10-Q 1 v423978_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2015.

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 000-52414

POW! Entertainment, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

90-0139831

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

9440 Santa Monica Blvd #620

Beverly Hills, CA 90210

310-275-9933

(Address of principal executive offices)

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No x

The number of common shares outstanding on October 31, 2015 was 132,357,356.

POW! ENTERTAINMENT, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
PART I.	Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at September 30, 2015 (Unaudited) and December 31, 2014 (Audited)	3

	Consolidated Statements of Operations and Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014.	4

	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2015 and 2014.	5

	Notes to Consolidated Unaudited Financial Statements	6 – 11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12 – 14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II.	Other Information

Item 1.	Legal Proceedings	15

Item 1A.	Risk Factors	16

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 6.	Exhibits	16

Signatures		17

PART I. ITEM 1. FINANCIAL STATEMENTS

POW! ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

	SEPTEMBER 30,			DECEMBER 31,
	2015			2014
	(UNAUDITED)			(AUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	759,512		$	583,044
Letter of credit		32,544			32,544
Marketable securities		246,814			245,726
Accounts receivable, net		31,131			77,180
Other receivables		5,090			5,090
Prepaid expenses		26,427			18,254
TOTAL CURRENT ASSETS		1,101,518			961,838
Property and Equipment, net		9,542			20,492
INTANGIBLE AND OTHER ASSETS
Trademarks, net		18,956			18,256
TOTAL ASSETS	$	1,130,016		$	1,000,586

LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	279,511		$	130,611
Advances payable		4,196,667			4,196,667
Deferred compensation-current		200,000			200,000
Deferred Rent		13,336			24,489
Derivatives Liability		3,379			6,526
TOTAL CURRENT LIABILITIES		4,692,893			4,558,293

Deferred compensation-long term		1,077,917			1,227,917
COMMITMENT AND CONTINGENCIES, note 7
SHAREHOLDERS' DEFICIT
Common shares, $0.001 par value.
199,000,000 common shares authorized, 1,000,000 preferred shares authorized
132,357,356 common shares issued and outstanding at September 30, 2015 and December 31, 2014.		132,358			132,358
Additional paid in capital		9,622,797			9,622,797
Accumulated deficit		(14,383,926	)		(14,535,382	)
Accumulated other comprehensive income		(12,023	)		(5,397	)
TOTAL SHAREHOLDERS' DEFICIT		(4,640,794	)		(4,785,624	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	1,130,016		$	1,000,586

See the accompanying notes to consolidated financial statements.

POW! ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014

REVENUES	$	757,142		$	604,501		$	1,876,742		$	1,688,909

OPERATING COSTS AND EXPENSES
Wages and benefits		351,289			385,330			1,106,041			1,195,254
Commission		11,800			29,375			11,800			95,647
Professional fees		125,405			42,386			333,497			192,781
Promotional and marketing		10,552			10,500			32,358			32,629
Rent and office		31,743			29,797			103,508			90,791
Other general and administration		49,479			62,863			148,235			205,016

TOTAL OPERATING COSTS AND EXPENSES		580,268			560,251			1,735,439			1,812,118

INCOME (LOSS) FROM OPERATIONS		176,874			44,250			141,303			(123,209	)
OTHER INCOME AND (EXPENSES)
Interest and dividend income, net		2,607			2,452			6,853			6,124
Write-off other receivables		-			-						(130,268	)
Recovery of bad debt								13,002			-
Gain on change of derivative value		3,147			-			3,147			2,969
INCOME (LOSS) BEFORE TAXES		182,628			46,702			164,305			(244,384	)
Income taxes					-			(12,849	)		(10,950	)
NET INCOME (LOSS)	$	182,628		$	46,702		$	151,456		$	(255,334	)

Net income (loss) per share
Basic and diluted	$	0.00		$	0.00		$	0.00		$	(0.00	)

Weighted average shares outstanding, basic and diluted		132,357,356			132,357,356			132,357,356			132,357,356

Condensed Statement of Comprehensive Income
Net income (loss)	$	182,628		$	46,702		$	151,456		$	(255,334	)
Other comprehensive Income (Loss)
Unrealized gain (loss) on marketable securities		(7,746	)		(4,386	)		(6,626	)		(6,206	)
Comprehensive income (loss)	$	174,882		$	42,316		$	144,830		$	(261,540	)

See the accompanying notes to consolidated financial statements.

