Item
1. Financial Statements.
Wizard
Entertainment, Inc.
March
31, 2019
Index
to the Condensed Consolidated Financial Statements
Wizard
Entertainment, Inc.
Condensed
Consolidated Balance Sheets
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
951,265
|
|
|
$
|
1,014,671
|
|
Accounts receivable, net
|
|
|
181,367
|
|
|
|
124,395
|
|
Inventory
|
|
|
-
|
|
|
|
-
|
|
Prepaid convention expenses
|
|
|
458,761
|
|
|
|
762,110
|
|
Prepaid expenses
|
|
|
104,054
|
|
|
|
136,317
|
|
Deferred offering costs
|
|
|
79,467
|
|
|
|
79,467
|
|
Total Current Assets
|
|
|
1,774,914
|
|
|
|
2,116,960
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
93,934
|
|
|
|
99,788
|
|
|
|
|
|
|
|
|
|
|
Operating lease right of use asset, net
|
|
|
233,215
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Security deposits
|
|
|
9,408
|
|
|
|
9,408
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,111,471
|
|
|
$
|
2,226,156
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,488,753
|
|
|
$
|
2,710,989
|
|
Unearned revenue
|
|
|
1,670,155
|
|
|
|
1,710,722
|
|
Operating lease liability
|
|
|
83,050
|
|
|
|
-
|
|
Convertible promissory note – related party, net
|
|
|
2,500,000
|
|
|
|
2,495,001
|
|
Due to CONtv joint venture
|
|
|
224,241
|
|
|
|
224,241
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
6,966,199
|
|
|
|
7,140,953
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability, net
|
|
|
151,238
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
7,117,437
|
|
|
|
7,140,953
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Preferred stock par value $0.0001: 20,000,000 shares authorized; 5,768,956 and 5,768,956 shares issued and outstanding, respectively
|
|
|
577
|
|
|
|
577
|
|
Common stock par value $0.0001: 80,000,000 shares authorized; 70,135,036 and 70,135,036 shares issued and outstanding, respectively
|
|
|
7,015
|
|
|
|
7,015
|
|
Additional paid-in capital
|
|
|
21,158,927
|
|
|
|
21,026,999
|
|
Accumulated deficit
|
|
|
(26,159,987
|
)
|
|
|
(25,936,890
|
)
|
Non-controlling interest
|
|
|
(12,498
|
)
|
|
|
(12,498
|
)
|
Total Stockholders’ Deficit
|
|
|
(5,005,966
|
)
|
|
|
(4,914,797
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
2,111,471
|
|
|
$
|
2,226,156
|
|
See
accompanying notes to the condensed consolidated financial statements
Wizard
Entertainment, Inc.
Condensed
Consolidated Statements of Operations
|
|
For the Three Months Ended
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Convention Revenues
|
|
$
|
3,549,983
|
|
|
$
|
3,991,166
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
2,957,839
|
|
|
|
2,886,334
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
592,144
|
|
|
|
1,104,832
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
456,286
|
|
|
|
457,285
|
|
Consulting fees
|
|
|
102,451
|
|
|
|
116,086
|
|
General and administrative
|
|
|
176,677
|
|
|
|
248,185
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
735,414
|
|
|
|
821,556
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(143,270
|
)
|
|
|
283,276
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(79,827
|
)
|
|
|
(168,893
|
)
|
Total other expenses
|
|
|
(79,827
|
)
|
|
|
(168,893
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
(223,097
|
)
|
|
|
114,383
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(223,097
|
)
|
|
|
114,383
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(223,097
|
)
|
|
$
|
114,383
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share - basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share - diluted
|
|
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
70,135,036
|
|
|
|
68,535,036
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – diluted
|
|
|
70,135,036
|
|
|
|
81,755,740
|
|
See
accompanying notes to the condensed consolidated financial statements
Wizard
Entertainment, Inc.
