
of $9,137 and $199,238 for prepaid rent of which $181,796 remains as of December 31, 2017. The amounts received by BCA from us
pursuant to the Sublease are paid directly to the owner of such premises by BCA on a pass-through basis, without mark-up.
Effective
December 1, 2016, we entered into a securities purchase agreement (the “
Purchase Agreement
”) with Bristol Investment
Fund, Ltd. (“
Bristol
”), an entity controlled by our Executive Chairman, for the sale of our securities, comprised
of (i) $2.5 million of convertible debentures convertible at a price of $0.15 per share (the “
Debenture
”),
(ii) warrants (the “
Series A Warrants
”) to acquire 16,666,667 shares of our common stock at an exercise price
of $0.15 per share, and (iii) warrants (the “
Series B Warrants
” and, together with the Series A Warrants, the
“
Warrants
”) to acquire 16,666,650 shares of our common stock at an exercise price of $0.0001 per share. As
a condition to Bristol entering into the Purchase Agreement, we entered into a Security Agreement (the “
Security Agreement
”)
in favor of Bristol, granting a security interest in substantially all of our property, whether presently owned or existing or
hereafter acquired or coming into existence, including but not limited to, its ownership interests in our subsidiaries, to secure
the prompt payment, performance and discharge in full of all of our obligations under the Debenture. We received net proceeds
under the Purchase agreement of approximately $2.47 million after paying certain fees and expenses. In connection with this offering,
on [__], 2018, we entered into and Exchange Agreement with Bristol pursuant to which we will issue immediately prior to the closing
of this offering [__] shares of Preferred Stock in exchange for the Notes (the “
Exchange
”).
In
connection with the Exchange, the Purchase Agreement was terminated and we entered into an agreement with Bristol providing certain
rights previously granted to Bristol pursuant to the Purchase Agreement, including, among other things, that the consent of the
holders of a majority of the Preferred Stock will be required for the incurrence of certain liens on the Company’s assets.
In addition, upon Bristol’s request, we will register the shares of common stock issuable upon conversion of the Preferred
Stock or shares issued in payment of any dividend on the Preferred Stock on a Registration Statement on Form S-3, once eligible
to utilize such form.
On
December 29, 2016, we entered into a Consulting Services Agreement (the “
Bristol Consulting Agreement
”) with
Bristol Capital, LLC (“
Bristol Capital
”), a Delaware limited liability company managed by our Executive Chairman.
Pursuant to the Bristol Consulting Agreement, Mr. Kessler will serve as our Executive Chairman. The initial term of the Bristol
Consulting Agreement is from December 29, 2016 through March 28, 2017. The term of the Bristol Consulting Agreement will be automatically
extended for additional terms of 90-day periods each, unless either we or Bristol Capital gives prior written notice of non-renewal
to the other party no later than thirty days prior to the expiration of the then current term.
During
the term of the Bristol Consulting Agreement, we will pay Bristol Capital a monthly fee of $18,750. For services rendered by Bristol
Capital prior to entering into the Bristol Consulting Agreement, we paid Bristol Capital a fee of $[__]. Bristol Capital may receive
an annual performance incentive award as determined by the Compensation Committee and approved by the Board.
In
addition, we granted Bristol Capital options to purchase up to an aggregate of 600,000 shares of our common stock, vesting in
quarterly increments of 75,000 options through June 30, 2018 and expiring on December 29, 2021.
During
the year ended December 31, 2017, we utilized outsourced marketing support from a company affiliated with a management
and consulting company which, at the time of the relationship with the Company was partially owned by a member of the Board.
The Company’s member of the Board no longer has any affiliation with the entity. We had expenses of $7,500 and $5,809
during the years ended December 31, 2017 and 2016. As of December 31, 2017 and 2016, the outstanding liability due to the entity
was $2,250 and $0, respectively.
Description
of Capital Stock
The
following description of our capital stock, together with any additional information we include in any applicable prospectus supplements
or any free writing prospectuses that we may authorize to be delivered to you, summarizes the material terms and provisions of
our capital stock that we may offer under this prospectus. While the terms we have summarized below will apply generally to any
future capital stock that we may offer, we will describe the particular terms of any class or series of these securities in more
detail in the applicable prospectus supplement or free writing prospectus. For the complete terms of our capital stock, please
refer to our certificate of incorporation and our bylaws that are incorporated by reference into the registration statement of
which this prospectus is a part or may be incorporated by reference in this prospectus or any prospectus supplement. The terms
of these securities may also be affected by the Delaware General Corporation Law, or the DGCL. The summary below and that contained
in any prospectus supplement or free writing prospectus are qualified in their entirety by reference to our certificate of incorporation
and our bylaws.
Common
Stock
We
are authorized to issue 80,000,000 shares of common stock, of which [68,535,036] shares were issued and outstanding as of [_____],
2018 and held by [__] shareholders of record (without consideration of those shareholders whose certificates are held in the name
of broker-dealers or other nominees. The holders of common stock possess exclusive voting rights in us, except to the extent our
board of directors specifies voting power with respect to any other class of securities issued in the future. Each holder of our
common stock is entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including
the election of directors. Stockholders do not have any right to cumulate votes in the election of directors.
Subject
to preferences that may be granted to the holders of preferred stock, each holder of our common stock is entitled to share ratably
in distributions to stockholders and to receive ratably such dividends as may be declared by our board of directors out of funds
legally available therefor. In the event of our liquidation, dissolution or winding up, the holders of our common stock will be
entitled to receive, after payment of all of our debts and liabilities and of all sums to which holders of any preferred stock
may be entitled, the distribution of any of our remaining assets. Holders of our common stock have no conversion, exchange, sinking
fund, redemption or appraisal rights (other than such as may be determined by our board of directors in its sole discretion) and
have no preemptive rights to subscribe for any of our securities.
All
of the outstanding shares of our common stock are, and the shares of common stock issued upon the conversion of any securities
convertible into our common stock will be, fully paid and non-assessable. The shares of common stock offered by this prospectus
or upon the conversion of any preferred stock or debt securities or exercise of any warrants offered pursuant to this prospectus,
when issued and paid for, will also be, fully paid and non-assessable.
Our
common stock is currently quoted on the OTCQB under the symbol “WIZD”. We have applied to have our common stock listed
on the Nasdaq CM under the same symbol. The closing of this offering is contingent upon the successful listing of our common stock
on the Nasdaq CM.
Preferred
Stock
We
are authorized to issue 5,000,000 shares of preferred stock, [__] of which are classified as Preferred Stock, of which [__] were
issued and outstanding as of [_____], 2018. Our board is authorized to classify or reclassify any unissued portion of our authorized
shares of preferred stock to provide for the issuance of shares of other classes or series, including preferred stock in one or
more series. We may issue preferred stock from time to time in one or more classes or series, with the exact terms of each class
or series established by our board. Without seeking stockholder approval, our board may issue preferred stock with voting and
other rights that could adversely affect the voting power of the holders of our common stock. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the common stock.
The
rights, preferences, privileges and restrictions of the preferred stock of each series will be fixed by the certificate of designation
relating to each series. The terms of preferred stock may include but not be limited to:
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the
distinctive designation and the maximum number of shares in the series;
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the
terms on which dividends, if any, will be paid;
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the
voting rights, if any, on the shares of the series;
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the
terms and conditions, if any, on which the shares of the series shall be convertible into, or exchangeable for, shares of
any other class or classes of capital stock;
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the
terms on which the shares may be redeemed, if at all;
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the
liquidation preference, if any; and
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any
or all other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of
the series.
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We
have designated one series of our Preferred Stock as Preferred Stock. A summary of the terms of the Preferred Stock is set forth
below.
Stated
Value.
Each share of Preferred Stock shall have a stated value of $1,000 (the “
Stated Value
”).
Shares
Reserved.
We have reserved for issuance [__] shares of common stock to be issued upon conversion of the Preferred Stock.
Dividends
.
The Preferred Stock carries a dividend, payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first
such date after the first issuance by the Company at the rate of twelve percent (12%) per annum on the liquidation preference
then in effect. The dividend may be paid in cash or in shares of common stock, at the election of the Company, in its sole discretion,
provided that at the time of payment the Company has not announced a change of control transaction and the trading volume of the
Company exceeds $100,000 for 20 consecutive trading days. Dividends paid in shares of common stock are valued at the lesser of
(i) the conversion price then in effect and (ii) 70% of the volume weighted average price for 20 consecutive trading days prior
to declaration or payment.
Conversion
.
The Preferred Stock is convertible into common stock at a price of $0.15 per share (the “
Conversion Price
”)
(which amount shall be proportionally adjusted to reflect the Consolidation Ratio), at any time, at the option of the holder.
The conversion rate is subject to a full ratchet adjustment for certain issuances of our common stock or securities convertible
into our common stock at a price per share below the Preferred Stock conversion price then in effect. In addition, the conversion
price may be adjusted for certain corporate transactions including, but not limited to, stock splits, stock dividends, or other
recapitalizations.
Voting
.
The Preferred Stock and Common Stock vote on all matters before the stockholders as a single class, except as may be provided
by law. Each share of Preferred Stock will have the number of votes per share equal to (i) the Stated Value divided by (ii) the
greater of (x) the Conversion Price and (y) the consolidated bid price per share of the Common Stock on our principal market at
the time the Exchange Agreement is signed.
Protective
Provisions
. As long as any shares of Preferred Stock are outstanding, we may not, without the affirmative vote of the holders
of a majority of the then outstanding shares of the Preferred Stock, (i) amend, alter or repeal any provision of, or add any provision
to, our Certificate of Incorporation (by means of amendment or by merger, consolidation or otherwise), or our Bylaws, to change
the rights of the Preferred Stock, (ii) create or authorize the creation of any additional class or series of shares of stock
which ranks senior to the Preferred Stock as to dividends or the distribution of assets on the liquidation, dissolution or winding
up of the Company, or increase the authorized amount of any additional class or series of shares of stock which ranks senior to
such Preferred Stock as to dividends or the distribution of assets on the liquidation, dissolution or winding up of the Company,
or create or authorize any obligation or security convertible into shares of any series of Series Preferred Stock or into shares
of any other class or series of stock which ranks senior to such Preferred Stock as to dividends or the distribution of assets
on the liquidation, dissolution or winding up of the Company, whether any such creation, authorization or increase shall be by
means of amendment to our Certificate of Incorporation or by merger, consolidation or otherwise, (iii) create, or authorize the
creation of, or issue, or authorize the issuance of, any debt security which by its terms is convertible into or exchangeable
for any equity security of the Company, if such equity security ranks senior to the Preferred Stock as to dividends or the distribution
of assets on the liquidation, dissolution or winding up of the Company, (iv) issue shares of Common Stock which issuance would
result in the Corporation having and insufficient number of shares of Common Stock necessary to deliver upon the conversion of
the Preferred Stock in full, (v) purchase or redeem, or set aside any sums for the purchase or redemption of, or pay any dividend
or make any distribution on, any shares of stock other than the Preferred Stock, except for dividends or other distributions payable
on the Common Stock solely in the form of additional shares of Common Stock and other than shares of Common Stock repurchased
from employees, advisors, officers, directors or consultants or service providers at the original purchase price thereof, or (vi)
permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless
the Company could, under (i) through (v), purchase or otherwise acquire such shares at such time and in such manner.
Redemption
.
The holder(s) may not redeem the Preferred Stock. With the consent of our independent directors, we may redeem the Preferred Stock
upon payment of sum of (i) the product of (x) 130% of the Stated Value and (y) the number of shares of Preferred Stock to be redeemed
and (ii) any unpaid dividends.
Liquidation
.
Upon a liquidation of the Company, after payment of all debts and before any payment is made on the common stock, the Preferred
Stock is entitled to be paid the Stated Value, plus any unpaid dividends.
Immediately
prior to the completion of this offering, the Notes will be exchanged for shares of Preferred Stock.
Possible
Anti-Takeover Effects of Delaware Law and our Certificate of Incorporation and Bylaws
Provisions
of the DGCL and our certificate of incorporation and bylaws could make it more difficult to acquire us by means of a tender offer,
a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected
to discourage certain types of coercive takeover practices and takeover bids that our board of directors may consider inadequate
and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the
benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation
of these proposals could result in an improvement of their terms.
Delaware
Anti-Takeover Statute
We
are subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a
period of three years following the time the person became an interested stockholder, unless the business combination or the acquisition
of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a “business
combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns
(or within three years prior to the determination of interested stockholder status did own) 15% or more of a corporation’s
voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not
approved in advance by our board of directors, including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by our stockholders.
Removal
of Directors
Our
bylaws provide that our stockholders may only remove our directors with cause.
Amendment
Our
certificate of incorporation and our bylaws provide that the affirmative vote of the holders of at least 66 2/3% of our voting
stock then outstanding is required to amend certain provisions relating to the number, term, election and removal of our directors,
the filling of our board vacancies, stockholder notice procedures, the calling of special meetings of stockholders or action by
consent of stockholders, the indemnification of directors and officers and the forum for certain actions relating to the Company.
Size
of Board and Vacancies
Our
bylaws provide that the number of directors on our board of directors is fixed exclusively by our board of directors. Newly created
directorships resulting from any increase in our authorized number of directors will be filled by a majority of our board of directors
then in office, provided that a majority of the entire board of directors, or a quorum, is present and any vacancies in our board
of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled
generally by the majority vote of our remaining directors in office, even if less than a quorum is present.
Special
Stockholder Meetings
Our
certificate of incorporation provides that only the Chairman of our board of directors, our Chief Executive Officer or our board
of directors pursuant to a resolution adopted by a majority of the entire board of directors may call special meetings of our
stockholders.
Stockholder
Action by Written Consent
Our
certificate of incorporation expressly eliminates the right of our stockholders to act by written consent other than by written
consent of at least 66 2/3% of the total voting power of our then-outstanding capital stock, provided, however, that certain actions
additionally require the separate consent of the majority of the shares of Preferred Stock then outstanding. Stockholder action
must otherwise take place at the annual or a special meeting of our stockholders.
Requirements
for Advance Notification of Stockholder Nominations and Proposals
Our
bylaws establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as
directors other than nominations made by or at the direction of our board of directors or a committee of our board of directors.
No
Cumulative Voting
The
DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of
incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting.
Undesignated
Preferred Stock
The
authority that will be possessed by our board of directors to issue preferred stock could potentially be used to discourage attempts
by third parties to obtain control of our company through a merger, tender offer, proxy contest or otherwise by making such attempts
more difficult or more costly. Our board of directors may issue preferred stock with voting rights or conversion rights that,
if exercised, could adversely affect the voting power of the holders of our common stock.
Authorized
but Unissued Shares
Our
authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholder approval.
We may use additional shares for a variety of purposes, including future public offerings to raise additional capital, to fund
acquisitions and as employee compensation. The existence of authorized but unissued shares of common stock and preferred stock
could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger
or otherwise.
The
above provisions may deter a hostile takeover or delay a change in control or management.
Transfer
Agent and Registrar
The
transfer agent and registrar for our capital stock is VStock Transfer, LLC.
Shares
Eligible for Future Sale
Based
on the number of shares outstanding as of June 30, 2018, upon completion of this offering, [__] shares of common stock will be
outstanding. All of these shares will be freely tradable without restrictions or further registration under the Securities Act,
except for any shares held by our “affiliates”, as that term is defined under Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if their resale qualifies for exemption from registration described
below under Rule 144 promulgated under the Securities Act or another available exemption. Of these shares, approximately [__]
shares will be eligible for sale in the public market 90 days after the date of this prospectus, subject in certain circumstances
to the volume, manner of sale and other limitations under Rule 144, and to 180-day lock-up agreements applicable to holders of
most of the Company’s common stock.
Rule
144
In
general, non-affiliate persons who have beneficially owned restricted shares of our common stock for at least six months, and
any affiliate of ours who owns either restricted or unrestricted shares of our common stock, are entitled to sell their securities
without registration with the SEC under an exemption from registration provided by Rule 144 under the Securities Act.
Non-Affiliates
Any
person who is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding,
a sale may sell an unlimited number of restricted securities under Rule 144 if:
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the
restricted securities have been held for at least six months, including the holding period
of any prior owner other than one of our affiliates (subject to certain exceptions);
and
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we
are current in our Exchange Act reporting at the time of sale.
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Any
person who is not deemed to have been an affiliate of ours at the time of, or at any time during the three months preceding, a
sale and has held the restricted securities for at least one year, including the holding period of any prior owner other than
one of our affiliates, will be entitled to sell an unlimited number of restricted securities without regard to whether we are
current in our Exchange Act reporting. Non-affiliate resales are not subject to the manner of sale, volume limitation or notice
filing provisions of Rule 144.
Affiliates
Persons
seeking to sell restricted securities who are our affiliates at the time of, or any time during the three months preceding, a
sale, would be subject to the restrictions described above. They are also subject to additional restrictions, by which such person
would be required to comply with the manner of sale and notice provisions of Rule 144 and would be entitled to sell within any
three-month period only that number of securities that does not exceed the greater of either of the following:
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1%
of the number of shares of our common stock then outstanding, which will equal approximately [__] shares immediately after
the completion of this offering based on the number of shares outstanding as of June 30, 2018; or
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the
average weekly trading volume of our common stock on The NASDAQ Capital Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
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Lock-Up
Agreements
We
and each of our directors and officers have agreed, for a period of 180 days after the date of this prospectus and subject to
certain exceptions, not to directly or indirectly:
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issue
(in the case of us), offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of our
common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common stock
or other capital stock; or
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in
the case of us, file or cause the filing of any registration statement under the Securities Act with respect to any shares
of our common stock beneficially owned by them or other capital stock or any securities beneficially owned by them that are
convertible into or exercisable or exchangeable for our common stock or other capital stock other than a Form S-8 Registration
Statement to cover shares and interests granted under the Company’s equity incentive plans; or
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in
the case of us, complete any offering of our debt securities, other than entering into a line of credit with a traditional
bank; or
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enter
into any swap or other agreement, arrangement, hedge or transaction that transfers to another, in whole or in part, directly
or indirectly, any of the economic consequences of ownership of our common stock or other capital stock or any securities
convertible into or exercisable or exchangeable for our common stock or other capital stock, whether any transaction described
in any of the foregoing bullet points is to be settled by delivery of our common stock or other capital stock, other securities,
in cash or otherwise, or publicly announce an intention to do any of the foregoing.