POW! ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30, 2015			September 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	151,456		$	(255,334	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		10,950			11,246
Loss on sale of marketable securities		-			(919	)
Write off development costs		-			35,000
Write off other receivables		-			130,268
Changes in valuation of derivatives liability		(3,147	)		(2,969	)
Deferred Rent		(11,153	)		(8,773	)
Change in assets and liabilities:
Accounts receivable		46,049			66,736
Prepaid expenses		(8,173	)		(14,615	)
Other receivable		-			(3,293	)
Accounts payable and accrued expenses		148,901			(102,194	)
Advances payable		-			412,500
Deferred compensation		(150,000	)		(150,000	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		184,883			117,653

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for trademarks		(700	)		(1,425	)
Purchase of property and equipment		-			(4,125	)
Purchase of marketable securities		(7,715	)		(82,014	)
Sale of marketable securities		-			68,262

NET CASH USED IN INVESTING ACTIVITIES		(8,415	)		(19,302	)


NET INCREASE IN CASH		176,468			98,351
Cash and cash equivalents at beginning of period		583,044			245,585
Cash and cash equivalents at the end of period	$	759,512		$	343,936

Supplemental disclosures of cash flow information:
Income taxes paid in cash	$	12,849		$	10,950

See the accompanying notes to consolidated financial statements.

POW! ENTERTAINMENT, INC

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

The Company and Basis of Presentation

Business Activity and Organization--The Company is a Delaware corporation, incorporated on August 17, 1998. POW! Entertainment, Inc. ("POW", "Company", “we”) has the following subsidiaries: POW! Entertainment, LLC (the operating company), QED Productions, LLC, PFD, LLC, and an inactive Delaware corporation: Pharmelle, Inc.

We have prepared the Company’s accompanying consolidated unaudited financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial statements and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended, or the Exchange Act and Article 8-03 of Regulation S-X promulgated under the Exchange Act. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, we have included all adjustments considered necessary (consisting of normal recurring adjustments) for a fair presentation. Operating results for the three and nine months ended September 30, 2015 are not indicative of the results that may be expected for the fiscal year ending December 31, 2015. You should read these unaudited consolidated financial statements in conjunction with the audited financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2014.

Going Concern

Going concern is dependent upon various factors including, among others, the Company’s ability to continue to generate income and positive cash flows.

The Company relied on the Silver Creek Agreement for revenues to support the majority of our operations from 2010 to 2014. The Silver Creek Agreement as described under Revenue Recognition (Note 2) below expired in December 2014. The combined cash and marketable securities of approximately $1,000,000 held by the Company on September 30, 2015 will sustain operations through approximately January 2016. For the nine months ended September 30, 2015, the Company had net income of $151,456. However, our revenue streams fluctuate and are uncertain. The Company had net losses in the prior years ended December 31, 2014 and 2013 of $94,713 and $392,689, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has new sources of revenues, though there are no assurances that they will continue or result in immediate cash flows to sustain operational requirements. We have maintained restricted budgetary spending in the nine months ended September 30, 2015 and will evaluate further operational reductions that do not undermine future development requirements. The financial statements for the nine months ended September 30, 2015 do not contain any adjustments to reflect future effects on the recoverability or classification of assets and liabilities that may result should we not able to continue as a going concern.

Summary of Significant Accounting Policies

Principles of Consolidation-- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

Revenue Recognition-- As a creator of intellectual property, the majority of the Company’s business is derived from contracts with third parties providing for the development and use of intellectual property developed by the Company.

The Company records revenue from these sources: artist consulting, film rights, animated television and comic-book royalties. In accounting for these contracts, the Company recognizes revenue when services have been rendered or when contractual parameters have been satisfied and are measureable.

Our contract with Silver Creek Pictures (“Silver Creek”), an affiliate of The Walt Disney Company, called for per annum payments of nonrecoupable overhead allowance of $700,000 and nonrecoupable consulting services for Stan lee of $1,250,000. The contract expired in December 2014. Revenue from Silver Creek was recorded based on the guidance from ASC 605: revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues.

Advances Payable -- The contract with Silver Creek also contained recoupable advance payments per annum of $550,000.The Company recorded $412,500 for the nine months ended September 30, 2014, as advances payable pursuant to the contractual clause in which the advances are recoupable by Silver Creek if at all from projects in development during the term. The Company has not met the performance measurement of the revenue and accordingly has not recorded the payments as revenue.

Use of Estimates —The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.