Condensed
Consolidated Statement of Stockholders’ Deficit
(unaudited)
For
the Three Months Ended March 31, 2019
|
|
Preferred Stock
Par Value
$0.0001
|
|
|
Common Stock
Par Value $0.0001
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2018
|
|
|
5,768,956
|
|
|
$
|
577
|
|
|
|
70,135,036
|
|
|
$
|
7,015
|
|
|
$
|
21,026,999
|
|
|
$
|
(25,936,890
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(4,914,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,928
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(223,097
|
)
|
|
|
-
|
|
|
|
(223,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2019
|
|
|
5,768,956
|
|
|
$
|
577
|
|
|
|
70,135,036
|
|
|
$
|
7,015
|
|
|
$
|
21,158,927
|
|
|
$
|
(26,159,987
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(5,005,966
|
)
|
For
the Three Months Ended March 31, 2018
|
|
Preferred
Stock
Par Value
$0.0001
|
|
|
Common
Stock
Par Value $0.0001
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Non-
controlling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,960,893
|
|
|
$
|
(23,321,471
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(3,366,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,605
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,383
|
|
|
|
-
|
|
|
|
114,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
68,535,036
|
|
|
$
|
6,855
|
|
|
$
|
19,980,498
|
|
|
$
|
(23,207,088
|
)
|
|
$
|
(12,498
|
)
|
|
$
|
(3,232,233
|
)
|
See
accompanying notes to the condensed consolidated financial statements
Wizard
Entertainment, Inc.
Condensed
Consolidated Statements of Cash Flows
|
|
For the Three Months Ended
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(223,097
|
)
|
|
$
|
114,383
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
12,003
|
|
|
|
25,021
|
|
Accretion of debt discount
|
|
|
4,999
|
|
|
|
94,066
|
|
Right-of-use asset amortization
|
|
|
1,073
|
|
|
|
-
|
|
Share-based compensation
|
|
|
131,928
|
|
|
|
19,605
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(56,972
|
)
|
|
|
62,444
|
|
Inventory
|
|
|
-
|
|
|
|
1,204
|
|
Prepaid convention expenses
|
|
|
303,349
|
|
|
|
(29,915
|
)
|
Prepaid expenses
|
|
|
32,263
|
|
|
|
25,444
|
|
Accounts payable and accrued expenses
|
|
|
(222,236
|
)
|
|
|
(499,173
|
)
|
Unearned revenue
|
|
|
(40,567
|
)
|
|
|
129,110
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Operating Activities
|
|
|
(57,257
|
)
|
|
|
(57,811
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(6,149
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities
|
|
|
(6,149
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(63,406
|
)
|
|
|
(57,811
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of reporting period
|
|
|
1,014,671
|
|
|
|
1,769,550
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of reporting period
|
|
$
|
951,265
|
|
|
|
1,711,739
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
$
|
252,980
|
|
|
$
|
-
|
|
See
accompanying notes to the condensed consolidated financial statements
Wizard
Entertainment, Inc.
March
31, 2019
Notes
to the Condensed Consolidated Financial Statements
(unaudited)
Note
1 – Organization and Operations
Wizard
Entertainment, Inc.
Wizard
Entertainment, Inc., formerly GoEnergy, Inc. and Wizard World, Inc. (“Wizard Entertainment” 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. Effective October 5, 2018, the Company changed its
name to Wizard Entertainment, Inc.
Note
2 – Going Concern Analysis
Going
Concern Analysis
The
Company had income (loss) from operations of $(142,198) and $283,276 for the three months ended March 31, 2019 and 2018, respectively.
As of March 31, 2019, we had cash and working capital deficit $951,265 and $5,191,285, 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 2020. 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 continued throughout
2018 should be evident throughout 2019.
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.
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, 2018 and notes thereto contained in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2018, as filed with the SEC on April 1, 2019.
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
condensed consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and
for the reporting period(s).
All
inter-company balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment
in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components
of equity relating to the non–controlling interest.
As
of March 31, 2019 and December 31, 2018, the aggregate non-controlling interest in ButtaFyngas was ($12,498). The non-controlling
interest is separately disclosed on the Consolidated Balance Sheet.
Cash
and Cash Equivalents
The
Company considers investments with original maturities of three months or less to be cash equivalents.
The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits.
Fair
Value of Financial Instruments
For
purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s
short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require
collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the
outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if
receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management.
The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded,
which is the face amount of the receivable net of the allowance for doubtful accounts. As of March 31, 2019 and December 31, 2018,
the allowance for doubtful accounts was $0 and $0, respectively.
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
The
Company currently holds a limited and passive interest of 10% in CONtv, a joint venture with third parties and Bristol Capital,
LLC (a related party controlled by a member of the Board). CONtv is a digital network devoted to fans of pop culture entertainment
and is inactive
For
the three months ended March 31, 2019 and 2018, the Company recognized $0 losses from this venture, respectively.
As
of March 31, 2019 and December 31, 2018, the investment in CONtv was $0.
As
of March 31, 2019 and December 31, 2018, 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.
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
5, 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 the FASB Accounting Standards Codification ASC 606 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:
1)
|
Identify
the contract with a customer
|
A
contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s
rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract
has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that
are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies
judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the
customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining
to the customer.