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Certain
U.S. Federal Tax Considerations for Non-U.S. Holders of Our Common Stock
The
following is a discussion of certain material U.S. federal income tax considerations applicable to non-U.S. holders (as defined
below) with respect to their ownership and disposition of shares of our common stock issued pursuant to this offering, but does
not purport to be a complete analysis of all potential tax effects. All prospective non-U.S. holders of our common stock should
consult their own tax advisors with respect to the U.S. federal income tax consequences of the purchase, ownership and disposition
of our common stock, as well as any consequences arising under the U.S. estate tax or under the laws of any other taxing jurisdiction,
including any state, local and non-U.S. tax consequences and any U.S. federal non-income tax consequences. In general, a non-U.S.
holder means a beneficial owner of our common stock (other than a partnership or an entity or arrangement treated as a partnership
for U.S. federal income tax purposes) that is not, for U.S. federal income tax purposes:
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an
individual who is a citizen or resident of the United States;
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a
corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized in the United
States or under the laws of the United States or of any state thereof or the District of Columbia;
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an
estate, the income of which is subject to U.S. federal income tax regardless of its source; or
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a
trust if (1) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons
have the authority to control all of the trust’s substantial decisions or (2) the trust has a valid election in effect
under applicable U.S. Treasury Regulations to be treated as a U.S. person.
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This
discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code,
existing U.S. Treasury Regulations promulgated thereunder, published administrative rulings and judicial decisions, all as in
effect as of the date of this prospectus. These laws are subject to change and to differing interpretation, possibly with retroactive
effect. Any change or differing interpretation could alter the tax consequences to non-U.S. holders described in this prospectus.
This
discussion is limited to non-U.S. holders that hold shares of our common stock as a capital asset within the meaning of Section
1221 of the Code (generally, for investment). This discussion does not address all aspects of U.S. federal income taxation that
may be relevant to a particular non-U.S. holder in light of that non-U.S. holder’s individual circumstances, nor does it
address any aspects of U.S. estate or gift tax, or any state, local or non-U.S. taxes. This discussion also does not consider
any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable
to particular non-U.S. holders, such as holders that own, or are deemed to own, more than 5% of our capital stock (except to the
extent specifically set forth below), corporations that accumulate earnings to avoid U.S. federal income tax, tax-exempt organizations,
banks, financial institutions, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-qualified
retirement plans, holders subject to the alternative minimum tax or Medicare contribution tax, holders holding our common stock
as part of a hedge, straddle or other risk reduction strategy, conversion transaction or other integrated investment, holders
deemed to sell our common stock under the constructive sale provisions of the Code, controlled foreign corporations, passive foreign
investment companies and U.S. expatriates and certain former citizens or long-term residents of the United States.
In
addition, this discussion does not address the tax treatment of partnerships (or entities or arrangements that are treated as
partnerships for U.S. federal income tax purposes) or persons that hold their common stock through such partnerships or such entities
or arrangements. If a partnership, including any entity or arrangement treated as a partnership for U.S. federal income tax purposes,
holds shares of our common stock, the U.S. federal income tax treatment of a partner in such partnership will generally depend
upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Such partners
and partnerships should consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition
of our common stock.
There
can be no assurance that the Internal Revenue Service, which we refer to as the IRS, will not challenge one or more of the tax
consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling with respect to the U.S. federal
income tax consequences with respect to the matters discussed below.
Distributions
on Our Common Stock
Distributions,
if any, on our common stock generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our
current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds
our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holder’s
investment, up to such holder’s adjusted tax basis in the common stock. Any remaining excess will be treated as capital
gain from the sale or exchange of such common stock, subject to the tax treatment described below in “—Gain on sale,
exchange or other disposition of our common stock.”
Subject
to the discussion below regarding backup withholding and foreign accounts, dividends paid to a non-U.S. holder will generally
be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income
tax treaty. A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain
a refund or credit of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. A non-U.S. holder
of our common stock who claims the benefit of an applicable income tax treaty generally will be required to provide a properly
executed IRS Form W-8BEN or W-8BEN-E (or successor form) and satisfy relevant certification and other requirements. Non-U.S. holders
are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.
Dividends
that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States and,
if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained
by the non-U.S. holder within the United States are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies
applicable certification and disclosure requirements. To claim the exemption, the non-U.S. holder must furnish to us or the applicable
withholding agent a valid IRS Form W-8ECI (or applicable successor form), certifying that the dividends are effectively connected
with the non-U.S. holder’s conduct of a trade or business within the United States. However, such U.S. effectively connected
income, net of specified deductions and credits, is taxed at the same U.S. federal income tax rates applicable to U.S. persons
(as defined in the Code). Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also,
under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty.
Gain
on Sale, Exchange or Other Disposition of Our Common Stock
Subject
to the discussions below regarding backup withholding and foreign accounts, in general, a non-U.S. holder will not be subject
to any U.S. federal income tax on any gain realized upon such holder’s sale, exchange or other disposition of shares of
our common stock unless:
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the
gain is effectively connected with a U.S. trade or business of the non-U.S. holder and, if an applicable income tax treaty
so provides, is attributable to a permanent establishment or a fixed base maintained in the United States by such non-U.S.
holder, in which case the non-U.S. holder generally will be taxed at the U.S. federal income tax rates applicable to U.S.
persons (as defined in the Code) and, if the non-U.S. holder is a foreign corporation, the branch profits tax described above
in “Distributions on our common stock” may also apply;
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the
non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable
year of the disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax
(or such lower rate as may be specified by an applicable income tax treaty) on the net gain derived from the disposition,
which may be offset by U.S. source capital losses of the non-U.S. holder, if any (even though the individual is not considered
a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect
to such losses; or
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our
common stock constitutes a U.S. real property interest because we are, or have been, at any time during the five-year period
preceding such disposition (or the non-U.S. holder’s holding period, if shorter) a “U.S. real property holding
corporation.” Even if we are or become a U.S. real property holding corporation, provided that our common stock is regularly
traded on an established securities market, our common stock will be treated as a U.S. real property interest only with respect
to a non-U.S. holder that holds more than 5% of our outstanding common stock, directly or indirectly, actually or constructively,
during the shorter of the five-year period ending on the date of the disposition or the period that the non-U.S. holder held
our common stock. In such case, such non-U.S. holder generally will be taxed on its net gain derived from the disposition
at the graduated U.S. federal income tax rates applicable to U.S. persons (as defined in the Code). Generally, a corporation
is a U.S. real property holding corporation only if the fair market value of its U.S. real property interests equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use
in a trade or business. Although there can be no assurance, we do not believe that we are, or have been, a U.S. real property
holding corporation, or that we are likely to become one in the future. We expect that our common stock will be regularly
traded on an established securities market, but no assurance can be provided that our common stock will be regularly traded.
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Backup
Withholding and Information Reporting
We
must report annually to the IRS and to each non-U.S. holder the gross amount of the dividends on our common stock paid to such
holder and the tax withheld, if any, with respect to such dividends. Non-U.S. holders will have to comply with specific certification
procedures to establish that the holder is not a U.S. person (as defined in the Code) in order to avoid backup withholding at
the applicable rate with respect to dividends on our common stock. U.S. backup withholding generally will not apply to a non-U.S.
holder who provides a properly executed IRS Form W-8BEN or W-8BEN-E or otherwise establishes an exemption.
Information
reporting and backup withholding will generally apply to the proceeds of a disposition of our common stock by a non-U.S. holder
effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder
and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding
will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United
States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S.
office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions
effected through a U.S. office of a broker. Non-U.S. holders should consult their own tax advisors regarding the application of
the information reporting and backup withholding rules to them.
Copies
of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is
incorporated under the provisions of a specific treaty or agreement.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder
may be allowed as a credit against the non-U.S. holder’s U.S. federal income tax liability, if any, and may entitle such
holder to a refund, provided that the required information is timely furnished to the IRS.
Foreign
accounts
The
Code generally imposes a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common
stock paid to a “foreign financial institution” (as specifically defined for this purpose), unless such institution
enters into an agreement with the U.S. government to, among other things, withhold on certain payments and to collect and provide
to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which may include certain
equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). Foreign
financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these
withholding and reporting requirements may be subject to different rules. This U.S. federal withholding tax of 30% also applies
to dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity, unless such entity
provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners
or information regarding substantial direct and indirect U.S. owners of the entity. The withholding tax described above will not
apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules.
The withholding provisions described above currently apply to dividends on our common stock and will apply with respect to gross
proceeds of a sale or other disposition of our common stock on or after January 1, 2019. Under certain circumstances, a non-U.S.
holder might be eligible for refunds or credits of such taxes. Non-U.S. holders are encouraged to consult with their own tax advisors
regarding the possible implications of the legislation on their investment in our common stock.
EACH
PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF
OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY RECENTLY ENACTED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING
UNDER ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS.
Underwriting
We
have entered into an underwriting agreement dated [__], 2018, with Roth Capital Partners, LLC, acting as the representative for
the underwriters named below. Subject to the terms and conditions of the underwriting agreement, the underwriters named below
have agreed to purchase, and we have agreed to sell to them, the number of shares common stock at the public offering price, less
the underwriting discounts and commissions, as set forth on the cover page of this prospectus and as indicated below:
Underwriter
|
|
Number
of Shares
|
Roth
Capital Partners, LLC
|
|
[__]
|
Total
|
|
[__]
|
All
of the shares to be purchased by the underwriters will be purchased from us.
The
underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the shares of common
stock offered by this prospectus are subject to various conditions and representations and warranties, including the approval
of certain legal matters by their counsel and other conditions specified in the underwriting agreement. The shares of common stock
are offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them. The underwriters reserve
the right to withdraw, cancel or modify the offer to the public and to reject orders in whole or in part. The underwriters are
obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares of common stock
are taken, other than those shares of common stock and warrants covered by the over-allotment option described below.
Over-Allotment
Option
We
have granted to the underwriters an option, exercisable no later than 30 calendar days after the effective date of the registration
statement, to purchase up to an additional [__] shares of common stock (15% of the shares of common stock sold in this offering)
from us to cover over-allotments, if any, at a price per share of common stock of $[__], less the underwriting discounts and commissions.
The underwriters may exercise this option only to cover over-allotments made in connection with this offering. If the underwriters
exercise this option in whole or in part, then the underwriters will be severally committed, subject to the conditions described
in the underwriting agreement, to purchase these additional shares of common stock. If any additional shares of common stock are
purchased, the underwriters will offer the additional shares of common stock on the same terms as those on which the shares of
common stock are being offered hereby.
Discounts
and Commissions
The
representative has advised us that the underwriters propose to offer the shares of common stock to the public at the initial public
offering price per share set forth on the cover page of this prospectus. The underwriters may offer shares to securities dealers
at that price less a concession of not more than $[__] per share. After the initial offering to the public, the public offering
price and other selling terms may be changed by the representative.
The
following table summarizes the public offering price, underwriting discounts and commissions and proceeds before expenses to us
assuming both no exercise and full exercise by the underwriters of their over-allotment option:
|
|
|
Per
Share
|
|
|
|
Total
Without Over- Allotment
|
|
|
|
Total
With Over-Allotment
|
|
Public
offering price
|
|
$
|
[__]
|
|
|
$
|
[__]
|
|
|
$
|
[__]
|
|
Underwriting
discounts and commissions ([__]%)
|
|
$
|
[__]
|
|
|
$
|
[__]
|
|
|
$
|
[__]
|
|
Proceeds,
before expenses, to us
|
|
$
|
[__]
|
|
|
$
|
[__]
|
|
|
$
|
[__]
|
|
We
have also agreed to pay the reasonable out of pocket expenses of the underwriters relating to the offering, including the underwriters’
legal fees incurred in connection with this offering, in an amount up to $150,000.
We
estimate the expenses of this offering payable by us, not including underwriting discounts and commissions will be approximately
$[__].
Representative’s
Warrants
Upon
closing of this offering, we have agreed to issue to the representative of the underwriters as compensation warrants to purchase
a number of shares of common stock equal to 8% of the aggregate number of shares of common stock sold in this public offering,
or the Representative’s Warrants. The Representative’s Warrants will be exercisable at a per share exercise price
equal to 115% of the public offering price per share of the shares of common stock sold in this offering. The Representative’s
Warrants are exercisable at any time and from time to time, in whole or in part, during the four-year period commencing one year
from the effective date of the registration statement related to this offering.
The
Representative’s Warrants and the shares of common stock underlying the Representative’s Warrants have been deemed
compensation by FINRA and are, therefore, subject to a 180-day lock-up pursuant to FINRA Rule 5110(g)(1). The representative,
or permitted assignees under such rule, may not sell, transfer, assign, pledge, or hypothecate the Representative’s Warrants
or the securities underlying the Representative’s Warrants, nor will the representative engage in any hedging, short sale,
derivative, put, or call transaction that would result in the effective economic disposition of the Representative’s Warrants
or the underlying shares of common stock for a period of 180 days from the effective date of the registration statement. Additionally,
the Representative’s Warrants may not be sold transferred, assigned, pledged or hypothecated for a 180-day period following
the effective date of the registration statement except to any underwriter and selected dealer participating in the offering and
their bona fide officers or partners. The Representative’s Warrants will provide for adjustment in the number and price
of the Representative’s Warrants and the shares of common stock underlying such Representative’s Warrants in the event
of recapitalization, merger, stock split or other structural transaction.
NASDAQ
Listing
We
expect that our common stock will be approved for listing on The Nasdaq Capital Market under the symbol “WIZD” upon
completion of this offering, subject to official notice of issuance.
Lock-Up
Agreements
We
and each of our directors and officers have agreed, for a period of 180 days after the date of this prospectus and subject to
certain exceptions, not to directly or indirectly:
|
●
|
issue
(in the case of us), offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of our
common stock beneficially owned by them or other capital stock or any securities beneficially owned by them that are convertible
into or exercisable or exchangeable for our common stock or other capital stock; or
|
|
●
|
in
the case of us, file or cause the filing of any registration statement under the Securities Act with respect to any shares
of our common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common
stock or other capital stock other than a Form S-8 Registration Statement to cover shares and interest granted under the Company’s
equity incentive plans; or
|
|
●
|
in
the case of us, complete any offering of our debt securities, other than entering into a line of credit with a traditional
bank; or
|
|
●
|
enter
into any swap or other agreement, arrangement, hedge or transaction that transfers to another, in whole or in part, directly
or indirectly, any of the economic consequences of ownership of our common stock or other capital stock or any securities
convertible into or exercisable or exchangeable for our common stock or other capital stock, whether any transaction described
in any of the foregoing bullet points is to be settled by delivery of our common stock or other capital stock, other securities,
in cash or otherwise, or publicly announce an intention to do any of the foregoing.
|
Price
Stabilization, Short Positions and Penalty Bids
In
connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price
of our common stock. Specifically, the underwriters may over-allot in connection with this offering by selling more shares than
are set forth on the cover page of this prospectus. This creates a short position in our common stock for its own account. The
short position may be either a covered short position or a naked short position. In a covered short position, the number of shares
of common stock over-allotted by the underwriters is not greater than the number of shares of common stock that they may purchase
in the over-allotment option. In a naked short position, the number of shares of common stock involved is greater than the number
of shares common stock in the over-allotment option. To close out a short position, the underwriters may elect to exercise all
or part of the over-allotment option. The underwriters may also elect to stabilize the price of our common stock or reduce any
short position by bidding for, and purchasing, common stock in the open market.
The
underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed
to it for distributing shares of common stock in this offering because the underwriter repurchases the shares of common stock
in stabilizing or short covering transactions.
Finally,
the underwriters may bid for, and purchase, shares of our common stock in market making transactions, including “passive”
market making transactions as described below.
These
activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might
otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue
any of these activities at any time without notice. These transactions may be effected on NASDAQ, in the over-the-counter market,
or otherwise.
In
connection with this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market
making transactions in our common stock immediately prior to the commencement of sales in this offering, in accordance with Rule
103 of Regulation M under the Exchange Act. Rule 103 generally provides that:
|
●
|
a
passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent
bid price by persons who are not passive market makers;
|
|
●
|
net
purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily
trading volume in our common stock during a specified two-month prior period or 200 shares, whichever is greater, and must
be discontinued when that limit is reached; and
|
|
●
|
passive
market making bids must be identified as such.
|
Indemnification
We
have agreed to indemnify the underwriters against liabilities relating to the offering arising under the Securities Act and the
Exchange Act, liabilities arising from breaches of some or all of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required to make for these liabilities.
Electronic
Distribution
A
prospectus in electronic format may be made available on a website maintained by one or more underwriters, or selling group members,
if any, participating in this offering. The underwriters may agree to allocate a number of shares to underwriters and selling
group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative
of the underwriters to underwriters and selling group members that may make internet distributions on the same basis as other
allocations. In connection with the offering, the underwriters or syndicate members may distribute prospectuses electronically.