We have identified the first tier of estimates and assumptions as significant areas of estimation and assumptions to be the valuation of derivatives liabilities from the utilization of the Black-Scholes Pricing Model, which has inherent volatility that may greatly differ from the actual results. The second tier of estimation consists of stock-based compensation, the allowance for doubtful accounts and the net deferred income tax asset valuation allowance. While we deem the latter estimates to be significant, their infrequent occurrence in our operations are considered secondary compared to the first tier.

Concentration of Credit Risk—The Company maintains cash at financial institutions which may, at times, exceed insured limits.

Cash, Cash Equivalents and Marketable Securities—Cash, cash equivalents and marketable securities include cash, certificates of deposit, mutual funds and liquid investments with original maturities of three months or less. Marketable securities consist of securities classified as available for sale.

Accounts Receivable—The Company extends credit to its customers. These customers have specific contracts that detail the payments expected under their contract terms. Accounts receivable are customer obligations due under these contract terms. Management reviews accounts receivable on a regular basis, based on contracted terms and how recently payments have been received, to determine if any such amounts will potentially be uncollected. After all attempts to collect a receivable have failed, the receivable is written off.

Other Receivables—Other receivables are receivables from third parties deemed collectible.

Property and Equipment—Property and equipment are stated at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets over five years. Depreciation expense recorded for the three months ended September 30, 2015 and 2014 were $3,650 and $3,787, respectively. Depreciation expense recorded for the nine months ended September 30, 2015 and 2014 were $10,950 and $11,246, respectively.

Fair Value Measurements—The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e. inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level I – Quoted prices in active markets for identical assets and liabilities.

Level II – Other significant observable inputs for assets or liabilities through corroboration with market data at measurement date.

Level III – Significant unobservable inputs that reflect management’s best estimate of what market participants would use to price assets or liabilities at the measurement date.

The following table summarizes fair value measurements by level at December 31, 2014 for assets and liabilities measured at fair value on a recurring basis:

	Level I		Level II	Level III		Total
Cash	$	583,044				$	583,044
Letter of credit	$	32,544				$	32,544
Marketable securities	$	245,726				$	245,726
Derivatives liability				$	6,526	$	6,526

The following table summarizes fair value measurements by level at September 30, 2015 for assets and liabilities measured at fair value on a recurring basis:

	Level I		Level II	Level III		Total
Cash	$	759,512				$	759,512
Letter of credit	$	32,544				$	32,544
Marketable securities	$	246,814				$	246,814
Derivatives liability				$	3,379	$	3,379

The table below sets forth a summary of changes in fair value of the Company’s Level III liabilities for the nine months ended September 30, 2015.

Balance as of December 31, 2014	$	6,526
Change in Value		(3,147	)
Balance as of September 30, 2015	$	3,379

The Company’s management believes the carrying amounts of accounts receivable, accounts payable and accrued expense approximate fair value due to their short maturity.

Valuation of Derivative Instruments—ASC 815-40 (formerly SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”) requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”) to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula.

Marketable Securities— The following tables show the Company’s securities classified as available for sale with adjusted cost, unrealized gains (loss), and fair value by investment category recorded as of September 30, 2015 and December 31, 2014:

	September 30, 2015
	Adjusted Cost		Unrealized Gain (Loss)			Aggregate Fair Value		Securities Available for Sale

Mutual Funds	$	258,968	$	(12,154	)	$	246,814	$	246,814

	December 31, 2014
	Adjusted Cost		Unrealized Gain (Loss)			Aggregate Fair Value		Securities Available for Sale

Mutual Funds	$	251,253	$	(5,527	)	$	245,726	$	245,726

Gain on Sale of Marketable Securities—The Company sold securities classified as available for sale with adjusted cost basis of $67,343 for net proceeds of $68,262 with gain on sale totaling $919 during the nine months ended September 30, 2014. There was no sale of marketable securities during the nine months ended September 30, 2015.

Other Comprehensive Income—The Company’s other comprehensive income consists of unrealized gains (losses) on securities classified as available for sale that are recorded as an element of shareholders’ equity but are excluded from net income.

Accounting for Stock-Based Compensation to Employees —The Company measures and recognizes compensation expense for all share-based payment awards to employees based on estimated fair values on the grant date. The Company recognizes the expense on a straight-line basis over the requisite service period, which is the vesting period.

Income Taxes—Income taxes are accounted for under an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future consequences of events that have been recognized in the Company’s financial statements and income tax returns. The Company provides a valuation allowance for deferred income tax assets when it is considered more likely than not that all or a portion of such deferred income tax assets will not be realized.