2)
|
Identify
the performance obligations in the contract
|
Performance
obligations promised in a contract are identified based on the services that will be transferred to the customer that are both
capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources
that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple
promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct
in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance
obligation.
3)
|
Determine
the transaction price
|
The
transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring
services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount
of variable consideration that should be included in the transaction price utilizing either the expected value method or the most
likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction
price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract
will not occur. None of the Company’s contracts as of March 31, 2019 contained a significant financing component.
4)
|
Allocate
the transaction price to performance obligations in the contract
|
If
the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract
with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or
to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct
services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain
multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative
standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance
obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling
price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable
through past transactions, the Company estimates the standalone selling price taking into account available information such as
market conditions and internally approved pricing guidelines related to the performance obligations.
5)
|
Recognize
revenue when or as the Company satisfies a performance obligation
|
The
Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised service to a customer.
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.
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 $0 for the three months ended March 31, 2019 and 2018, 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 an 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.
Income
Taxes
The
Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “
Income Taxes
.”
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
FASB
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of March 31,
2019 and December 31, 2018. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income
tax expense. No amounts were accrued for the payment of interest and penalties at March 31, 2019 and December 31, 2018. The Company
is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from
its position. The Company is subject to income tax examinations by major taxing authorities since inception.
The
Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These
potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions,
and compliance with federal, state, and city tax laws. The Company’s management does not expect that the total amount of
unrecognized tax benefits will materially change over the next twelve months.
The
Company is no longer subject to tax examinations by tax authorities for years prior to 2015.
Earnings
per Share
Earnings
per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term
is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards
Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the
period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred
stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned)
from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation
of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect
the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options
or warrants.
The
following table shows the outstanding dilutive common shares excluded from the diluted net income (loss) per share calculation
as they were anti-dilutive:
|
|
Contingent shares issuance
arrangement, stock options
or warrants
|
|
|
|
For the Three Months
Ended
March 31, 2019
|
|
|
For the Three Months
Ended
March 31, 2018
|
|
|
|
|
|
|
|
|
Convertible note
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
Common stock options
|
|
|
6,487,500
|
|
|
|
4,043,000
|
|
Common stock warrants
|
|
|
16,666,667
|
|
|
|
16,666,667
|
|
|
|
|
|
|
|
|
|
|
Total contingent shares issuance arrangement, stock options or warrants
|
|
|
39,820,834
|
|
|
|
37,376,334
|
|
Reclassification
Certain
prior period amounts have been reclassified to conform to current period presentation.
Recently Adopted Accounting Guidance
In February 2016, the FASB issued ASU 2016-02
“
Leases”
(Topic 842) which amended guidance for lease arrangements to increase transparency and comparability
by providing additional information to users of financial statements regarding an entity’s leasing activities. Subsequent to the
issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred
to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets
and lease liabilities on the balance sheet for substantially all lease arrangements.
On January 1, 2019, the Company adopted
ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the condensed
consolidated balance sheet in the amount of $252,980 related to the operating lease for office space. Results for the three months
ended March 31, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in
accordance with the legacy accounting guidance under ASC Topic 840,
Leases
.
As part of the adoption we elected the
practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to:
|
1.
|
Continue
applying our current policy for accounting for land easements that existed as of, or expired before, January 1, 2019.
|
|
|
|
|
|
|
|
2.
|
Not
separate non-lease components from lease components and instead to account for each separate lease component and the non-lease
components associated with that lease component as a single lease component.
|
|
|
|
|
3.
|
Not
to apply the recognition requirements in ASC 842 to short-term leases.
|
|
|
|
|
4.
|
Not
record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered
immaterial.
|
Refer to Note 7. Operating Leases for additional disclosures required by ASC 842.
Recently
Issued Accounting Pronouncements
Management
has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”)
through the date these financial statements were available to be issued and find no recent accounting pronouncements that would
have a material impact on the financial statements of the Company.
Note
4 – Property and Equipment
Property
and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Computer Equipment
|
|
$
|
47,574
|
|
|
$
|
43,087
|
|
Equipment
|
|
|
471,947
|
|
|
|
469,348
|
|
Furniture and Fixtures
|
|
|
62,321
|
|
|
|
62,321
|
|
Leasehold Improvements
|
|
|
22,495
|
|
|
|
22,495
|
|
|
|
|
604,337
|
|
|
|
597,251
|
|
Less: Accumulated depreciation
|
|
|
(510,403
|
)
|
|
|
(497,463
|
)
|
|
|
$
|
93,934
|
|
|
$
|
99,788
|
|
Depreciation
expense was $12,003 and $25,021 for the three months ended March 31, 2019 and 2018, respectively.