No forms of electronic prospectus other than prospectuses that are printable as Adobe® PDF will be used in connection with
this offering.
The
underwriters have informed us that they do not intend to confirm sales to accounts over which they exercise discretionary authority
in excess of five percent of the total number of shares of common stock offered by them.
Other
than the prospectus in electronic format, the information on any underwriters’ website and any information contained in
any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus
is a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied
upon by investors.
Selling
Restrictions
No
action has been taken in any jurisdiction (except in the United States) that would permit a public offering of our common stock,
or the possession, circulation or distribution of this prospectus or any other material relating to us or our common stock in
any jurisdiction where action for that purpose is required. Accordingly, our common stock may not be offered or sold, directly
or indirectly, and none of this prospectus or any other offering material or advertisements in connection with our common stock
may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations
of any such country or jurisdiction.
European
Economic Area
In
relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each referred to as
a Relevant Member State, with effect from and including the date on which the Prospectus Directive is implemented in that Relevant
Member State, or the Relevant Implementation Date, our securities will not be offered to the public in that Relevant Member State
prior to the publication of a prospectus in relation to our securities that has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority
in that Relevant Member State, all in accordance with the Prospectus Directive, except that, with effect from and including the
Relevant Implementation Date, an offer of our securities may be made to the public in that Relevant Member State at any time:
|
●
|
to
any legal entity that is a qualified investor as defined in the Prospectus Directive;
|
|
●
|
to
fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive,
150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the
Prospectus Directive, subject to obtaining the prior consent of the manager for any such offer; or
|
|
●
|
in
any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3(2) of the
Prospectus Directive,
|
provided
that no such offer of the securities shall require the issuer or any underwriter to publish a prospectus pursuant to Article 3
of the Prospectus Directive.
For
the purposes of this provision, the expression an “offer of securities to the public” in relation to any securities
in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the
offer and securities to be offered so as to enable an investor to decide to purchase or subscribe securities, as the same may
be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and
the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending
Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant
Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
United
Kingdom
This
prospectus is not an approved prospectus for purposes of the UK Prospectus Rules, as implemented under the EU Prospectus Directive
(2003/71/EC), and has not been approved under section 21 of the Financial Services and Markets Act 2000 (as amended), or the FSMA,
by a person authorized under FSMA. The financial promotions contained in this prospectus are directed at, and this prospectus
is only being distributed to, (1) persons who receive this prospectus outside of the United Kingdom, and (2) persons in the United
Kingdom who fall within the exemptions under articles 19 (investment professionals) and 49(2)(a) to (d) (high net worth companies,
unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons
together being referred to as Relevant Persons). This prospectus must not be acted upon or relied upon by any person who is not
a Relevant Person. Any investment or investment activity to which this prospectus relates is available only to Relevant Persons
and will be engaged in only with Relevant Persons. This prospectus and its contents are confidential and should not be distributed,
published or reproduced (in whole or in part) or disclosed by recipients to any other person that is not a Relevant Person.
Each
underwriter has represented, warranted and agreed that:
(a)
|
it
has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of section 21 of the FSMA in connection with the issue or
sale of any of the shares of common stock in circumstances in which section 21(1) of the FSMA does not apply to the issuer;
and
|
|
|
(b)
|
it
has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation
to the shares of common stock in, from or otherwise involving the United Kingdom.]
|
Legal
Matters
The
validity of the shares of common stock offered hereby will be passed upon for us by DLA Piper LLP (US), Phoenix, Arizona. Certain
legal matters will be passed upon for the underwriters by Akerman LLP, Fort Lauderdale, Florida.
Experts
Our
consolidated financial statements as of December 31, 2017 and for the year ended December 31, 2017 have been incorporated by reference
herein and in the registration statement in reliance upon the report of Maughan Sullivan LLC (“
Maughan
”), independent
registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting
and auditing.
Our
consolidated financial statements as of December 31, 2016 and for the year ended December 31, 2016 have been incorporated by reference
herein and in the registration statement in reliance upon the report of Rosenberg Rich Baker Berman & Company (“
RRBB
”),
independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
Change
in Auditor
Effective
on December 19, 2017, we dismissed RRBB as our independent registered public accounting firm.
RRBB’s
report on the financial statements for the fiscal years ended December 31, 2016 and 2015, contained no adverse opinion or disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years
ended December 31, 2016 and 2015, and in the subsequent interim periods through December 19, 2017, the date of dismissal of RRBB,
there were no disagreements with RRBB on any matter of accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of RRBB, would have caused them to make reference
to the subject matter of the disagreements in its reports on the financial statements for such year. During the fiscal years ended
December 31, 2016 and 2015, and in the subsequent interim period through December 19, 2017, the date of dismissal of RRBB, there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. RRBB provided us with a letter, dated December 28,
2017, addressed to the Commission stating that it agreed with the above disclosure. The change in auditors was approved by our
Board of Directors.
Effective
on December 26, 2017, we approved the engagement of Maughan as our new independent registered public accounting firm.
During
the fiscal year ended December 31, 2016, and the subsequent interim period prior to the engagement of Maughan, we did not consult
Maughan regarding (i) the application of accounting principles to any specified transaction, either completed or proposed; (ii)
the type of audit opinion that might be rendered on our financial statements, and either a written report was provided to the
registrant or oral advice was provided that the new accountant concluded was an important factor considered by the registrant
in reaching a decision as to the accounting, auditing or financial reporting issue; or (iii) any matter that was either the subject
of a disagreement (as defined in Item 304(a)(1)(v)) of Regulation S-K or a reportable event (as defined in Item 304(a)(1)(v))
of Regulation S-K.
Where
You Can Find More Information
We
file annual, quarterly and current reports, and other information with the SEC. Copies of the reports and other information may
be read and copied at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549 on official business
days during the hours of 10:00 a.m. to 3:00 p.m. Eastern Time. You can request copies of such documents by writing to the SEC
and paying a fee for the copying cost. You may obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the SEC.
This
prospectus is part of a registration statement on Form S-1 that we filed with the SEC. Certain information in the registration
statement has been omitted from this prospectus in accordance with the rules and regulations of the SEC. We have also filed exhibits
and schedules with the registration statement that are excluded from this prospectus. For further information you may:
|
●
|
read
a copy of the registration statement, including the exhibits and schedules, without charge at the SEC’s Public Reference
Room; or
|
|
●
|
obtain
a copy from the SEC upon payment of the fees prescribed by the SEC.
|
You
also may access our filings on our website at www.wizardworld.com. We do not incorporate the information on our website into this
prospectus or any supplement to this prospectus and you should not consider any information on, or that can be accessed through,
our website as part of this prospectus or any supplement to this prospectus (other than those filings with the Commission that
we specifically incorporate by reference into this prospectus or any supplement to this prospectus).
Incorporation
of Certain Information by Reference
The
Commission allows us to “incorporate by reference” information from other documents that we file with it, which means
that we can disclose important information to you by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus. Information in this prospectus supersedes information incorporated by reference that
we filed with the Commission prior to the date of this prospectus. We incorporate by reference into this prospectus and the registration
statement of which this prospectus is a part the information or documents listed below that we have filed with the Commission
(File No. 000-33383):
|
●
|
our
Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Commission on April 2, 2018, as amended on
April 4, 2018 and April 30, 2018;
|
|
|
|
|
●
|
our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018, filed with the Commission on May 14,
2018 and August 14, 2018, respectively; and
|
|
|
|
|
●
|
our
Current Reports on Form 8-K filed with the Commission on October 5, 2018
2
.
|
Notwithstanding
the statements in the preceding paragraphs, no document, report or exhibit (or portion of any of the foregoing) or any other information
that we have “furnished” to the Commission pursuant to the Exchange Act shall be incorporated by reference into this
prospectus.
We
will furnish without charge to you, on written or oral request, a copy of any or all of the documents incorporated by reference
in this prospectus, including exhibits to these documents. You should direct any requests for documents to Wizard Entertainment,
Inc., Attn: Investor Relations, 662 N. Sepulveda Blvd., Suite 300, Los Angeles, California 90049.
You
also may access these filings on our website at www.wizardworld.com. We do not incorporate the information on our website into
this prospectus or any supplement to this prospectus and you should not consider any information on, or that can be accessed through,
our website as part of this prospectus or any supplement to this prospectus (other than those filings with the Commission that
we specifically incorporate by reference into this prospectus or any supplement to this prospectus).
Any
statement contained in a document incorporated or deemed to be incorporated by reference in this prospectus will be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a statement contained in this prospectus modifies, supersedes
or replaces such statement.
WIZARD
ENTERTAINMENT, INC.
INDEX
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Financial
Statements for the Three Months and Six Months ended June 30, 2018 and 2017 (unaudited)
|
|
|
|
a.
|
Condensed Consolidated
Balance Sheets at June 30, 2018 (unaudited) and December 31, 2017
|
F-2
|
b.
|
Condensed Consolidated
Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)
|
F-3
|
c.
|
Condensed Consolidated
Statements of Stockholders’ Deficit for the Six Months Ended June 30, 2018 (unaudited)
|
F-4
|
d.
|
Condensed Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)
|
F-5
|
e.
|
Notes to the Condensed
Consolidated Financial Statements (unaudited)
|
F-6
|
|
|
|
Financial Statements for the years
ended December 31, 2017 and 2016
|
|
|
|
|
a.
|
Report of Independent
Registered Public Accounting Firm
|
F-20
|
b.
|
Consolidated Balance
Sheets at December 31, 2017 and 2016
|
F-22
|
c.
|
Consolidated Statements
of Operations for the Years Ended December 31, 2017 and 2016
|
F-23
|
d.
|
Consolidated Statements
of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2017 and 2016
|
F-24
|
e.
|
Consolidated Statements
of Cash Flows for the Years Ended December 31, 2017 and 2016
|
F-25
|
f.
|
Notes to the Consolidated
Financial Statements
|
F-26
|
WIZARD
ENTERTAINMENT, INC.
Condensed
Consolidated Balance Sheets
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,457,735
|
|
|
$
|
1,769,550
|
|
Accounts receivable, net
|
|
|
272,691
|
|
|
|
336,030
|
|
Inventory
|
|
|
-
|
|
|
|
1,204
|
|
Prepaid convention expenses
|
|
|
274,003
|
|
|
|
461,986
|
|
Prepaid insurance
|
|
|
68,035
|
|
|
|
87,987
|
|
Prepaid rent - related party
|
|
|
25,837
|
|
|
|
76,006
|
|
Prepaid taxes
|
|
|
13,984
|
|
|
|
14,398
|
|
Other prepaid
expenses
|
|
|
37,020
|
|
|
|
18,117
|
|
Total Current Assets
|
|
|
2,149,305
|
|
|
|
2,765,278
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
125,057
|
|
|
|
165,403
|
|
|
|
|
|
|
|
|
|
|
Security
deposits
|
|
|
9,408
|
|
|
|
9,408
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,238,770
|
|
|
$
|
2,940,089
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,643,593
|
|
|
$
|
2,800,118
|
|
Unearned revenue
|
|
|
1,737,545
|
|
|
|
2,164,972
|
|
Convertible promissory note –
related party, net
|
|
|
1,397,221
|
|
|
|
1,116,979
|
|
Due to CONtv
joint venture
|
|
|
224,241
|
|
|
|
224,241
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
6,002,600
|
|
|
|
6,306,310
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
6,002,600
|
|
|
|
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, respectively
|
|
|
-
|
|
|
|
-
|
|
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
|
|
|
19,999,173
|
|
|
|
19,960,893
|
|
Accumulated deficit
|
|
|
(23,712,360
|
)
|
|
|
(23,321,471
|
)
|
Non-controlling
interest
|
|
|
(12,498
|
)
|
|
|
(12,498
|
)
|
Total Stockholders’
Deficit
|
|
|
(3,718,830
|
)
|
|
|
(3,366,221
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Deficit
|
|
$
|
2,238,770
|
|
|
$
|
2,940,089
|
|
See
accompanying notes to the condensed consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
Condensed
Consolidated Statements of Operations
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
As Restated (Note 3)
|
|
|
|
|
|
As Restated (Note 3)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convention
|
|
$
|
5,111,867
|
|
|
$
|
4,936,084
|
|
|
$
|
9,103,033
|
|
|
$
|
8,384,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConBox
|
|
|
-
|
|
|
|
10,461
|
|
|
|
-
|
|
|
|
84,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,111,867
|
|
|
|
4,946,545
|
|
|
|
9,103,033
|
|
|
|
8,468,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
4,489,502
|
|
|
|
5,291,686
|
|
|
|
7,375,836
|
|
|
|
8,432,016
|
|
Total
cost of revenues
|
|
|
4,489,502
|
|
|
|
5,291,686
|
|
|
|
7,375,836
|
|
|
|
8,432,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
622,365
|
|
|
|
(345,141
|
)
|
|
|
1,727,197
|
|
|
|
36,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
464,296
|
|
|
|
932,191
|
|
|
|
921,581
|
|
|
|
1,937,521
|
|
Consulting fees
|
|
|
107,931
|
|
|
|
197,983
|
|
|
|
224,017
|
|
|
|
327,236
|
|
General and administrative
|
|
|
294,409
|
|
|
|
420,563
|
|
|
|
542,594
|
|
|
|
949,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
866,636
|
|
|
|
1,550,737
|
|
|
|
1,688,192
|
|
|
|
3,214,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from operations
|
|
|
(244,271
|
)
|
|
|
(1,895,878
|
)
|
|
|
39,005
|
|
|
|
(3,177,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(261,001
|
)
|
|
|
(92,776
|
)
|
|
|
(429,894
|
)
|
|
|
(176,674
|
)
|
Loss on disposal
of equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expenses
|
|
|
(261,001
|
)
|
|
|
(92,776
|
)
|
|
|
(429,894
|
)
|
|
|
(177,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income
tax provision
|
|
|
(505,272
|
)
|
|
|
(1,988,654
|
)
|
|
|
(390,889
|
)
|
|
|
(3,355,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(505,272
|
)
|
|
|
(1,988,654
|
)
|
|
|
(390,889
|
)
|
|
|
(3,355,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to non-controlling interests
|
|
|
-
|
|
|
|
(150
|
)
|
|
|
-
|
|
|
|
(643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(505,272
|
)
|
|
$
|
(1,988,504
|
)
|
|
$
|
(390,889
|
)
|
|
$
|
(3,354,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
- basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
- diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding - basic
|
|
|
68,535,036
|
|
|
|
68,535,036
|
|
|
|
68,535,036
|
|
|
|
68,535,036
|
|
Weighted average
common shares outstanding - diluted
|
|
|
68,535,036
|
|
|
|
68,535,036
|
|
|
|
68,535,036
|
|
|
|
68,535,036
|
|
See
accompanying notes to the condensed consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
Condensed
Consolidated Statement of Stockholders’ Deficit
For
the Six Months Ended June 30, 2018
(Unaudited)
|
|
Preferred
Stock
Par Value $0.0001
|
|
|
Common
Stock
Par Value $0.0001
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
(Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,960,893
|
|
|
$
|
(23,321,471
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(3,366,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,280
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(390,889
|
)
|
|
|
-
|
|
|
|
(390,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– June 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,999,173
|
|
|
$
|
(23,712,360
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(3,718,830
|
)
|
See
accompanying notes to the condensed consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
Condensed
Consolidated Statements of Cash Flows
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
As
Restated
(Note
3)
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(390,889
|
)
|
|
$
|
(3,355,415
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
48,274
|
|
|
|
85,538
|
|
Loss on disposal of equipment
|
|
|
-
|
|
|
|
785
|
|
Accretion of debt discount
|
|
|
280,242
|
|
|
|
24,022
|
|
Share-based compensation
|
|
|
38,280
|
|
|
|
276,106
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
63,339
|
|
|
|
(12,776
|
)
|
Inventory
|
|
|
1,204
|
|
|
|
(20,789
|
)
|
Prepaid convention expenses
|
|
|
187,983
|
|
|
|
(41,298
|
)
|
Prepaid rent - related party
|
|
|
50,169
|
|
|
|
55,620
|
|
Prepaid insurance
|
|
|
19,952
|
|
|
|
40,159
|
|
Prepaid taxes
|
|
|
414
|
|
|
|
(828
|
)
|
Other prepaid expenses
|
|
|
(18,903
|
)
|
|
|
(9,060
|
)
|
Security deposits
|
|
|
-
|
|
|
|
10,504
|
|
Accounts payable and accrued expenses
|
|
|
(156,525
|
)
|
|
|
1,598,412
|
|
Unearned revenue
|
|
|
(427,427
|
)
|
|
|
(40,434
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Operating Activities
|
|
|
(303,887
|
)
|
|
|
(1,389,454
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchase of property
and equipment
|
|
|
(7,928
|
)
|
|
|
(92,985
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Investing Activities
|
|
|
(7,928
|
)
|
|
|
(92,985
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
and cash equivalents
|
|
|
(311,815
|
)
|
|
|
(1,482,439
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of reporting period
|
|
|
1,769,550
|
|
|
|
4,401,217
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of reporting period
|
|
$
|
1,457,735
|
|
|
|
2,918,778
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to the condensed consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
June
30, 2018
Notes
to the Condensed Consolidated Unaudited Financial Statements
Note
1 – Organization and Operations
Wizard
World, Inc.
Wizard
World, Inc., formerly GoEnergy, Inc. (“Wizard World” or the “Company”) was incorporated on May 2, 2001,
under the laws of the State of Delaware. The Company, through its operating subsidiary, is a producer of pop culture and live
multimedia conventions across North America.