Earnings Per Share—Basic earnings per share is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common share equivalents had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

Concentrations— The Company has two major customers that individually exceeded 10% of total revenue and accounted for 86.8% and 91.4% of total revenue for the three months ended September 30, 2015 and 2014, respectively.

The Company has two major customers that individually exceeded 10% and accounted for 58.4% of the total revenue for the nine months ended September 30, 2015. For the nine months ended September 30, 2014, one major customer accounted for 86.6% and individually exceeded 10% of the total revenue.

One customer accounted for 100% of accounts receivable as of September 30, 2015.

Recently Issued or Newly Adopted Accounting Standards— In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers . The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. We are evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued FASB ASU2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. FASB ASU 2014-15 changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes become effective for the Company for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the Consolidated Financial Statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the Consolidated Financial Statements in a given reporting period.

Deferred Compensation

Deferred compensation consists of accrued and unpaid salaries of executives, which will be paid as the Company increases its cash, over time, or by obtaining additional financing. The balance at September 30, 2015 reflects payments made during the nine months in the amount of $150,000.

Related Party Transactions.

From time to time, Stan Lee has appeared and will continue to appear at certain events or projects for which both he and the Company receive payments. Both Mr. Lee and the Company were paid approximately $20,000 and $77,000 during the nine months ended September 30, 2015 and 2014, respectively. The Company believes that his ability to appear at these events enhances the Company’s brand without additional costs to the Company.

During the nine months ended September 30, 2014, the Company wrote off $130,268 relating to the costs paid on behalf of SL Power Concerts (“SLPC”). For the nine months ended September 30, 2015, $13,002 was collected from the other equity owner.

Share-based Compensation

On March 15, 2010, the Company granted warrants to purchase a total of 1,300,000 shares of common stock to two of its executives, 650,000 shares each. The warrants vested immediately and are exercisable for five years from the date of issuance, at a strike price of $0.40 per share. The warrants were issued in conjunction with Deferred Compensation Agreements entered into which limits payment of the outstanding deferred compensation to the two executives. These warrants have an anti-dilution clause, whereby the exercise price can be adjusted downward in the event equity is raised at a price lower than $0.40 per share. The warrants expired on March 15, 2015 unexercised.

Warrants and Options for Non-Employees

On December 2, 2010, the Company issued warrants to purchase 350,000 shares of common stock at $0.1905 per share in lieu of the remaining balance of an accrued commission of $125,000 to a consultant. The contract has an anti-dilutive clause, vests immediately and originally was scheduled to expire in 2012 and was later extended to expire in December 2017. Accordingly, the Company uses the guidance in ASC 815-40-15 to scope and measure the warrants for non-employees as a derivative liability.

A gain on change in derivative liability was recorded to reflect a decrease of $3,147 and $2,969 for the nine months ended September 30, 2015 and 2014, respectively.

The fair value of stock warrants and options at the date of grant and derivative liability were estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	Nine Months Ended September 30,
	2015			2014
Risk-free interest rate		1.37	%		1.78	%
Expected life		2.25 years			3.25 years
Expected Volatility		278.62	%		211.94	%
Dividend yield		0.00	%		0.00	%

Commitments and Contingencies

Legal Proceedings

From time to time the Company may become involved in various legal proceedings in the normal conduct of its business.

On February 14, 2011, the Company and its subsidiary, QED Productions, LLC, were named in a lawsuit citing, among other things, trademark infringement. The Company filed a motion to dismiss the lawsuit on March 15, 2011. On August 23, 2012, Judge Wilson of the U.S. District Court for the Central District of California dismissed the case. On October 29, 2014, the dismissal was affirmed by the Ninth Circuit Court of Appeals. A writ of certiorari to the US Supreme Court was filed on February 12, 2015. On March 30, 2015, the writ of certiorari was denied by the US Supreme Court.