Note
5 – Related Party Transactions
Wiz
Wizard LLC
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. Wiz World, LLC was dissolved
in March 2019.
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 granted to Bristol options to purchase up to an aggregate of 600,000 shares of the Company’s common
stock.
During
the three months ended March 31, 2019 and 2018, the Company incurred net expenses of $43,519 and $43,705, respectively,
for services provided by Bristol. At March 31, 2019 and December 31, 2018, the Company accrued $0 and $0, respectively, of net
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 commencing with monthly payments of $8,118. During the three
months ended March 31, 2019 and 2018, the Company paid lease obligations $25,837 and $25,085, respectively, under the Sublease.
See Note 7.
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 $0 and $4,999 as of March 31, 2019 and December 31, 2018, respectively,
which includes the debt discount recorded upon execution of the Securities Purchase Agreement discussed above.
Investment
in CONtv
The
Company currently holds a limited and passive interest of 10% in CONtv, a joint venture with third parties and Bristol Capital,
LLC (a related party controlled by a member of the Board). CONtv is a digital network devoted to fans of pop culture entertainment
and is inactive
For
the three months ended March 31, 2019 and 2018, the Company recognized $0 losses from this venture, respectively.
As
of March 31, 2019 and December 31, 2018, the investment in CONtv was $0.
As
of March 31, 2019 and December 31, 2018, the amount due to CONtv was $224,241.
Note
6 – Commitments and Contingencies
Employment
Agreements
Appointment
of President and Chief Executive Officer
On April 22, 2016, the Board approved the
appointment of Mr. John D. Maatta as the Company’s President and Chief Executive Officer, effective as of May 3, 2016. Mr.
Maatta will continue to serve as a member of the Board. In addition, the Board granted Mr. Maatta options to purchase up to an
aggregate of 1,100,000 shares of the Company’s common stock, subject to the terms and conditions of the Third Amended and
Restated 2011 Stock Incentive and Award Plan, which were fully vested as of December 31, 2018. 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. On November 22, 2018, the Board of Directors of the Company decided to issue 1,729,325 shares of Preferred stock for settlement
of the deferred compensation due to Mr. Maatta totaling $212,707. Deferred compensation for Mr. Maatta accrued as of March
31, 2019 and December 31, 2018 was $80,598 and $48,680, respectively.
On
January 23, 2019, the Company granted options to purchase an additional 400,000 shares of the Company’s common stock. The
options were with an exercise price of $0.13 per share, a term of 5 years, and immediate vesting. The options have an aggregated
fair value of approximately $46,431 that was calculated using the Black-Scholes option-pricing model based on the assumptions
below in Note 8.
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 $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. On November 22, 2018, the Board of Directors
of the Company decided to issue 4,039,634 shares of Preferred stock for settlement of the outstanding fees due to Bristol totaling
$496,875. At March 31, 2019 and December 31, 2018, the Company accrued $0 and $0, respectively, of net 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. On January 23, 2019, the Company granted options to purchase an additional 300,000 shares of the Company’s common
stock. The options were with an exercise price of $0.13 per share, a term of 5 years, and immediate vesting. The options have
an aggregated fair value of approximately $34,823 that was calculated using the Black-Scholes option-pricing model based on the
assumptions below in Note 8.
Legal
proceedings
The
Company has filed suit against a vendor alleging a number of claims on behalf of the Company with regard to decorator services
provided to the Company.
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 7 – Operating Leases
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 commencing with monthly payments of $8,118. During the three months ended March
31, 2019 and 2018, the Company paid lease obligations of $25,837 and $25,085, respectively, under the Sublease.
We determine if an arrangement contains
a lease at inception. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent
our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement
date based on the estimated present value of lease payments over the lease term.
Our leases consist of leaseholds on
office space. We utilized a portfolio approach in determining our discount rate. The portfolio approach takes into consideration
the range of the term, the range of the lease payments, the category of the underlying asset and our estimated incremental borrowing
rate, which is derived from information available at the lease commencement date, in determining the present value of lease
payments. We also give consideration to our recent debt issuances as well as publicly available data for instruments with similar
characteristics when calculating our incremental borrowing rates.
Our lease term includes options to
extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are
not recorded on the balance sheet, per the election of the practical expedient noted above.