Note
2 – Going Concern Analysis
Going
Concern Analysis
The
Company had income (loss) from operations of $39,005 and $(3,177,956) for the six months ended June 30, 2018 and 2017, respectively.
As of June 30, 2018, we had cash and working capital deficit $1,457,735 and $3,853,295, 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 June 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 six months ended June 30, 2018 where operating costs decreased by 47%
as compared to the same period last year, 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 June 30, 2018 and December 31, 2017, the aggregate non-controlling interest in ButtaFyngas was ($12,498). The non-controlling
interest is separately disclosed on the Condensed 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 June 30, 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:
|
|
June
30, 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”), Bristol Capital, LLC (a related party controlled by a member of the
Board) (“Bristol Capital”) and a third party previously affiliated with a board member. 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 June 30, 2018 and 2017, the Company recognized $0 losses from this venture, respectively. For the six months
ended June 30, 2018 and 2017, the Company recognized $0 losses from this venture, respectively.
As
of June 30, 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 $4,654 for the three months ended June 30, 2018 and 2017, respectively. Shipping and handling costs
were $0 and $21,479 for the six 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 June 30,
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 June 30, 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 Six
Months
Ended
June
30, 2018
|
|
|
|
For
the Six
Months
Ended
June
30, 2017
|
|
|
|
|
|
|
|
|
|
|
Convertible note
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
Common stock options
|
|
|
3,743,000
|
|
|
|
4,645,000
|
|
Common stock
warrants
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
|
|
|
|
|
|
|
|
|
Total contingent
shares issuance arrangement, stock options or warrants
|
|
|
37,076,334
|
|
|
|
37,978,334
|
|
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 and six months ended June
30, 2017 are presented below:
|
|
Consolidated
Statement of Operations
Three
Months Ended June 30, 2017
|
|
|
|
Previously
Reported
|
|
|
Revisions
|
|
|
Revised
Reported
|
|
Change in fair value of
derivative liabilities
|
|
$
|
(238,069
|
)
|
|
$
|
238,069
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,226,573
|
)
|
|
$
|
238,069
|
|
|
$
|
(1,988,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tabular
summaries of the revisions and the corresponding effects on the statement of earnings for the six months ended June 30, 2017 are
presented below:
|
|
Consolidated
Statement of Operations
Six
Months Ended June 30, 2017
|
|
|
|
Previously
Reported
|
|
|
Revisions
|
|
|
Revised
Reported
|
|
Change in fair value of
derivative liabilities
|
|
$
|
1,645,372
|
|
|
$
|
(1,645,372
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,710,043
|
)
|
|
$
|
(1,645,372
|
)
|
|
$
|
(3,355,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
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:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Computer Equipment
|
|
$
|
43,087
|
|
|
$
|
43,087
|
|
Equipment
|
|
|
468,822
|
|
|
|
460,927
|
|
Furniture and Fixtures
|
|
|
62,321
|
|
|
|
62,321
|
|
Leasehold Improvements
|
|
|
22,495
|
|
|
|
22,495
|
|
|
|
|
596,758
|
|
|
|
588,830
|
|
Less: Accumulated
depreciation
|
|
|
(471,701
|
)
|
|
|
(423,427
|
)
|
|
|
$
|
125,057
|
|
|
$
|
165,403
|
|
Depreciation
expense was $48,274 and $85,538 for the six months ended June 30, 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, Bristol Capital (a
related party founded by the Company’s Chairman of the Board) and a third party consultant entity previously affiliated
with a board member (the “Consulting Entity”). 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, Bristol Capital
and the Consulting Entity, 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 six months ended June 30, 2018 and 2017, the Company recognized $0 in losses from this venture, respectively.
As
of June 30, 2018 and December 31, 2017, the investment in CONtv was $0.
As
of June 30, 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 June 30, 2018 and 2017, the Company incurred total expenses of $40,608 and $56,250, respectively, for services
provided by Bristol.
During
the six months ended June 30, 2018 and 2017, the Company incurred total expenses of $84,313 and $112,500, respectively, for services
provided by Bristol.
At
June 30, 2018 and December 31, 2017, the Company accrued $367,419 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 $25,837 and $76,006 remain at June 30, 2018
and December 31, 2017, respectively. During the six months ended June 30, 2018 and 2017, the Company incurred total rent expense
of $40,969 and $83,268, 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 $1,102,779 and $1,383,021 as of June 30, 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
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 June 30, 2018 and December 31, 2017, the Company accrued $367,419 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 $25,837 and $76,006 remain at June 30, 2018 and December 31, 2017, respectively. During
the six months ended June 30, 2018 and 2017, the Company incurred total rent expense of $40,969 and $83,268, 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)
|
|
|
$
|
51,674
|
|
|
2019
|
|
|
|
104,899
|
|
|
2020
|
|
|
|
108,046
|
|
|
2021
|
|
|
|
83,054
|
|
|
|
|
|
$
|
347,673
|
|
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 and six months ended June 30, 2018 and 2017, the Company recognized $0 losses from this venture, respectively. As of
June 30, 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 June 30, 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
|
|
|
(300,000
|
)
|
|
$
|
-
|
|
Outstanding
– June 30, 2018
|
|
|
3,743,000
|
|
|
$
|
0.59
|
|
Exercisable
– June 30, 2018
|
|
|
3,278,000
|
|
|
$
|
0.59
|
|
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
|
|
|
3,743,000
|
|
|
1.76
years
|
|
$
|
0.59
|
|
|
3,278,000
|
|
$
|
0.59
|
|
At
June 30, 2018, the total intrinsic value of options outstanding and exercisable was $0 and $0, respectively.
The
Company recognized an aggregate of $38,280 and $276,106 in compensation expense during the six months ended June 30, 2018 and
2017, respectively, related to option awards. At June 30, 2018, unrecognized stock-based compensation was $66,776.
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
– June 30, 2018
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable
– June 30, 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
|
|
|
3.42 years
|
|
$
|
0.15
|
|
|
16,666,667
|
|
$
|
0.15
|
|
At
June 30, 2018, the total intrinsic value of warrants outstanding and exercisable was $0.
There
were no new options or warrants granted during the six months ended June 30, 2018.
Note
8 – 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 and six months ended June 30, 2018 and 2017 and as of
June 30, 2018 and December 31, 2017, are as follows:
|
|
Conventions
|
|
|
ConBox
|
|
|
Total
|
|
Three Months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,111,867
|
|
|
$
|
-
|
|
|
$
|
5,111,867
|
|
Cost of revenue
|
|
|
(4,489,502
|
)
|
|
|
-
|
|
|
|
(4,489,502
|
)
|
Gross margin
|
|
|
622,365
|
|
|
|
-
|
|
|
|
622,365
|
)
|
Operating
expenses
|
|
|
(866,636
|
)
|
|
|
-
|
|
|
|
(866,636
|
)
|
Operating loss
|
|
|
(244,271
|
)
|
|
|
-
|
|
|
|
(244,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,936,084
|
|
|
$
|
10,461
|
|
|
$
|
4,946,545
|
|
Cost of revenue
|
|
|
(5,267,353
|
)
|
|
|
(24,333
|
)
|
|
|
(5,291,686
|
)
|
Gross margin
|
|
|
(331,269
|
)
|
|
|
(13,872
|
)
|
|
|
(345,141
|
)
|
Operating
expenses
|
|
|
(1,550,096
|
)
|
|
|
(641
|
)
|
|
|
(1,550,737
|
)
|
Operating loss
|
|
|
(1,881,365
|
)
|
|
|
(14,513
|
)
|
|
|
(1,895,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
9,103,033
|
|
|
$
|
-
|
|
|
$
|
9,103,033
|
|
Cost of revenue
|
|
|
(7,375,836
|
)
|
|
|
-
|
|
|
|
(7,375,836
|
)
|
Gross margin
|
|
|
1,727,197
|
|
|
|
-
|
|
|
|
1,727,197
|
)
|
Operating
expenses
|
|
|
(1,688,192
|
)
|
|
|
-
|
|
|
|
(1,688,192
|
)
|
Operating income
|
|
|
39,005
|
|
|
|
-
|
|
|
|
39,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
8,384,041
|
|
|
$
|
84,580
|
|
|
$
|
8,468,621
|
|
Cost of revenue
|
|
|
(8,351,855
|
)
|
|
|
(80,161
|
)
|
|
|
(8,432,016
|
)
|
Gross margin
|
|
|
32,186
|
|
|
|
4,419
|
|
|
|
36,605
|
|
Operating
expenses
|
|
|
(3,185,706
|
)
|
|
|
(28,855
|
)
|
|
|
(3,214,561
|
)
|
Operating loss
|
|
|
(3,153,520
|
)
|
|
|
(24,436
|
)
|
|
|
(3,177,956
|
)
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
272,691
|
|
|
$
|
-
|
|
|
$
|
272,691
|
|
Total assets
|
|
|
2,283,770
|
|
|
|
-
|
|
|
|
2,283,770
|
|
Unearned revenue
|
|
|
1,737,545
|
|
|
|
-
|
|
|
|
1,737,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and the Board of Directors of Wizard World, Inc.:
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Wizard World, Inc. (the “Company”) as of December 31,
2017 and 2016, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each
of the years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Change
in Accounting Principle
As
discussed in Note 3 to the financial statements, the Company has changed its method of accounting for Derivatives (Topic 815)
in the fourth quarter of 2017 and the retrospective application resulting in a restatement of the 2016 audited financial statements
due to the early adoption of ASU 2017-11,
“Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception”.
The predecessor auditor reported on the financial statements
on the prior period before restatement. We also audited the adjustments described in Note 3 that were applied to restate the 2016
financial statements. In our opinion, such adjustments are appropriate and have been properly applied.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
MaughanSullivan LLC
We
have served as the Company’s auditor since 2017.
Manchester,
VT
April
2, 2018
To the
Board of Directors and
Stockholders of Wizard World, Inc.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Opinion
on the Consolidated Financial Statements
We
have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3, the
consolidated balance sheet of Wizard World, Inc. (the Company) as of December 31, 2016, and the related consolidated statements
of operations, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively
referred to as the consolidated financial statements). In our opinion, the 2016 consolidated financial statements, before the
effects of the adjustments to retrospectively apply the change in accounting described in Note 3, present fairly, in all material
respects, the financial position of the Company as of December 31, 2016, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally accepted in the United States of America.
We
were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting
described in Note 3 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments
are appropriate and have been properly applied. Those adjustments were audited by Maughan Sullivan LLC. (The 2016 consolidated
financial statements before the effects of the adjustments discussed in Note 3 are not presented herein.)
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Rosenberg Rich Baker Berman,
P.A.
|
|
|
We have served as the Company’s
auditor since 2015.
|
|
|
Somerset, New Jersey
|
|
|
April 17, 2017
|
|
WIZARD
ENTERTAINMENT, INC.
Consolidated
Balance Sheets
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
As Restated (Note
3)
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,769,550
|
|
|
$
|
4,401,217
|
|
Accounts
receivable, net
|
|
|
336,030
|
|
|
|
187,819
|
|
Inventory
|
|
|
1,204
|
|
|
|
-
|
|
Prepaid
convention expenses
|
|
|
461,986
|
|
|
|
704,711
|
|
Prepaid
insurance
|
|
|
87,987
|
|
|
|
96,076
|
|
Prepaid
rent – related party
|
|
|
76,006
|
|
|
|
181,796
|
|
Prepaid
taxes
|
|
|
14,398
|
|
|
|
13,984
|
|
Other
prepaid expenses
|
|
|
18,117
|
|
|
|
13,666
|
|
Total
Current Assets
|
|
|
2,765,278
|
|
|
|
5,599,279
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
165,403
|
|
|
|
215,948
|
|
|
|
|
|
|
|
|
|
|
Security
deposit
|
|
|
9,408
|
|
|
|
19,912
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,940,089
|
|
|
$
|
5,835,129
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
2,800,118
|
|
|
$
|
937,774
|
|
Unearned
revenue
|
|
|
2,164,972
|
|
|
|
1,574,938
|
|
Convertible
promissory note – related party, net
|
|
|
1,116,979
|
|
|
|
-
|
|
Due
to CONtv joint venture
|
|
|
224,241
|
|
|
|
224,241
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
6,306,310
|
|
|
|
2,736,953
|
|
|
|
|
|
|
|
|
|
|
Non-current
Liabilities:
|
|
|
|
|
|
|
|
|
Convertible
promissory note - related party, net
|
|
|
-
|
|
|
|
1,027,176
|
|
|
|
|
|
|
|
|
|
|
Total
Non-current Liabilities
|
|
|
-
|
|
|
|
1,027,176
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
6,306,310
|
|
|
|
3,764,129
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred
stock par value $0.0001: 20,000,000 shares authorized; 50,000 shares designated Series A convertible preferred stock par value
$0.0001: 50,000 shares designated; 39,101 shares issued and converted
|
|
|
-
|
|
|
|
-
|
|
Common
stock par value $0.0001: 80,000,000 shares authorized; 68,535,036 and 68,535,036 shares
issued and outstanding, respectively
|
|
|
6,855
|
|
|
|
6,855
|
|
Additional
paid-in capital
|
|
|
19,960,893
|
|
|
|
19,664,619
|
|
Accumulated
deficit
|
|
|
(23,321,471
|
)
|
|
|
(17,588,657
|
)
|
Non-controlling
interest
|
|
|
(12,498
|
)
|
|
|
(11,817
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
(3,366,221
|
)
|
|
|
2,071,000
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
2,940,089
|
|
|
$
|
5,835,129
|
|
See
accompanying notes to the consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
Consolidated
Statements of Operations
|
|
For
the Years Ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
As Restated
(Note 3)
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Convention
|
|
$
|
14,983,033
|
|
|
$
|
21,994,433
|
|
ConBox
|
|
|
84,580
|
|
|
|
707,101
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
15,067,613
|
|
|
|
22,701,534
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
15,058,297
|
|
|
|
16,002,088
|
|
Write-off
of obsolete inventory
|
|
|
-
|
|
|
|
164,903
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
|
15,058,297
|
|
|
|
16,166,991
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,316
|
|
|
|
6,534,543
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
3,018,087
|
|
|
|
4,468,149
|
|
Consulting fees
|
|
|
710,634
|
|
|
|
687,054
|
|
General
and administrative
|
|
|
1,618,203
|
|
|
|
2,561,586
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
5,346,924
|
|
|
|
7,716,789
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(5,337,608
|
)
|
|
|
(1,182,246
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(395,102
|
)
|
|
|
(26,481
|
)
|
Loss on disposal of
equipment
|
|
|
(785
|
)
|
|
|
(36,876
|
)
|
Loss
on CONtv joint venture
|
|
|
-
|
|
|
|
(262,500
|
)
|
|
|
|
|
|
|
|
|
|
Total
other expenses
|
|
|
(395,887
|
)
|
|
|
(325,857
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income tax provision
|
|
|
(5,733,495
|
)
|
|
|
(1,508,103
|
)
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,733,495
|
)
|
|
|
(1,508,103
|
)
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable to non-controlling interests
|
|
|
(681
|
)
|
|
|
67,258
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to common stockholders
|
|
$
|
(5,732,814
|
)
|
|
$
|
(1,575,361
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share
- basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic and diluted
|
|
|
68,535,036
|
|
|
|
52,775,488
|
|
See
accompanying notes to the consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
Consolidated
Statements of Stockholders’ Equity (Deficit)
For
the Years Ended December 31, 2017 and 2016
|
|
Preferred
Stock Par
|
|
|
Common
Stock Par
|
|
|
Additional
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Value
$0.0001
|
|
|
Value
$0.0001
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
51,368,386
|
|
|
$
|
5,138
|
|
|
$
|
17,341,268
|
|
|
$
|
(16,013,296
|
)
|
|
$
|
17,706
|
|
|
$
|
1,350,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
777,536
|
|
|
|
-
|
|
|
|
-
|
|
|
|
777,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued as debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
50
|
|
|
|
741
|
|
|
|
-
|
|
|
|
-
|
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
16,666,650
|
|
|
|
1,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued as debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,448,293
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,448,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of controlling interest of ConBox
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96,781
|
|
|
|
-
|
|
|
|
(96,781
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,575,361
|
)
|
|
|
67,258
|
|
|
|
(1,508,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2016 (as Restated Note 3)
|
|
|
-
|
|
|
|
-
|
|
|
|
68,535,036
|
|
|
|
6,855
|
|
|
|
19,664,619
|
|
|
|
(17,588,657
|
)
|
|
|
(11,817
|
)
|
|
|
2,071,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
296,274
|
|
|
|
-
|
|
|
|
-
|
|
|
|
296,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,732,814
|
)
|
|
|
(681
|
)
|
|
|
(5,733,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,960,893
|
|
|
$
|
(23,321,471
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(3,366,221
|
)
|
See
accompanying notes to the consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
Consolidated
Statements of Cash Flows
|
|
For
the Years Ended
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
As Restated (Note
3)
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,773,495
|
)
|
|
$
|
(1,508,103
|
)
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
147,832
|
|
|
|
159,101
|
|
Write-off
of obsolete inventory
|
|
|
-
|
|
|
|
164,903
|
|
Loss
on disposal of equipment
|
|
|
785
|
|
|
|
36,876
|
|
Accretion
of debt discount
|
|
|
89,803
|
|
|
|
1,260
|
|
Loss
on CONtv joint venture
|
|
|
-
|
|
|
|
262,500
|
|
Share-based
compensation
|
|
|
296,274
|
|
|
|
777,536
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(148,211
|
)
|
|
|
219,323
|
|
Inventory
|
|
|
(1,204
|
)
|
|
|
(125,351
|
)
|
Prepaid
convention expenses
|
|
|
242,725
|
|
|
|
285,689
|
|
Prepaid
rent- related party
|
|
|
105,790
|
|
|
|
(181,796
|
)
|
Prepaid
insurance
|
|
|
8,089
|
|
|
|
(58,422
|
)
|
Prepaid
taxes
|
|
|
(414
|
)
|
|
|
280,000
|
|
Other
prepaid expenses
|
|
|
(4,451
|
)
|
|
|
(6,455
|
)
|
Security
deposits
|
|
|
10,504
|
|
|
|
1,154
|
|
Accounts
payable and accrued expenses
|
|
|
1,862,344
|
|
|
|
(639,665
|
)
|
Unearned
revenue
|
|
|
590,034
|
|
|
|
(2,156,559
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(2,533,595
|
)
|
|
|
(2,488,009
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(98,072
|
)
|
|
|
(169,802
|
)
|
Proceeds
received on disposal of equipment
|
|
|
-
|
|
|
|
8,662
|
|
Investment
in CONtv joint venture - net
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Investing Activities
|
|
|
(98,072
|
)
|
|
|
(311,140
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible promissory note and warrants
|
|
|
-
|
|
|
|
2,500,000
|
|
Payment
of debt issuance costs
|
|
|
-
|
|
|
|
(25,000
|
)
|
Proceeds
from the exercise of warrants
|
|
|
-
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided By Financing Activities
|
|
|
-
|
|
|
|
2,476,667
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(2,631,667
|
)
|
|
|
(322,482
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of reporting period
|
|
|
4,401,217
|
|
|
|
4,723,699
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of reporting period
|
|
$
|
1,769,550
|
|
|
$
|
4,401,217
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
200
|
|
Income
tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of controlling interest of ConBox
|
|
$
|
-
|
|
|
$
|
96,781
|
|
Warrants
issued for debt discount recorded on convertible debt
|
|
$
|
-
|
|
|
$
|
1,448,293
|
|
Common
stock issued for debt discount recorded on convertible note
|
|
$
|
-
|
|
|
$
|
791
|
|
See
accompanying notes to the consolidated financial statements
WIZARD
ENTERTAINMENT, INC.
