| Significant and Critical Accounting Policies and Practices | 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, 2016, the aggregate
non-controlling interest in ButtaFyngas was ($11,817). As of December 31, 2015, the aggregate non-controlling interest in Wiz Wizard
and ButtaFyngas was ($10,786). 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, 2016 and 2015, the allowance for doubtful accounts was $0 and $426,532,
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, 2016 December 31, 2015
Finished goods $ - $ 39,552
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, 2016
and 2015, the Company recognized $262,500 and $1,324,727 in losses from this venture, respectively. As of December 31, 2016 and
2015, 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. 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. In connection with the issuance of a
convertible promissory note as discussed below in Note 6, 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 convertible note agreement that potentially could result in a net cash settlement in the event of a fundamental
transaction, requiring the Company to classify the conversion feature as a derivative liability. The Company determined that it is not
practical to estimate the fair value of the convertible promissory note payable because of its unique nature and the costs that
would be incurred to obtain an independent valuation. The Company does not have comparable outstanding debt on which to base an
estimated current borrowing rate or other discount rate for purposes of estimating the fair value of the convertible note payable
and the Company has not been able to develop a valuation model that can be applied consistently in a cost-efficient manner. These
factors all contribute to the impracticability of estimating the fair value of the notes payable. At December 31, 2016 and 2015,
the carrying value of the convertible promissory note payable net of debt discount was $1,456 and $0. At December 31, 2016, the
Company recorded accrued interest of $24,243 and $0, which is included on the Consolidated Balance Sheets in the accounts payable
and accrued expenses line item. 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. The Company’s Level 3 financial
liabilities consist of the derivative conversion features issued in 2016. The Company valued the conversion features using a Monte
Carlo model. These models incorporate transaction details such as the Company’s stock price, contractual terms, maturity,
risk free rates, and volatility as of the date of issuance and each balance sheet date. The Company utilized the following management
assumptions in valuing the derivative conversion feature during the year ended December 31, 2016:
Exercise price $ 0.12 - 0.15
Risk free interest rate 1.14% – 1.93 %
Dividend yield 0.00 %
Expected volatility 94% - 115 %
Remaining term 2 to 5 years Fair Value of Financial Assets
and Liabilities Measured on a Recurring Basis The Company uses Level 3 of the fair
value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative liability at every reporting
period and recognizes gains or losses in the statements of operations that are attributable to the change in the fair value of
the derivative liability. Financial assets and liabilities measured
at fair value on a recurring basis are summarized below and disclosed on the balance sheets as follows:
Fair Value Measurement Using
Carrying Value Level 1 Level 2 Level 3 Total
Embedded conversion feature $ 3,298,000 $ - $ - $ 3,298,000 $ 3,298,000
Warrant liability 3,200,137 - - 3,200,137 3,200,137
December 31, 2016 $ 6,498,737 $ - $ - $ 6,498,737 $ 6,498,737 The unobservable level 3 inputs used
by the Company was the expected volatility assumption used in the Monte Carlo pricing model. Expected volatility is based on the
historical stock price of the Company’s common stock. The following table provides a summary
of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring
basis using significant unobservable inputs during the year ended December 31, 2016.
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
Balance – December 31, 2016 $ 3,200,137 $ 3,298,000 $ 6,498,737 Changes in the unobservable input values
could potentially cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant
unobservable inputs used in the fair value measurements is the expected volatility assumption. A significant increase (decrease)
in the expected volatility assumption could potentially result in a higher (lower) fair value measurement. Derivative Instruments The Company evaluates its convertible
debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for in accordance with ASC 815-15. The result of this accounting treatment is that the fair value of
the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value
is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon
conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that
fair value is reclassified to equity. In circumstances where the embedded
conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments
in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a
single, compound derivative instrument. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to
liability at the fair value of the instrument on the reclassification date. 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 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 $178,931
and $176,986 for the years ended December 31, 2016 and 2015, respectively. Equity–based compensation The Company recognizes compensation
expense for all equity–based payments in accordance with ASC 718 “ Compensation – Stock Compensation 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 Income Taxes Income taxes are provided in accordance
with ASC No. 740, “ Accounting for Income Taxes Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment. The Company is no longer subject to
tax examinations by tax authorities for years prior to 2013. During the year ended December 31, 2016,
the Company partially utilized NOL carry-forwards to offset taxable income. 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, 2016 For the Year Ended December 31, 2015
Convertible note 16,666,667 -
Common stock options 5,319,000 9,933,500
Common stock warrants 16,666,667 -
Total contingent shares issuance arrangement, stock options or warrants 38,652,334 9,933,500 Reclassification Certain prior period amounts have been
reclassified to conform to current period presentation. Recently Issued Accounting Pronouncements In August 2014, the FASB issued ASU
2014-15, “ Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern In July 2015, the FASB issued the ASU
No. 2015-11 “ Inventory (Topic 330) Simplifying the Measurement of Inventory” .
In February 2016, the FASB issued ASU
2016-02, “Leases (Topic 842).” In March 2016, the FASB issued ASU No.
2016-06, “ Derivatives and Hedging” (topic 815) In April 2016, the FASB issued ASU No.
2016-10, “ Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (Topic 606) Revenue from Contracts with Customers: Principal versus Agent Considerations
(Reporting Revenue Gross verses Net) (Topic 606) In April 2016, the FASB issued ASU No.
2016-09, “ Compensation – Stock Compensation (Topic 718) In May 2016, the FASB issued ASU No.
2016-12, “ Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” In August 2016, the FASB issued ASU
2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” In October 2016, the FASB issued ASU
2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, In November 2016, the FASB issued ASU
2016-18, “Statement of Cash Flows (Topic 230)” 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. |