We recognize lease expense for these
leases on a straight-line basis over the lease term. We recognize variable lease payments in the period in which the obligation
for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index
or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.
The components of lease expense were as
follows:
|
|
Three
Months Ended March 31, 2019
|
|
Operating lease
|
|
|
26,909
|
|
Sublease income
|
|
|
(9,758
|
)
|
Total net lease cost
|
|
$
|
17,151
|
|
Supplemental cash flow and other information
related to leases was as follows:
|
|
Three Months Ended March
31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
(25,837
|
)
|
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities:
|
|
|
|
|
Operating leases
|
|
$
|
252,980
|
|
|
|
|
|
|
Weighted average remaining lease term (in years):
|
|
|
|
|
Operating leases
|
|
|
2.5
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
|
|
12
|
%
|
The following table presents the maturity of the Company’s lease liabilities as of March 31, 2019:
Fiscal year ending December 31:
|
|
|
|
2019 (remainder of year)
|
|
$
|
79,062
|
|
2020
|
|
|
108,046
|
|
2021
|
|
|
83,054
|
|
|
|
|
270,162
|
|
Less: Imputed interest
|
|
|
(35,874
|
)
|
Present value
|
|
$
|
234,288
|
|
Note
8 – Stockholders’ Equity (Deficit)
The
Company’s authorized capital stock consists of 100,000,000 shares, of which 80,000,000 are for shares of common stock, par
value $0.0001 per share, and 20,000,000 are for shares of preferred stock, par value $0.0001 per share, of which 50,000 have been
designated as Series A Cumulative Convertible Preferred Stock. As of March 31, 2019 and December 31, 2018, there were 5,768,956
shares of preferred stock issued and outstanding, respectively.
As
of March 31, 2019 and December 31, 2018, there were 70,135,036 and 70,135,036 shares of common stock issued and outstanding, respectively.
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, 2018
|
|
|
4,345,000
|
|
|
$
|
0.52
|
|
Exercisable – December 31, 2018
|
|
|
3,492,500
|
|
|
$
|
0.59
|
|
Granted
|
|
|
2,142,500
|
|
|
$
|
0.13
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding – March 31, 2019
|
|
|
6,487,500
|
|
|
$
|
0.39
|
|
Exercisable – March 31, 2019
|
|
|
3,592,500
|
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.13 – 0.94
|
|
|
|
6,487,500
|
|
|
2.8 years
|
|
$
|
0.39
|
|
|
3,592,500
|
|
$
|
0.59
|
|
At
March 31, 2019, the total intrinsic value of options outstanding and exercisable was $0.
On
January 23, 2019, the Company granted options to employees and consultants to purchase 1,442,500 shares of the Company’s
common stock. The options were with an exercise price of $0.13 per share, a term of 5 years, and 2 year vesting. The warrants
have an aggregated fair value of approximately $167,440 that was calculated using the Black-Scholes option-pricing model based
on the assumptions below.
|
|
March 31, 2019
|
|
Risk-free interest rate
|
|
|
2.58
|
%
|
Expected life of grants
|
|
|
3.5 years
|
|
Expected volatility of underlying stock
|
|
|
169.88
|
%
|
Dividends
|
|
|
0
|
%
|
The
estimated option life was determined based on the “simplified method,” giving consideration to the overall vesting
period and the contractual terms of the award.
During
the three months ended March 31, 2019, the Company recorded total stock-based compensation expense related to options of approximately
$131,900. The unrecognized compensation expense at March 31, 2019 was approximately $235,100.
Stock
Warrants
The
following is a summary of the Company’s warrant activity:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding – January 1, 2018
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable – January 1, 2018
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding – December 31, 2018
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable – December 31, 2018
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding – March 31, 2019
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
Exercisable – March 31, 2019
|
|
|
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
|
|
|
|
2.67
years
|
|
|
$
|
0.15
|
|
|
|
16,666,667
|
|
|
$
|
0.15
|
|
At
March 31, 2019, the total intrinsic value of warrants outstanding and exercisable was $0.
There
were no new warrants granted during the three months or the year ended March 31, 2019 and December 31, 2018, respectively.
Note
9 – Credit Risk
Financial
instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash
equivalents. As of March 31, 2019 and December 31, 2018, substantially all of the Company’s cash and cash equivalents were
held by major financial institutions and the balance in certain accounts exceeded the maximum amount insured by the Federal Deposits
Insurance Corporation (“FDIC”). However, the Company has not experienced losses on these accounts and management believes
that the Company is not exposed to significant risks on such accounts.