December
31, 2017
Notes
to the Consolidated Financial Statements
Note
1 – Organization and Operations
Wizard
World, Inc.
Wizard
World, Inc., formerly GoEnergy, Inc. (“Wizard World” or the “Company”) was incorporated on May 2, 2001,
under the laws of the State of Delaware. The Company, through its operating subsidiary, is a producer of pop culture and live
multimedia conventions across North America.
Kick
the Can Corp.
Kick
the Can Corp. was incorporated on September 20, 2010, under the laws of the State of Nevada.
Kicking
the Can, L.L.C.
Kicking
the Can, L.L.C. was formed on April 17, 2009, under the laws of the State of Delaware.
Acquisition
of Kick the Can Corp. / Wizard Conventions, Inc. Recognized as a Reverse Acquisition
On
December 7, 2010, the Company entered into and consummated a share exchange agreement (“Share Exchange Agreement”)
with successor, Kick the Can Corp. (“KTC Corp.”) and its predecessors Wizard Conventions, Inc. and Kicking the Can,
L.L.C. (collectively, “Conventions”). Pursuant to the Exchange Agreement, the Company issued 32,927,596 shares of
its common stock to the KTC Corp. shareholders in exchange for 100% of the issued and outstanding shares of KTC Corp. The shares
issued represented approximately 94.9% of the issued and outstanding common stock immediately after the consummation of the Share
Exchange Agreement.
As
a result of the controlling financial interest of the former stockholder of Conventions, for financial statement reporting purposes,
the merger between the Company and Conventions has been treated as a reverse acquisition with KTC Corp. deemed the accounting
acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with section
805-10-55 of the Financial Accounting Standards Board (‘FASB”) Accounting Standards Codification (“ASC”).
The reverse merger is deemed a capital transaction and the net assets of KTC Corp. (the accounting acquirer) are carried forward
to the Company (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process
utilizes the capital structure of the Company and the assets and liabilities of KTC Corp. which are recorded at historical cost.
The equity of the Company is the historical equity of KTC Corp. retroactively restated to reflect the number of shares issued
by the Company in the transaction. Because of the predecessor/successor relationship between the Company and KTC Corp., Conventions
ultimately became the accounting acquirer.
Wizard
World Digital, Inc.
On
March 18, 2011, the Company formed a wholly owned subsidiary called Wizard World Digital, Inc., a Nevada corporation (“Digital”).
Digital never commenced operations or has employees, and Digital is currently dormant, pending execution of a digital strategy.
Wiz
Wizard, LLC
On
December 29, 2014, the Company and a member of the Board of Directors (the “Board”) of the Company formed Wiz Wizard,
LLC (“Wiz Wizard”) under the law of the State of Delaware. The Company and the member of the Board each owned 50%
of the membership interest and agreed to allocate the profits and losses accordingly upon repayment of the initial capital contributions
on a pro rata basis. The Company consolidates its 50% equity interest and reports the remaining 50% equity interest owned by a
member of the Board as the non-controlling interest in Wiz Wizard as the management of the Company believes that the Company has
the control of Wiz Wizard. In addition, the Company and Wiz Wizard, launched ComicConBox (“ConBox”) in April 2015.
ConBox is a subscription-based premium monthly box service featuring collectibles, exclusives, toys, tech and gaming, licensed
artwork, superior comics and apparel, Comic Convention tickets, special VIP discounts and more, which will be shipped on or around
the end of every month. On February 4, 2016, the member of the Board assigned his fifty percent (50%) membership interest to the
Company. Consequently, Wiz Wizard is a wholly-owned subsidiary of the Company. The Company ceased ConBox operations in 2017.
ButtaFyngas
LLC
On
April 10, 2015, the Company and an unrelated third party formed ButtaFyngas, LLC (“ButtaFyngas”) under the law of
the State of Delaware. The Company and the unrelated party each own 50% of the membership interest and shall allocate the profits
and losses accordingly upon repayment of the initial capital contributions on a pro rata basis. The Company consolidates its 50%
equity interest and reports the remaining 50% equity interest owned by the third party as the non-controlling interest in ButtaFyngas.
Note
2 – Going Concern Analysis
Going
Concern Analysis
The
Company had a loss from operations of $5,337,608 and $1,182,246 for the year ended December 31, 2017 and 2016, respectively. As
of December 31, 2017, we had cash and working capital deficit $1,769,550 and $3,541,032, respectively. We have evaluated the significance
of these conditions in relation to our ability to meet our obligations, which had previously raised doubts about the Company’s
ability to continue as a going concern through March 2019. However, the Company believes that the effects of its cost savings
efforts with regard to corporate overhead and show production expenses commenced in 2017 are not reflected in the above results,
but should be evident in 2018.
In
addition to its cost containment strategies, the Company has announced three agreements to expand its future revenues: 1) An alignment
with Sony Pictures Entertainment to explore a number of strategic initiatives; 2) An agreement to program a linear advertising
Supported channel and an SVOD Channel in China on the CN Live platform; and, 3) A programming agreement with Associated Television
International to launch the Chinese networks.
Additionally,
if necessary, management believes that both related parties (management and members of the Board of Directors of the Company)
and potential external sources of debt and/or equity financing may be obtained based on management’s history of being able
to raise capital from both internal and external sources coupled with current favorable market conditions. Therefore, the accompanying
condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein.
While the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the
ability to raise additional funds if necessary, there can be no assurances to that effect. The Company’s ability to continue
as a going concern is dependent upon the ability to further implement the business plan, generate sufficient revenues and to control
operating expenses.
Note
3 – Significant and Critical Accounting Policies and Practices
The
management of the Company is responsible for the selection and use of appropriate accounting policies and their application. Critical
accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition
and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to
make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting
policies and practices are disclosed below as required by generally accepted accounting principles.
Basis
of Presentation
The
Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”).
Use
of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
Principles
of Consolidation
The
consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and for the reporting
period(s) as follows:
Name
of consolidated
subsidiary or entity
|
|
State
or other jurisdiction
of
incorporation or
organization
|
|
Date
of incorporation
or formation (date of
acquisition, if
applicable)
|
|
Attributable
interest
|
|
|
|
|
|
|
|
|
|
KTC
Corp.
|
|
The
State of Nevada, U.S.A.
|
|
September
20, 2010
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Kicking
the Can L.L.C.
|
|
The
State of Delaware, U.S.A.
|
|
April
17, 2009
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Wizard
World Digital, Inc.
|
|
The
State of Nevada, U.S.A.
|
|
March
18, 2011
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Wiz
Wizard, LLC
|
|
The
State of Delaware, U.S.A.
|
|
December
29, 2014
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
ButtaFyngas,
LLC
|
|
The
State of Delaware, U.S.A.
|
|
April
10, 2015
|
|
|
50
|
%
|
All
inter-company balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment
in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components
of equity relating to the non–controlling interest.
As
of December 31, 2017, the aggregate non-controlling interest in ButtaFyngas was ($12,498). As of December 31, 2016, the aggregate
non-controlling interest in Wiz Wizard and ButtaFyngas was ($11,817). The non-controlling interest is separately disclosed on
the Consolidated Balance Sheet.
Cash
and Cash Equivalents
The
Company considers investments with original maturities of three months or less to be cash equivalents.
The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits.
Fair
Value of Financial Instruments
For
purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s
short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require
collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the
outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if
receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management.
The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded,
which is the face amount of the receivable net of the allowance for doubtful accounts. As of December 31, 2017 and 2016, the allowance
for doubtful accounts was $0 and $0, respectively.
Inventories
Inventories
are stated at average cost using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Finished
goods
|
|
$
|
1,204
|
|
|
$
|
-
|
|
Property
and Equipment
Property
and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs
are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective
estimated residual values) over the estimated useful lives of the respective assets as follows:
|
|
Estimated
Useful
Life (Years)
|
|
|
|
|
|
Computer
equipment
|
|
|
3
|
|
|
|
|
|
|
Equipment
|
|
|
2-5
|
|
|
|
|
|
|
Furniture
and fixture
|
|
|
7
|
|
|
|
|
|
|
Leasehold
improvements
|
|
|
*
|
|
(*)
Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever period is shorter.
Upon
sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and
any gain or loss is reflected in the consolidated statements of operations.
Investments
- Cost Method, Equity Method and Joint Venture
In
accordance with sub-topic 323-10 of the FASB ASC (“Sub-topic 323-10”), the Company accounts for investments in common
stock of an investee for which the Company has significant influence in the operating or financial policies even though the Company
holds 50% or less of the common stock or in-substance common stock.
Method
of Accounting
Investments
held in stock of entities other than subsidiaries, namely corporate joint ventures and other non-controlled entities usually are
accounted for by one of three methods: (i) the fair value method (addressed in Topic 320), (ii) the equity method (addressed in
Topic 323), or (iii) the cost method (addressed in Subtopic 325-20). Pursuant to Paragraph 323-10-05-5, the equity method tends
to be most appropriate if an investment enables the investor to influence the operating or financial policies of the investee.
Investment
in CONtv
On
August 27, 2014, the Company entered into a joint venture and executed an Operating Agreement for CON TV LLC (“CONtv”)
with Cinedigm Entertainment Corp. (“Cinedigm”), ROAR, LLC (a related party partially owned by a member of the Board)
(“ROAR”) and Bristol Capital, LLC (a related party controlled by a member of the Board) (“Bristol Capital”).
The Company owned a 47.50% interest in the newly formed entity, CONtv. The Company was accounting for the interest in the joint
venture utilizing the equity method of accounting.
On
November 16, 2015, pursuant to that certain Amended and Restated Operating Agreement for CONtv by and among the aforementioned
parties (the “A&R Operating Agreement”), the Company’s ownership interest in CONtv was reduced to 10%. Pursuant
to the A&R Operating Agreement, the Company is only obligated to fund on-going costs in the amount of $25,000 in cash on an
on-going monthly basis for a period of 12 months following the effective date.
For
the years ended December 31, 2017 and 2016, the Company recognized $0 and $262,500 in losses from this venture, respectively.
As of December 31, 2017 and 2016, the investment in CONtv was $0.
Fair
Value of Financial Instruments
The
Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments
and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes
a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.
The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below:
Level
1
|
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level
2
|
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
|
|
|
|
Level
3
|
|
Pricing
inputs that are generally unobservable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid
expenses and other current assets, accounts payable and accrued expenses approximate their fair values because of the short maturity
of these instruments.
In
connection with the securities purchase agreement and debt transactions during the year ended December 31, 2016, the Company issued
warrants, to purchase common stock with an exercise price of $0.15 and a five-year term. Upon issuance of the warrants, the Company
evaluated the note agreement to determine if the agreement contained any embedded components that would qualify the agreement
as a derivative. The Company identified certain put features embedded in the warrants that potentially could result in a net cash
settlement in the event of a fundamental transaction, requiring the Company to classify the warrants as a derivative liability.
During the year ended December 31, 2017, the Company early adopted ASU 2017-11 on a retrospective basis (see below).
Transactions
involving related parties typically cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions
of competitive, free-market dealings may not exist. However, in the case of the convertible promissory note discussed in Note
6, the Company obtained a fairness opinion from an independent third party which supports that the transaction was carried out
at an arm’s length basis.
Revenue
Recognition and Cost of Revenues
The
Company follows Paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will
recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned
when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped
or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is
reasonably assured.
Convention
revenue is generally earned upon completion of the convention. Unearned convention revenue is deposits received for conventions
that have not yet taken place, which are fully or partially refundable depending upon the terms and conditions of the agreements.
Unearned
ConBox revenue is non-refundable up-front payments for products. These payments are initially deferred and subsequently recognized
over the subscription period, typically three months, and upon shipment of the product. The Company ceased ConBox operations during
2017.
The
Company recognizes cost of revenues in the period in which the revenues was earned. In the event the Company incurs cost of revenues
for conventions that are yet to occur, the Company records such amounts as prepaid expenses and such prepaid expenses are expensed
during the period the convention takes place.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification.
While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of
revenue as incurred.
Shipping
and handling costs were $21,479 and $178,931 for the years ended December 31, 2017 and 2016, respectively.
Equity–based
compensation
The
Company recognizes compensation expense for all equity–based payments in accordance with ASC 718 “
Compensation
– Stock Compensation
”. Under fair value recognition provisions, the Company recognizes equity–based compensation
net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite
service period of the award.
Restricted
stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally
vest over the requisite service periods, typically over a four-year period (vesting on a straight–line basis). The fair
value of a stock award is equal to the fair market value of a share of Company stock on the grant date.
The
fair value of option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes
option valuation model requires the development of assumptions that are input into the model. These assumptions are the expected
stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock
and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s
Common stock over the expected option life and other appropriate factors. The expected option term is computed using the “simplified”
method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate expected term
of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term. Risk–free interest rates are calculated based on continuously compounded risk–free
rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends
on the Common stock of the Company and does not intend to pay dividends on the Common stock in the foreseeable future. The expected
forfeiture rate is estimated based on historical experience.
Determining
the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the
subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards
represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.
As a result, if factors change and the Company uses different assumptions, the equity–based compensation could be materially
different in the future. In addition, the Company is required to estimate the expected forfeiture rate and recognize expense only
for those shares expected to vest. If the actual forfeiture rate is materially different from the Company’s estimate, the
equity–based compensation could be significantly different from what the Company has recorded in the current period.
The
Company accounts for share–based payments granted to non–employees in accordance with ASC 505-40, “
Equity
Based Payments to Non–Employees
”. The Company determines the fair value of the stock–based payment as either
the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions
as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments
is reached, or (2) the date at which the counterparty’s performance is complete. The fair value of the equity instruments
is re-measured each reporting period over the requisite service period.
Income
Taxes
The
Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “
Income Taxes
.”
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
FASB
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December
31, 2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No
amounts were accrued for the payment of interest and penalties at December 31, 2017. The Company is currently not aware of any
issues under review that could result in significant payments, accruals or material deviation from its position. The Company is
subject to income tax examinations by major taxing authorities since inception.
The
Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These
potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions,
and compliance with federal, state, and city tax laws. The Company's management does not expect that the total amount of unrecognized
tax benefits will materially change over the next twelve months.
The
Company is no longer subject to tax examinations by tax authorities for years prior to 2014.
Earnings
per Share
Earnings
per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term
is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards
Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the
period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred
stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned)
from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation
of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect
the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options
or warrants.
The
following table shows the outstanding dilutive common shares excluded from the diluted net income (loss) per share calculation
as they were anti-dilutive:
|
|
Contingent
shares issuance
arrangement, stock options or warrants
|
|
|
|
For
the Year
Ended
December 31, 2017
|
|
|
For
the Year
Ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Convertible
note
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
Common
stock options
|
|
|
4,043,000
|
|
|
|
5,319,000
|
|
Common
stock warrants
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
|
|
|
|
|
|
|
|
|
Total
contingent shares issuance arrangement, stock options or warrants
|
|
|
37,376,334
|
|
|
|
38,652,334
|
|
Reclassification
Certain
prior period amounts have been reclassified to conform to current period presentation.
Recently
Issued Accounting Pronouncements
In
July 2015, the FASB issued the ASU No. 2015-11 “
Inventory (Topic 330)
:
Simplifying the Measurement of Inventory”
(“ASU 2015-11”)
.
The amendments in this ASU do not apply to inventory that is measured using last-in, first-out
(LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured
using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this ASU at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured
using LIFO or the retail inventory method. For public business entities, the amendments in this ASU are effective for fiscal years
beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted the standard during
the year ended December 31, 2017 and the adoption did not have a material effect on its consolidated financial statements and
disclosures.
In
February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842).”
Under ASU 2016-02, lessees will be required
to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the
right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of
financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting
companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted
using a modified retrospective approach. The Company is in the process of evaluating the effect of the new guidance on its consolidated
financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-10, “
Revenue from Contracts with Customers: Identifying Performance Obligations
and Licensing (Topic 606)
”. In March 2016, the FASB issued ASU No. 2016-08, “
Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross verses Net) (Topic 606)
”. These amendments provide additional
clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”.
The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance
obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides
a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual
property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal
versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10
and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which the Company intends to adopt for interim
and annual reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the standard and does
not expect the adoption will have a material effect on its consolidated financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-09, “
Compensation – Stock Compensation (Topic 718)
”. The FASB
issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based
payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption of the update is permitted. The Company adopted the standard during
the year ended December 31, 2017 and the adoption did not have a material effect on its consolidated financial statements and
disclosures.
In
May 2016, the FASB issued ASU No. 2016-12, “
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients”
, which narrowly amended the revenue recognition guidance regarding collectability, noncash
consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is
currently evaluating the standard and does not expect the adoption will have a material effect on its consolidated financial statements
and disclosures.
In
August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments”
(“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and
cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning
after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply,
in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently
in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.
In
October 2016, the FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity
transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective
for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the
update is permitted. The Company is currently evaluating the impact of the new standard.
In
November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”
, requiring that the statement
of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December
15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which
requires application of the guidance for all periods presented. The Company is currently evaluating the impact of the new standard.
In
May 2017, the FASB issued ASU 2017-09, “
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,”
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. The Company
is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.
In
July 2017, the FASB issued ASU 2017-11, “
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception”
. Part I of this update addresses the complexity of accounting
for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible
instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part
II of this update addresses the difficulty of navigating Topic 480,
Distinguishing Liabilities from Equity
, because of
the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of
the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities
and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting
effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The
Company early adopted the ASU 2017-11 in the three months ending December 31, 2017. See below.
Adoption
of ASU 2017-11
As
noted above, in connection with the securities purchase agreement and debt transactions during the year ended December 31, 2016,
the Company issued warrants, to purchase common stock with an exercise price of $0.15 and a five-year term. Upon issuance of the
warrants, the Company evaluated the note agreement to determine if the agreement contained any embedded components that would
qualify the agreement as a derivative. The Company identified certain put features embedded in the warrants that potentially could
result in a net cash settlement in the event of a fundamental transaction, requiring the Company to classify the warrants as a
derivative liability. The Company changed its method of accounting for the debt and warrants through the early adoption of ASU 2017-11
during the three months ended December 31, 2017 on a retrospective basis. Accordingly, the Company recorded the warrant derivative
and conversion option derivative liabilities to additional paid in capital upon issuance. Comparative disclosures to 2016 audited
numbers in the footnotes represent the restated amounts due to the early adoption.
The
following table provides a summary of the derivative liability activity as a result of the adoption of ASU 2017-11:
|
|
Warrants
|
|
|
Convertible
Note
|
|
|
Total
|
|
Balance
– December 31, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance
of derivative liabilities
|
|
|
5,206,444
|
|
|
|
2,294,435
|
|
|
|
7,500,879
|
|
Extinguishment
of derivative liability from exercise of warrants
|
|
|
(2,831,851
|
)
|
|
|
-
|
|
|
|
(2,831,851
|
)
|
Change
in fair value of derivative liability
|
|
|
825,544
|
|
|
|
1,004,165
|
|
|
|
1,829,709
|
|
Reclassified
derivative liabilities of adoption
|
|
|
(3,200,137
|
)
|
|
|
(3,298,000
|
)
|
|
|
(6,498,737
|
)
|
Balance
– December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Tabular
summaries of the revisions and the corresponding effects on the consolidated balance sheet as of December 31, 2016 and consolidated
statement of earnings for the year ended December 31, 2016 are presented below:
|
|
Consolidated
Balance Sheet
|
|
|
|
December
31, 2016
|
|
|
|
Previously
|
|
|
|
|
|
Revised
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
Reported
|
|
Convertible
promissory note – related party, net
|
|
$
|
1,456
|
|
|
$
|
1,025,720
|
|
|
$
|
1,027,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities – related party
|
|
|
6,498,737
|
|
|
|
(6,498,737
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital
|
|
|
21,132,386
|
|
|
|
(1,467,767
|
)
|
|
|
19,664,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(24,529,440
|
)
|
|
|
6,940,783
|
|
|
|
(17,588,657
|
)
|
|
|
Consolidated
Statement of Operations
Year
ended December 31, 2016
|
|
|
|
Previously
Reported
|
|
|
Revisions
|
|
|
Revised
Reported
|
|
Interest
expense
|
|
$
|
(26,676
|
)
|
|
$
|
195
|
|
|
$
|
(26,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liabilities
|
|
|
(1,829,709
|
)
|
|
|
1,829,709
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
expense
|
|
|
(5,110,879
|
)
|
|
|
5,110,879
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,448,886
|
)
|
|
$
|
6,940,783
|
|
|
$
|
(1,508,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
ordinary share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.03
|
)
|
In
September 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-13,
Revenue
Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).
The
new standard, among other things, provides additional implementation guidance with respect to Accounting Standards Codification
(ASC) Topic 606 and ASC Topic 842. ASU 2017-03 is effective for annual and interim fiscal reporting periods beginning after December
15, 2017. The Company is currently evaluating the impact of the new standard, but does not expect it to have a material impact
on its implementation strategies or its consolidated financial statements upon adoption.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying consolidated financial statements.
Note
4 – Property and Equipment
Property
and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Computer
Equipment
|
|
$
|
43,087
|
|
|
$
|
33,858
|
|
Equipment
|
|
|
460,927
|
|
|
|
390,656
|
|
Furniture
and Fixtures
|
|
|
62,321
|
|
|
|
45,198
|
|
Leasehold
Improvements
|
|
|
22,495
|
|
|
|
22,495
|
|
|
|
|
588,830
|
|
|
|
492,207
|
|
Less:
Accumulated depreciation
|
|
|
(423,427
|
)
|
|
|
(276,259
|
)
|
|
|
$
|
165,403
|
|
|
$
|
215,948
|
|
Depreciation
expense was $147,832 and $159,102 for the years ended December 31, 2017 and 2016, respectively.
Note
5 – Investment in CONtv Joint Venture
On
August 27, 2014, the Company entered into a joint venture and executed an Operating Agreement with Cinedigm, ROAR (a related
party co-founded by one of the Company’s directors) and Bristol Capital (a related party founded by the Company’s
Chairman of the Board). The Company owned a 47.50% interest in the newly formed entity, CONtv. The Company was accounting for
the interest in the joint venture utilizing the equity method of accounting.
On
November 16, 2015, the Company entered that certain A&R Operating Agreement by and among, the Company, Cinedigm, ROAR and
Bristol Capital, pursuant to which the Company’s interest in CONtv was reduced to a non-dilutable 10% membership interest.
Such agreement was deemed effective on the execution date; however, Cinedigm agreed to the Company recognizing only 10% of the
losses from the period July 1, 2015 through December 31, 2015. Pursuant to the A&R Operating Agreement, the Company is only
obligated to fund on-going costs in the amount of $25,000 in cash on an on-going monthly basis for a period of 12 months following
the effective date.
For
the years ended December 31, 2017 and 2016, the Company recognized $0 and $262,500 in losses from this venture, respectively.
As
of December 31, 2017 and 2016, the Company has a balance due to CONtv of $224,241.
Note
6 – Related Party Transactions
Wiz
Wizard
On
December 29, 2014, the Company and a member of the Board formed Wiz Wizard (d/b/a ConBox) in the State of Delaware. The Company
and the member of the Board each owned 50% of the membership interest and agreed to allocate the profits and losses accordingly
upon repayment of the initial capital contributions on a pro rata basis. On February 4, 2016, the member of the Board assigned
his fifty percent (50%) membership interest to the Company. The Company ceased ConBox operations in 2017.
Consulting
Agreement
On
December 29, 2016, the Company entered into a Consulting Services Agreement (the “Consulting Agreement”) with Bristol
Capital, LLC, a Delaware limited liability company (“Bristol”) managed by Paul L. Kessler, the Chairman of the Company.
Pursuant to the Consulting Agreement, Mr. Kessler will serve as Executive Chairman of the Company. The initial term of the Agreement
is from December 29, 2016 through March 28, 2017 (the “Initial Term”). The term of the Consulting Agreement will be
automatically extended for additional terms of 90-day periods each (each a “Renewal Term” and together with the Initial
Term, the “Term”), unless either the Company or Bristol gives prior written notice of non-renewal to the other party
no later than thirty (30) days prior to the expiration of the then current Term.
During
the Term, the Company will pay Bristol a monthly fee (the “Monthly Fee”) of Eighteen Thousand Seven Hundred Fifty
and No/100 Dollars ($18,750).
In
addition, the Company will grant to Bristol options to purchase up to an aggregate of 600,000 shares of the Company’s common
stock.
During
the year ended December 31, 2017 and 2016, the Company incurred total expenses of $208,106 and $80,132, respectively, for services
provided by Bristol. At December 31, 2017 and 2016, the Company accrued $208,106 and $75,000, respectively, of monthly fees due
to Bristol.
Operating
Sublease
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (“Sublease”) with Bristol Capital Advisors,
LLC (“Bristol Capital Advisors”), an entity controlled by the Company’s Chairman of the Board. The term of the
Sublease is for 5 years and 3 months beginning on July 1, 2016 with monthly payments of $8,118. Upon execution of the Sublease,
the Company paid a security deposit of $9,137 and $199,238 for prepaid rent of which $76,006 and $181,796 remain at December 31,
2017 and 2016, respectively. During the year ended December 31, 2017 and 2016, the Company incurred total rent expense of $98,877
and $24,354, respectively, under the Sublease. See Note 7 for future minimum rent payments due.
Outsourced
Marketing
During
the year ended December 31, 2017, the Company utilized outsourced marketing support from a company affiliated with ROAR, which
is partially owned by a member of the Board. The Company had expenses of $7,500 and $5,809 during the years ended December
31, 2017 and 2016. As of December 31, 2017 and 2016, the outstanding liability due to the entity was $2,250 and $0, respectively.
Securities
Purchase Agreement
Effective
December 1, 2016, the Company entered into the Purchase Agreement with Bristol Investment Fund, Ltd. (the “
Purchaser
”),
an entity controlled by the Chairman of the Company’s Board of Directors, pursuant to which the Company sold to the Purchaser,
for a cash purchase price of $2,500,000, securities comprising: (i) the Debenture, (ii) Series A Warrants, and (iii) Series B
Warrants. Pursuant to the Purchase Agreement, the Company paid $25,000 to the Purchaser and issued to the Purchaser 500,000 shares
of Common Stock with a grant date fair value of $85,000 to cover the Purchaser’s legal fees. The Company recorded as a debt
discount of $25,791 related to the cash paid and the relative fair value of the shares issued to Purchaser for legal fees.
The
Debenture with an initial principal balance of $2,500,000, due December 30, 2018 (the “Maturity Date”), will accrue
interest on the aggregate unconverted and then outstanding principal amount of the Debenture at the rate of 12% per annum. Interest
is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2017, (ii) on each date the Purchaser
converts, in whole or in part, the Debenture into Common Stock (as to that principal amount then being converted), and (iii) on
the day that is 20 days following the Company’s notice to redeem some or all of the of the outstanding principal of the
Debenture (only as to that principal amount then being redeemed) and on the Maturity Date. The Debenture is convertible into shares
of the Company’s Common Stock at any time at the option of the holder, at an initial conversion price of $0.15 per share,
subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the initial conversion
price of $0.15 and (ii) 50% of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the
applicable conversion date.
The
Series A Warrants to acquire up to 16,666,667 shares of Common Stock at the Series A Initial Exercise Price of $0.15 and expiring
on December 1, 2021. The Warrants may be exercised immediately upon the issuance date, upon the option of the holder.
The
Series B Warrants to acquire up to 16,666,650 shares of Common Stock at the Series B Initial Exercise Price of $0.15 and expiring
on December 1, 2021. The Series B Warrants were exercised immediately upon the issuance date. The Company received gross proceeds
of $1,667 upon exercise of the warrants.
Upon
issuance of the note, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted for it using
the relative fair value of $1,448,293 as debt discount on the consolidated balance sheet. The debt discount is amortized over
the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates
the interest method. The amortization of debt discount is included as a component of interest expense in the consolidated statements
of operations. There was unamortized debt discount of $1,383,021 and $1,472,824 as of December 31, 2017 and 2016, respectively,
which includes the debt discount recorded upon execution of the Securities Purchase Agreement discussed above.
Note
7 – Commitments and Contingencies
Employment
Agreements
Appointment
of Executive Vice President and Chief Operating Officer
On
November 8, 2016, the Company formally entered into an employment agreement (the “Malinoff Employment Agreement”)
with Randall S. Malinoff in connection with his appointment as the Company’s Executive Vice President and Chief Operating
Officer on July 14, 2016 (the “Effective Date”) to serve for a period of two years from the Effective Date. In connection
with such appointment, Mr. Malinoff will receive an annual base salary of $225,000 and will be eligible for a performance-based
bonus at the discretion of the Board.
On
November 8, 2016, pursuant to the terms of the Malinoff Employment Agreement, the Company granted six hundred thousand (600,000)
options to purchase shares of the Company’s common stock.
On
July 5, 2017, Mr. Malinoff departed from the Company. Mr. Malinoff is currently engaged in a dispute with the Company. The dispute
pertains to his departure from the Company. Both Mr. Malinoff and the Company have retained counsel to engage on the issues in
controversy. As of December 31, 2017, all of Mr. Malinoff’s options have been cancelled.
Appointment
of President and Chief Executive Officer
On
April 22, 2016, the Board approved the appointment of Mr. John D. Maatta as the Company’s President and Chief Executive
Officer, effective as of May 3, 2016. Mr. Maatta will continue to serve as a member of the Board. In addition, the Board granted
Mr. Maatta options to purchase up to an aggregate of 1,100,000 shares of the Company’s common stock, subject to the terms
and conditions of the Third Amended and Restated 2011 Stock Incentive and Award Plan. Mr. Maatta formally entered into his Employment
Agreement with the Company on July 17, 2016.
Mr.
Maatta received the following, with effective dates as defined below:
|
1)
|
upon
the effectiveness of the Maatta Appointment on May 3, 2016, three hundred thousand (300,000) options to purchase shares of
the Company’s common stock at an exercise price of $0.50 per share, such options to vest only upon a Change in Control
(as defined in Mr. Maatta’s Employment Agreement) during Mr. Maatta’s tenure as President and Chief Executive
Officer;
|
|
|
|
|
2)
|
upon
the effectiveness of the Maatta Appointment on May 3, 2016, eight hundred thousand (800,000) options to purchase shares of
the Company’s common stock, such options to vest, at the applicable exercise price, as follows:
|
|
a.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.50 per share and shall vest immediately;
|
|
|
|
|
b.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.50 per share and shall vest by September 30, 2016;
|
|
c.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.50 per share and shall vest by December 31, 2016;
|
|
|
|
|
d.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.55 per share and shall vest by March 31, 2017;
|
|
|
|
|
e.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.55 per share and shall vest by June 30, 2017;
|
|
|
|
|
f.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.55 per share and shall vest by September 30, 2017;
|
|
|
|
|
g.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.60 per share and shall vest by December 31, 2017;
and
|
|
|
|
|
h.
|
one
hundred thousand (100,000) options shall be exercisable at a price of $0.60 per share and shall vest by March 31, 2018.
|
Consulting
Agreement
As
discussed in Note 6, on December 29, 2016, the Company entered into a Consulting Services Agreement (the “Consulting Agreement”)
with Bristol managed by Paul L. Kessler, the Chairman of the Company. Pursuant to the Consulting Agreement, Mr. Kessler will serve
as Executive Chairman of the Company. The initial term of the Agreement is from December 29, 2016 through March 28, 2017 (the
“Initial Term”). The term of the Consulting Agreement will be automatically extended for additional terms of 90-day
periods each (each a “Renewal Term” and together with the Initial Term, the “Term”), unless either the
Company or Bristol gives prior written notice of non-renewal to the other party no later than thirty (30) days prior to the expiration
of the then current Term.
During
the Term, the Company will pay Bristol a monthly fee (the “Monthly Fee”) of Eighteen Thousand Seven Hundred Fifty
and No/100 Dollars ($18,750). For services rendered by Bristol prior to entering into the Consulting Agreement, the Company will
pay Bristol the Monthly Fee, pro-rated, for the time between September 1, 2016 and December 29, 2016. Bristol may also receive
an annual bonus as determined by the Compensation Committee of the Company’s Board of Directors (the “Board”)
and approved by the Board. At December 31, 2017 and 2016, the Company accrued $208,106 and $75,000 of monthly fees due to
Bristol, respectively.
In
addition, the Company will grant to Bristol options to purchase up to an aggregate of 600,000 shares of the Company’s common
stock in accordance with the following vesting schedule and at the applicable exercise prices therein:
Bristol
received the following, with effective dates as defined below:
|
1)
|
upon
the effectiveness of the Consulting Agreement on December 29, 2016, seventy-five thousand (75,000) options to purchase shares
of the Company’s common stock at an exercise price of $0.50 per share, such options to vest upon execution of the agreement;
|
|
|
|
|
2)
|
upon
the effectiveness of the Consulting Agreement on December 29, 2016, five hundred twenty-five thousand (525,000) options to
purchase shares of the Company’s common stock, such options to vest, at the applicable exercise price, as follows:
|
|
a.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.50 per share and shall vest immediately;
|
|
|
|
|
b.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.55 per share and shall vest by March 31, 2017;
|
|
|
|
|
c.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.55 per share and shall vest by June 30, 2017;
|
|
d.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.55 per share and shall vest by September 30, 2017;
|
|
|
|
|
e.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.60 per share and shall vest by December 31, 2017;
|
|
|
|
|
f.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.60 per share and shall vest by March 31, 2018; and
|
|
|
|
|
g.
|
Seventy-five
thousand (75,000) options shall be exercisable at a price of $0.60 per share and shall vest by June 30, 2018.
|
Operating
Lease
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (“Sublease”) with Bristol Capital Advisors,
an entity controlled by the Company’s Chairman of the Board. The term of the Sublease is for 5 years and 3 months beginning
on July 1, 2016 with monthly payments of $8,118. Upon execution of the Sublease, the Company paid a security deposit of $9,137
and $199,238 for prepaid rent of which $76,006 and $181,796 remain at December 31, 2017 and 2016, respectively. During the
year ended December 31, 2017 and 2016, the Company incurred total rent expense of $98,877 and $24,354 under the Sublease, respectively.
See below for future minimum rent payments due.
Future
minimum lease payments inclusive of related tax required under the non-cancelable operating lease are as follows:
Fiscal
year ending December 31:
|
|
|
|
2018
|
|
$
|
101,844
|
|
2019
|
|
|
104,899
|
|
2020
|
|
|
108,046
|
|
2021
|
|
|
83,054
|
|
|
|
$
|
397,843
|
|
Obligation
to Fund CONtv
As
discussed in Note 3, on November 16, 2015, pursuant to that certain A&R Operating Agreement for CONtv, the Company’s
ownership interest in CONtv was reduced to 10%. In addition, the Company is only obligated to fund on-going costs in the amount
of $25,000 in cash on an on-going monthly basis for a period of 12 months following the effective date.
For
the years ended December 31, 2017 and 2016, the Company recognized $0 and $262,500 in losses from this venture, respectively.
As
of December 31, 2017 and 2016, the Company has a balance due to CONtv of $224,241.
Stephen
Shamus Lawsuit
On
October 28, 2016, the Company filed a Complaint (the “SDNY Complaint”) and commenced a lawsuit in the United States
District Court, Southern District of New York, against Stephen Shamus, the former Chief Marketing Officer of the Company whose
employment was terminated on October 27, 2016 (the “SDNY Lawsuit”). In the SDNY Lawsuit, the Company alleges, among
other things, breach of fiduciary duty, misappropriation of corporation assets, breach of contract, and conversion, against Mr.
Shamus relating to the Company’s assertion that he used his position with the Company to improperly obtain memorabilia at
the Company’s Comic Conventions which he would then sell and retain the profits from for his own benefit. On November 16,
2016, Mr. Shamus filed an Answer to the SDNY Complaint with counterclaims against the Company (the “SDNY Counterclaim”).
The SDNY Counterclaim alleges breach of contract and unjust enrichment against the Company and seeks compensatory damages in the
form of cash.
The
lawsuit was concluded on February 15, 2017 with no financial impact on the Company’s financial statements.
Gareb
Shamus Lawsuit
On
December 16, 2016, the Company filed a Complaint (the “DNJ Complaint”) and commenced a lawsuit in the United States
District Court, District of New Jersey (the “DNJ Lawsuit”), against Gareb Shamus, the founder and former Chief Executive
Officer of the Company; Pivot Media LLC and 4 Brothers LLC, entities owned and operated by Gareb Shamus; Stephen Shamus, the former
Chief Marketing Officer of the Company whose employment was terminated on October 27, 2016; Kenneth Shamus, a former director
of the Company; Eric Weisblum; GEM Funding LLC; It’s All Normal LLC; and various other defendants (collectively, the “DNJ
Defendants”). In the DNJ Complaint, the Company alleged that the DNJ Defendants violated Section 13(d) of the Securities
and Exchange Act of 1934 and SEC Rules 13d-1 and 13d-5. The Company sought an injunction to compel the DNJ Defendants to make
complete disclosure under Section 13(d) of the Exchange Act and to cure their past violations. The DNJ Lawsuit was concluded on
February 15, 2017 with no financial impact on the Company’s financial statements.
Silverman
Lawsuit
On
January 11, 2017, Arden B. Silverman (“Silverman”), d/b/a Capital Asset Protection, filed a complaint (the “Silverman
Complaint”) and commenced a lawsuit against the Company in the Superior Court of California, County of Los Angeles –
Central District (the “Silverman Lawsuit”). Silverman brought the claim after being assigned the right title and interest
in a claim against the Company by Rogers & Cowan, Inc., a California corporation (Rogers & Cowan). The Silverman Complaint
alleges the Company owes $42,600 plus attorney’s fees to Silverman for services provided by Rogers & Cowan to the Company.
On April 10, 2017, the Company filed a cross Cross-Complaint in the Silverman Lawsuit against Rogers and Cowan, among others (the
“Cross-Complaint”). The Cross-Complaint seeks in excess of $90,000 from Rogers & Cowan, among others, and alleges,
fraud, negligent misrepresentation, breach of written agreement; breach of covenant of good faith and fair dealings, and violations
of Cal. Bus. & Prof. Code §§17200 et seq. The matters at issue in the Silverman lawsuit were resolved by way of
a mutual settlement with no financial impact on the Company’s financial statements in June 2017.
Malinoff
Dispute
Randall
Malinoff, the Company’s former Chief Operating Officer, who departed from on the Company as of July 5, 2017, is currently
engaged in a dispute with the Company. A complaint for breach of contract and various disability discrimination claims was filed
after the Company terminated him for cause. The Company believes that the matter, which is set for trial in 2019, is wrongful
and is without merit. The Company currently intends to proceed to trial on this matter.
With
the exception of the foregoing disputes, the Company is not involved in any disputes and does not have any litigation matters
pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results
of operations.
Note
8 – Stockholders’ Equity (Deficit)
The
Company’s authorized capital stock consists of 100,000,000 shares, of which 80,000,000 are for shares of common stock, par
value $0.0001 per share, and 20,000,000 are for shares of preferred stock, par value $0.0001 per share, of which 50,000 have been
designated as Series A Cumulative Convertible Preferred Stock.
As
of December 31, 2017 and 2016, there were 68,535,036 shares of common stock issued and outstanding. Each share of the common stock
entitles its holder to one vote on each matter submitted to the shareholders.
Equity
Incentive Plan
On
May 9, 2011, the Board approved, authorized and adopted (subject to stockholder approval) the 2011 Incentive Stock and Award Plan
(the “Plan”). The Plan was amended on September 14, 2011, April 11, 2012, July 9, 2012 and September 25, 2014. The
Plan provides for the issuance of up to 15,000,000 shares of common stock, par value $.0001 per share, of the Company through
the grant of non-qualified options (the “Non-qualified Options”), incentive options (the “Incentive Options”)
and together with the Non-qualified Options, the (“Options”) and restricted stock (the “Restricted Stock”)
to directors, officers, consultants, attorneys, advisors and employees.
The
Plan shall be administered by a committee consisting of two or more independent, non-employee and outside directors (the “Committee”).
In the absence of such a Committee, the Board shall administer the Plan.
Each
Option shall contain the following material terms:
|
(i)
|
the
exercise price, which shall be determined by the Committee at the time of grant, shall not be less than 100% of the Fair Market
Value (defined as the closing price on the final trading day immediately prior to the grant on the principal exchange or quotation
system on which the common stock is listed or quoted, as applicable) of the common stock of the Company,
provided
that
if the recipient of the Option owns more than ten percent (10%) of the total combined voting power of the Company, the exercise
price shall be at least 110% of the Fair Market Value;
|
|
|
|
|
(ii)
|
the
term of each Option shall be fixed by the Committee,
provided
that such Option shall not be exercisable more than five
(5) years after the date such Option is granted, and
provided further
that with respect to an Incentive Option, if
the recipient owns more than ten percent (10%) of the total combined voting power of the Company, the Incentive Option shall
not be exercisable more than five (5) years after the date such Incentive Option is granted;
|
|
|
|
|
(iii)
|
subject
to acceleration in the event of a Change of Control of the Company (as further described in the Plan), the period during which
the Options vest shall be designated by the Committee or, in the absence of any Option vesting periods designated by the Committee
at the time of grant, shall vest and become exercisable in equal amounts on each fiscal quarter of the Company through the
four (4) year anniversary of the date on which the Option was granted;
|
|
(iv)
|
no
Option is transferable and each is exercisable only by the recipient of such Option except in the event of the death of the
recipient; and
|
|
|
|
|
(v)
|
with
respect to Incentive Options, the aggregate Fair Market Value of common stock exercisable for the first time during any calendar
year shall not exceed $100,000.
|
Each
award of Restricted Stock is subject to the following material terms:
|
(i)
|
no
rights to an award of Restricted Stock is granted to the intended recipient of Restricted Stock unless and until the grant
of Restricted Stock is accepted within the period prescribed by the Committee;
|
|
|
|
|
(ii)
|
Restricted
Stock shall not be delivered until they are free of any restrictions specified by the Committee at the time of grant;
|
|
|
|
|
(iii)
|
recipients
of Restricted Stock have the rights of a stockholder of the Company as of the date of the grant of the Restricted Stock;
|
|
|
|
|
(iv)
|
shares
of Restricted Stock are forfeitable until the terms of the Restricted Stock grant have been satisfied or the employment with
the Company is terminated; and
|
|
|
|
|
(v)
|
the
Restricted Stock is not transferable until the date on which the Committee has specified such restrictions have lapsed.
|
Stock
Options
The
following is a summary of the Company’s option activity:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
– January 1, 2016
|
|
|
9,933,500
|
|
|
$
|
0.70
|
|
Exercisable
– January 1, 2016
|
|
|
4,332,500
|
|
|
$
|
0.41
|
|
Granted
|
|
|
2,000,000
|
|
|
$
|
0.55
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
(6,614,500
|
)
|
|
$
|
-
|
|
Outstanding
– December 31, 2016
|
|
|
5,319,000
|
|
|
$
|
0.57
|
|
Exercisable
– December 31, 2016
|
|
|
1,640,500
|
|
|
$
|
0.47
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
(1,276,000
|
)
|
|
$
|
-
|
|
Outstanding
– December 31, 2017
|
|
|
4,043,000
|
|
|
$
|
0.58
|
|
Exercisable
– December 31, 2017
|
|
|
3,328,000
|
|
|
$
|
0.57
|
|
|
|
|
Options
Outstanding
|
|
|
|
|
Options
Exercisable
|
|
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.40
- 1.50
|
|
|
4,043,000
|
|
2.10
years
|
|
$
|
0.58
|
|
|
3,328,000
|
|
$
|
0.57
|
|
At
December 31, 2017, the total intrinsic value of options outstanding and exercisable was $0 and $0, respectively.
The
Company recognized an aggregate of $296,274 and $777,536 in compensation expense during the years ended December 31, 2017 and
2016, respectively, related to option awards. At December 31, 2017, unrecognized stock-based compensation was $310,519.
Stock
Warrants
The
following is a summary of the Company’s warrant activity:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
– January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Exercisable
– January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
33,333,317
|
|
|
$
|
0.08
|
|
Exercised
|
|
|
(16,666,650
|
)
|
|
$
|
0.00
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
– December 31, 2016
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable
– December 31, 2016
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding
– December 31, 2017
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable
– December 31, 2017
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
|
|
|
Warrants
Outstanding
|
|
|
|
|
Warrants
Exercisable
|
|
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.15
|
|
|
16,666,667
|
|
4.67
years
|
|
$
|
0.15
|
|
|
16,666,667
|
|
$
|
0.15
|
|
At
December 31, 2017, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.
There
were no new options or warrants granted during the year ended December 31, 2017. The following table summarizes the range of assumptions
the Company utilized to estimate the fair value of the options and warrants issued during the year ended December 31, 2016:
Assumptions
|
|
December
31, 2016
|
|
Expected
term (years)
|
|
|
2.40-5.00
|
|
Expected
volatility
|
|
|
90%-115
|
%
|
Risk-free
interest rate
|
|
|
0.87%
- 1.96
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
The
expected warrant term is based on the contractual term. The expected option term is computed using the “simplified”
method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate expected term
of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term. The expected volatility is based on historical-volatility of the Company when stock
prices were publicly available. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the
expected term of the related option at the valuation date. Dividend yield is based on historical trends.
Note
9 – Credit Risk
Financial
instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash
equivalents. As of December 31, 2017, substantially all of the Company’s cash and cash equivalents were held by major financial
institutions and the balance in certain accounts exceeded the maximum amount insured by the Federal Deposits Insurance Corporation
(“FDIC”). However, the Company has not experienced losses on these accounts and management believes that the Company
is not exposed to significant risks on such accounts.
Note
10 – Segment Information
The
Company maintained operating segments; Conventions and ConBox. The Company ceased ConBox operations in 2017, which is the principal
reason for the decrease in operating results compared to 2016. The Company evaluated performance of its operating segments based
on revenue and operating profit (loss). Segment information for the years ended December 31, 2017 and 2016 and as of December
31, 2017 and 2016, are as follows:
|
|
Conventions
|
|
|
ConBox
|
|
|
Total
|
|
Year
ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,983,033
|
|
|
$
|
84,580
|
|
|
$
|
15,067,613
|
|
Cost
of revenue
|
|
|
(14,978,136
|
)
|
|
|
(80,161
|
)
|
|
|
(15,058,297
|
)
|
Gross
margin
|
|
|
4,897
|
|
|
|
4,419
|
|
|
|
10,371,076
|
|
Operating
expenses
|
|
|
(5,314,391
|
)
|
|
|
(32,533
|
)
|
|
|
(5,346,924
|
)
|
Operating
loss
|
|
|
(5,309,494
|
)
|
|
|
(28,114
|
)
|
|
|
(5,337,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
21,994,433
|
|
|
$
|
707,101
|
|
|
$
|
22,701,534
|
|
Cost
of revenue
|
|
|
(14,972,190
|
)
|
|
|
(1,029,898
|
)
|
|
|
(16,002,088
|
)
|
Gross
margin
|
|
|
(164,903
|
|
|
|
-
|
|
|
|
(164,903
|
|
Operating
expenses
|
|
|
(6,857,340
|
)
|
|
|
(322,797
|
)
|
|
|
6,534,543
|
)
|
Operating
profit (loss)
|
|
|
(7,627,847
|
)
|
|
|
(88,942
|
|
|
|
(7,716,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
336,030
|
|
|
$
|
-
|
|
|
$
|
336,030
|
|
Total
assets
|
|
|
2,940,089
|
|
|
|
-
|
|
|
|
2,940,089
|
|
Unearned
revenue
|
|
|
2,164,972
|
|
|
|
-
|
|
|
|
2,164,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
128,561
|
|
|
$
|
59,258
|
|
|
$
|
187,819
|
|
Total
assets
|
|
|
5,775,871
|
|
|
|
59,258
|
|
|
|
5,835,129
|
|
Unearned
revenue
|
|
|
1,479,392
|
|
|
|
95,546
|
|
|
|
1,574,938
|
|
Note
11 – Income Tax Provision
Deferred
Tax Assets
On
December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Bill”) was signed into law. Prior to the enactment of
the Tax Reform Bill, the Company measured its deferred tax assets at the federal rate of 34%. The Tax Reform Bill reduced the
federal tax rate to 21% resulting in the re-measurement of the deferred tax asset as of December 31, 2017. Beginning January 1,
2018, the lower tax rate of 21% will be used to calculate the amount of any federal income tax due on taxable income earned during
2018.
At
December 31, 2017, the Company has available for U.S. federal income tax purposes a net operating loss (“NOL”) carry-forwards
of approximately $9,919,000 that may be used to offset future taxable income through the fiscal year ending December 31, 2036.
If not used, these NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50%
ownership change as determined under the regulations. The Company plans on undertaking a detailed analysis of any historical and/or
current Section 382 ownership changes that may limit the utilization of the net operating loss carryovers. No tax benefit has
been reported with respect to these net operating loss carry-forwards in the accompanying consolidated financial statements since
the Company believes that the realization of its net deferred tax asset of approximately $2,083,000 was not considered more likely
than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a valuation allowance
of $2,083,000.
Deferred
tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the
deferred tax assets because of the uncertainty regarding its realizability. In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which
temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration
of all the information available, Management believes that significant uncertainty exists with respect to future realization of
the deferred tax assets and has therefore established a full valuation allowance. The valuation allowance increased by approximately
$590,000 and $249,000 for the years ended December 31, 2017 and 2016, respectively.
The
Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain
positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position
must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or
expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to
as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of
tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation
to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If
applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other
expenses – Interest expense” in the statement of operations. Penalties would be recognized as a component of “General
and administrative.”
No
material interest or penalties on unpaid tax were recorded during the years ended December 31, 2017 and 2016, respectively. As
of December 31, 2017 and 2016, no liability for unrecognized tax benefits was required to be reported. The Company does not expect
any significant changes in its unrecognized tax benefits in the next year.
Components
of deferred tax assets are as follows:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Net
deferred tax assets – Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
income tax benefit from NOL carry-forwards
|
|
$
|
2,083,000
|
|
|
$
|
1,493,000
|
|
Less
valuation allowance
|
|
|
(2,083,000
|
)
|
|
|
(1,493,000
|
)
|
Deferred
tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
Tax Provision in the Consolidated Statements of Operations
A
reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income
taxes is as follows:
|
|
For
the Year
Ended
December 31, 2017
|
|
|
For
the Year
Ended
December 31, 2016
|
|
|
|
|
|
|
|
|
Federal
statutory income tax rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
Change
in valuation allowance on net operating loss carry-forwards
|
|
|
(21.0
|
%)
|
|
|
(34.0
|
%)
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
[__]
Shares
Common
stock
Roth
Capital Partners
[__],
2018
Part
II
Information
not require in prospectus
Item
13. Other Expenses of Issuance and Distribution.
The
following table indicates the expenses to be incurred in connection with the offering described in this registration statement,
other than underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the Commission
registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee, and the Nasdaq Capital Market listing
application fees.
|
|
Amount
to
be Paid
|
|
SEC registration fee
|
|
$
|
1,702
|
|
FINRA filing fee
|
|
|
2,606
|
|
Nasdaq Capital Market listing application
fees
|
|
|
50,000
|
|
Printing and engraving expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Transfer agent and registrar fees and
expenses
|
|
|
*
|
|
Miscellaneous
fees and expenses
|
|
|
*
|
|
Total
|
|
|
*
|
|
*
To be completed by amendment
Item
14. Indemnification of Directors and Officers.
The
Company is incorporated under the laws of the State of Delaware. Section 102 of the Delaware General Corporation Law permits a
corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary
damages for a breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty, failed to
act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved
a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit.
Section
145 of the Delaware General Corporation Law provides that a corporation has the power to indemnify a director, officer, employee
or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against
expenses (including attorneys’ fees), judgments, fines and amounts paid in settlements actually and reasonably incurred
by the person in connection with an action, suit or proceeding to which he is or is threatened to be made a party by reason of
such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except
that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any
claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view
of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
The
Company’s certificate of incorporation includes a provision that, to the fullest extent permitted by the DGCL, eliminates
the personal liability of its directors for monetary damages for breach of fiduciary duty as a director. In addition, together
its certificate of incorporation and its bylaws require the Company to indemnify, to the fullest extent permitted by law, any
person made or threatened to be made a party to an action or proceeding (whether criminal, civil, administrative or investigative)
by reason of the fact that such person is or was a director, officer or employee of the Company or any predecessor of the Company,
or serves or served at any other enterprise as a director, officer or employee at the Company’s request or the request of
any predecessor of the Company, against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an
agent of ours. The Company’s bylaws also provide that the Company may, to the fullest extent provided by law, indemnify
any person against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Company.
The Company is not required to advance expenses incurred by its directors, officers, employees and agents in defending any action
or proceeding for which indemnification is required or permitted, subject to certain limited exceptions. The indemnification rights
conferred by its certificate of incorporation and bylaws are not exclusive.
The
Company maintains a directors’ and officers’ liability insurance policy. The policy insures directors and officers
against unindemnified losses arising from certain wrongful acts in their capacities as directors and officers and reimburses the
Company for those losses for which it has lawfully indemnified the directors and officers. The policy contains various exclusions.
In
addition, the underwriting agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the underwriters
of the Company and the Company’s officers and directors for certain liabilities arising under the Securities Act, or otherwise.
Item
15. Recent Sales of Unregistered Securities.
Effective
December 1, 2016, we entered into a securities purchase agreement (the “
Purchase Agreement
”) with Bristol Investment
Fund, Ltd. (“
Bristol
”), an entity controlled by our Executive Chairman, for the sale of our securities, comprised
of (i) $2.5 million of convertible debentures convertible at a price of $0.15 per share (the “
Debenture
”),
(ii) warrants (the “
Series A Warrants
”) to acquire 16,666,667 shares of our common stock at an exercise price
of $0.15 per share, and (iii) warrants (the “
Series B Warrants
” and, together with the Series A Warrants, the
“
Warrants
”) to acquire 16,666,650 shares of our common stock at an exercise price of $0.0001 per share. As
a condition to Bristol entering into the Purchase Agreement, we entered into a Security Agreement (the “
Security Agreement
”)
in favor of Bristol, granting a security interest in substantially all of our property, whether presently owned or existing or
hereafter acquired or coming into existence, including but not limited to, its ownership interests in our subsidiaries, to secure
the prompt payment, performance and discharge in full of all of our obligations under the Debenture. We received net proceeds
under the Purchase agreement of approximately $2.47 million after paying certain fees and expenses.
On
December 29, 2016, we granted Bristol Capital options to purchase up to an aggregate of 600,000 shares of our common stock, vesting
in quarterly increments of 75,000 options through June 30, 2018 and expiring on December 29, 2021.
On
[__], 2018, we entered into and Exchange Agreement with Bristol pursuant to which we issued [__] shares of Preferred Stock in
exchange for the Notes (the “
Exchange
”). This issuance was deemed to be exempt from registration under the
Securities Act in reliance on Section 3(a)(9) of the Securities Act, as an exchange of securities of the issuer for no consideration.
No
underwriters were used in connection with any of the foregoing transactions. Except as otherwise noted, these issuances were deemed
to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, including in some cases,
Regulation D and Rule 506 promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The purchasers of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to offer or sell, in connection with any distribution of the securities,
and appropriate legends were affixed to the share certificates and instruments issued in such transactions.
Item
16. Exhibits and Financial Statement Schedules.
The
following exhibits are filed herewith or incorporated by reference to exhibits previously filed with the SEC.
Exhibit
No.
|
|
Description
|
|
|
|
1.1**
|
|
Form
of Underwriting Agreement
|
|
|
|
2.1
|
|
Share
Purchase and Share Exchange Agreement, dated November 5, 2010, by and among GoEnergy, Inc., Strato Malamas, an individual
and the majority stockholder of GoEnergy, Inc., Kick the Can Corp., a Nevada corporation, Kicking the Can, L.L.C., a Delaware
limited liability company and the majority shareholder of Kick the Can Corp., and certain shareholders of Kick the Can Corp.
that are signatories thereto (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC
on November 16, 2010).
|
|
|
|
3.1
|
|
Certificate
of Incorporation of GoEnergy, Inc. (as filed as Exhibit 1.1 to the Company’s Registration Statement on Form SB-2, filed
with the SEC on March 25, 2003).
|
|
|
|
3.2
|
|
Bylaws
(as filed as Exhibit 2.1 to the Company’s Registration Statement on Form SB-2, filed with the SEC on March 25, 2003).
|
|
|
|
3.3
|
|
Certificate
of Amendment to the Certificate of Incorporation of GoEnergy, Inc., dated December 6, 2010 (as filed as Exhibit 3.3 to the
Company’s Current Report on Form 8-K, filed with the SEC on December 13, 2010).
|
|
|
|
3.4
|
|
Certificate
of Correction, dated December 8, 2010 (as filed as Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed with
the SEC on December 13, 2010).
|
|
|
|
3.5
|
|
Second
Certificate of Correction filed January 20, 2011 (as filed as Exhibit 3.5 to the Company’s Current Report on Form 8-K,
filed with the SEC on January 25, 2011).
|
|
|
|
3.6
|
|
Certificate
to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series A Cumulative
Convertible Preferred Stock, $0.0001 par value per share (as filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on December 13, 2010).
|
|
|
|
3.7
|
|
Certificate
of Amendment to Certificate to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative
Rights of Series A Cumulative Convertible Preferred Stock, $.0001 par value per share (as filed as Exhibit 4.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on April 25, 2011).
|
3.8
|
|
Certificate
of Amendment to Certificate to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative
Rights of Series A Cumulative Convertible Preferred Stock, $.0001 par value per share (as filed as Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on March 30, 2012).
|
|
|
|
3.9
|
|
Amended
and Restated Series A Certificate of Designations, dated March 29, 2012 (as filed as Exhibit 3.1 to the Company’s Current
Report on Form 8-K, filed on March 30, 2012).
|
|
|
|
3.10
|
|
First
Amendment to the Bylaws of Wizard World, Inc. (as filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q,
filed with the SEC on November 21, 2016).
|
3.11
|
|
Certificate
of Amendment to Certificate of Incorporation, filed September [__], 2018 (filed as Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed with the SEC on September [__], 2018).
|
|
|
|
3.12*
|
|
Form of Amended and Restated Certificate of Incorporation to be in effect immediately prior to the completion of this offering.
|
|
|
|
3.13*
|
|
Form of Amended and Restated Bylaws to be in effect immediately prior to the completion of this offering.
|
|
|
|
4.1
|
|
Form
of 2011 Series A Common Stock Purchase Warrant (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K,
filed with the SEC on April 25, 2011).
|
|
|
|
4.2
|
|
Form
of Convertible Promissory Note, dated August 19, 2011 (as filed as Exhibit 10.2 to the Company’s Current Report on Form
8-K, filed with the SEC on August 30, 2011).
|
|
|
|
4.3
|
|
Form
of Series A Common Stock Purchase Warrant (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on April 5, 2012).
|
|
|
|
4.4
|
|
Form
of Senior Convertible Debenture (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the
SEC on April 5, 2012).
|
|
|
|
5.1**
|
|
Opinion
of DLA Piper LLP (US)
|
|
|
|
10.1
|
|
Director
Agreement, dated January 18, 2011, by and between GoEnergy, Inc. and Vadim Mats (as filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed with the SEC on January 18, 2011).
|
|
|
|
10.2
|
|
Director
Agreement, dated May 9, 2011, by between Wizard World, Inc. and Greg Suess (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on May 9, 2011).
|
|
|
|
10.3
|
|
2011
Stock Incentive and Award Plan (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
SEC on May 12, 2011)
|
|
|
|
10.4
|
|
Amendment
to the 2011 Incentive Stock and Award Plan (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on September 15, 2011).
|
|
|
|
10.5
|
|
2011
Amended and Restated Stock Incentive and Award Plan. (as filed as Exhibit 10.8 to the Company’s Annual Report on Form
10-K, filed with the SEC on April 16, 2012).
|
|
|
|
10.6
|
|
Form
of Non-Qualified Stock Option Agreement (as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed
with the SEC on May 12, 2011).
|
|
|
|
10.7
|
|
Director
Agreement, dated May 25, 2011, by and between Wizard World, Inc. and John Maatta (as filed as Exhibit 10.11 to the Company’s
Annual Report on Form 10-K, filed with the SEC on April 16, 2012).
|
|
|
|
10.8
|
|
Office
Service Agreement, dated January 18, 2011, by and between Kick the Can Corp. and NYC Office Suites (as filed as Exhibit 10.11
to the Company’s Current Report on Form 8-K, filed with the SEC on September 13, 2011).
|
|
|
|
10.9
|
|
Internet
Domain Name Assignment Agreement, dated January 2011, by and between Gareb Shamus Enterprises, Inc. and Kick the Can Corp.
(as filed as Exhibit 10.12 to the Company’s Current Report on Form 8-K, filed with the SEC on September 13, 2011).
|
|
|
|
10.10
|
|
Mid-Ohio
Acquisition Agreement, dated November 13, 2010, by and between Kicking the Can L.L.C and GCX Holdings LLC (as filed as Exhibit
10.15 to the Company’s Current Report on Form 8-K/A, filed with the SEC on November 16, 2011).
|
10.11
|
|
Second
Amended and Restated 2011 Incentive Stock and Award Plan (as filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on July 13, 2012).
|
|
|
|
10.12
|
|
Director
Agreement, dated March 17, 2013, by and between Wizard World, Inc. and Paul L. Kessler (as filed as Exhibit 10.25 to the Company’s
Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
|
|
|
10.13
|
|
Director
and Officer Indemnification, dated March 17, 2013, by and between Wizard World, Inc. and Paul L. Kessler (as filed as Exhibit
10.27 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
|
|
|
10.14
|
|
Non-Qualified
Stock Option Agreement, dated March 17, 2013, by and between Wizard World, Inc. and Paul L. Kessler (as filed as Exhibit 10.29
to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2013).
|
|
|
|
10.15
|
|
Form
of Commercial Real Estate Lease by and between Bristol Capital, LLC and 225 California Street, LLC, as lessors, and Wizard
World, Inc., as lessee (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
April 24, 2013).
|
|
|
|
10.16
|
|
2011
Third Amended and Restated Stock Incentive and Award Plan. (as filed as Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed with the SEC on September 29, 2014)
|
|
|
|
10.17
|
|
Amended
and Restated Operating Agreement of CON TV, LLC, by and among Wizard World, Inc., Cinedigm Entertainment Corp., Roar,
LLC and Bristol Capital, LLC (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC
on November 20, 2015)
|
|
|
|
10.18
|
|
Amended
and Restated License Agreement by and between Wizard World, Inc. and CON TV, LLC (as filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed with the SEC on November 20, 2015)
|
|
|
|
10.19
|
|
Amended
and Restated Services Agreement by and between Wizard World, Inc. and CON TV, LLC (as filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on November 20, 2015)
|
|
|
|
10.20
|
|
Employment
Agreement by and between Wizard World, Inc. and Randy Malinoff, individually (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on March 7, 2016)
|
|
|
|
10.21
|
|
Employment
Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
|
|
|
10.22
|
|
Non-Compete,
Non-Solicitation and Non-Disclosure Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as
filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
|
|
|
10.23
|
|
Indemnification
Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
|
|
|
10.24
|
|
Option
Agreement, dated July 15, 2016, by and between Wizard World, Inc. and John D. Maatta (as filed as Exhibit 10.4 to the Company’s
Current Report on Form 8-K, filed with the SEC on July 20, 2016)
|
10.25
|
|
Employment
Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff (as filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.26
|
|
Non-Compete,
Non-Solicitation and Non-Disclosure Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff
(as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.27
|
|
Indemnification
Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff (as filed as Exhibit 10.3 to
the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.28
|
|
Non-Qualified
Stock Option Agreement, dated November 8, 2016, by and between Wizard World, Inc. and Randall S. Malinoff (as filed as Exhibit
10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2016)
|
|
|
|
10.29
|
|
Form
of Securities Purchase Agreement by and between Wizard World, Inc. and Bristol Investment Fund, Ltd. (as filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 2, 2016)
|
|
|
|
10.30
|
|
Form
of 12% Senior Secured Convertible Debenture issued by Wizard World, Inc., in favor of Bristol Investment Fund, Ltd. (as filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on December 2, 2016)
|
|
|
|
10.31
|
|
Form
of Warrant issued by Wizard World, Inc. to Bristol Investment Fund, Ltd. (as filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on December 2, 2016)
|
|
|
|
10.32
|
|
Security
Agreement by and between Wizard World, Inc. (as filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed
with the SEC on December 2, 2016)
|
|
|
|
10.33
|
|
Consulting
Services Agreement by and between Wizard World, Inc. and Bristol Capital, LLC (as filed as Exhibit 10.4 to the Company’s
Current Report on Form 8-K, filed with the SEC on January 5, 2017)
|
|
|
|
10.34
|
|
2016
Incentive Stock and Award Plan (as filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with
the SEC on August 15, 2016)
|
|
|
|
10.35**
|
|
Exchange
Agreement, dated September [__], 2018, by and between Wizard World, Inc. and Bristol Investment Fund, Ltd.
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10.36
**
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Letter
Agreement, dated September [__], 2018, by and between Wizard World, Inc. and Bristol Investment Fund, Ltd.
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16.1
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Letter
of Rosenberg Rich Baker Berman & Company, dated December 28, 2017 (incorporated herein by reference to Exhibit 16.1 to
the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2017)
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21.1
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Subsidiaries
(incorporated herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed with the SEC on
April 17, 2017)
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23.1*
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Consent of MaughanSullivan LLC, an independent registered public accounting firm.
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23.2*
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Consent of Rosenberg Rich Baker Berman & Company, an independent registered public accounting firm.
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23.3**
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Consent
of DLA Piper LLP (US) (included in Exhibit 5.1)
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24.1*
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Power
of Attorney (included in signature page to this registration statement).
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*
Filed herewith
**
To be filed by amendment
+
Indicates management compensatory agreement
Item
17. Undertakings
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
The
undersigned Registrant hereby undertakes that:
(1)
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For
purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
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(2)
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For
the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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Signatures
Pursuant
to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on this 10 day of October,
2018.
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WIZARD
ENTERTAINMENT, INC.
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By:
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/s/
John D. Maatta
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Name:
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John
D. Maatta
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Title:
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Chief
Executive Officer and President
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KNOW
ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John D. Maatta and Paul
L. Kessler, and each of them, his true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange
Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules
and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus
included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate to
be done, as fully for all intents and purposes as he might or could do in person, hereby approving, ratifying and confirming all
that such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant
to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities
and on the dates indicated.
Signature
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Title
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Date
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/s/
John D. Maatta
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Chief
Executive Officer, President and Director
(Principal
Executive, Financial , and Accounting Officer)
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October 10, 2018
|
John
D. Maatta
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/s/
Paul L. Kessler
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Executive
Chairman
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October 10, 2018
|
Paul
L. Kessler
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/s/
Greg Suess
|
|
Director
|
|
October 10, 2018
|
Greg
Suess
|
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/s/
Jordan Schur
|
|
Director
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October 10, 2018
|
Jordan
Schur
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/s/
Michael Breen
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Director
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|
October 10, 2018
|
Michael
Breen
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