On August 11, 2015, Shawn Lukaszewicz filed a complaint in the Superior Court of the State of California against Stan Lee and the Company, among others, alleging multiple causes of action related to plaintiff's performance of services (the "Lukaszewicz Complaint"). Plaintiff was never an employee, independent consultant or other service provider to the Company, and has no contractual or other relationship with the Company, and the Company believes that such claims are without merit.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

Some of the statements in the Form 10-Q are forward-looking statements about what may happen in the future. Forward-looking statements include statements regarding our current beliefs, goals, and expectations about matters such as our expected financial position and operating results, our business strategy, and our financing plans. The forward-looking statements in the Form 10-Q are not based on historical facts, but rather reflect the current expectations of our management concerning future results and events. The forward-looking statements generally can be identified by the use of terms such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. We cannot guarantee that our forward-looking statements will turn out to be correct or that our beliefs and goals will not change. Our actual results could be very different from and worse than our expectations for various reasons. You should review carefully all information, including the discussion of risk factors under “Item 1A: Risk Factors” and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-K for the year ended December 31, 2014.

Overview

The Company is a multimedia development and licensing company that creates and licenses animated and live-action fantasy and superhero entertainment content and merchandise, leveraging the creative output and branded image of Stan Lee. The Company develops originally created franchises for new media such as mobile, on-line, and videogames, where content is currently in high demand, and for traditional entertainment media such as feature length films in both live action and animation, DVD, television programming, merchandising and related ancillary markets. All of the Company’s intellectual property, which may include characters and stories, is vertically integrated in that each property is developed into as many products as possible, to create a branded franchise to accelerate global identity from the synergy created across various media.

Currently, the Company plans to focus on:

creating project concepts, primarily in the form of story treatments,

identifying select partners willing to participate in, and/or finance, the development of the Company’s projects,

identifying talented and suitable writers to write scripts for the Company’s projects, and

negotiating agreements for the production of the projects ( i.e ., the filming of a movie or television series, the creation of games, etc.)

Going Concern Qualifications

The combined cash and marketable securities of approximately $1,000,000 held by the Company on September 30, 2015 will sustain operations through approximately January 2016. For the nine months ended September 30, 2015, the Company had net income of $151,456. However, our revenue streams fluctuate and are uncertain. The Company had net losses for the years ended December 31, 2014 and 2013 of $94,713 and $392,689, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Projects in Development

The Company begins with story ideas from Stan Lee and, prior to January 2015 presented the ideas to Disney pursuant to the “first look” contract (See Transactions with Affiliates of The Walt Disney Company), then third parties (such as writers, directors, producers or studios) to develop the project at the third party’s expense. The Company considers a project to be “in development” once we have packaged the project and handed the project off to a third party. At that point, the project has left the control of the Company and is in the purview of the third party. Since the Company does not control the process once it is in the hands of others it is unable to indicate with much, if any, certainty when that project will be produced or the cost that such other party may incur to produce it. The numbers of projects in development tend to vary at any given point in time, but they are in the 15-20 projects range. A majority of projects “in development” are never produced, or are produced only after lengthy delays.

We believe that the odds are against the typical project “in development” being produced because there are a very large number of people who come up with ideas for movies, television shows, and other forms of entertainment, but only a limited number of entities with the financial and personnel resources required to produce and distribute these projects. However, we believe that several factors improve the odds of the Company’s projects being produced and, if produced being successful.

First, Stan Lee’s has co-created a large number of very successful characters and projects.

Second, through Stan Lee, we have established relationships with a variety of well-known writers, directors and producers.

Third, Stan Lee’s natural inclination and focus are on superheroes, action characters and other characters that have potential to become “franchises” (i.e. that lend themselves to sequels, to licensing to other media, to merchandising and to other ancillary opportunities).

Transactions with Affiliates of The Walt Disney Company

Silver Creek Pictures, Inc. (“Silver Creek”), an affiliate of The Walt Disney Company (“Disney”), entered into an agreement with the Company in 2006 and subsequently amended (the “Silver Creek Agreement”) pursuant to which, among other things, the Company provided Silver Creek with a “first look” at all of the Company’s creative intellectual property and the right to acquire any such properties, in Silver Creek’s discretion under prescribed terms, and Silver Creek compensated the Company for all properties that were in development by Silver Creek into revenue producing works pursuant to complex terms, typical in the film and media industry.

The Silver Creek Agreement provided for Silver Creek to pay the Company overhead allowance amounts equal to $700,000 per annum from 2010 through 2014, and an additional $550,000 per annum advance against certain future payments due from Silver Creek. Silver Creek is entitled to recoup the $550,000 annual payments from proceeds of Company projects, which were in development during the term of the Silver Creek Agreement. At September 30, 2015, Silver Creek is entitled to $4,196,667 in recoupment payments.

The Silver Creek Agreement, including all amendments, are exhibits to the Form 10 filed with the Securities and Exchange Commission on December 10, 2010 and the foregoing summary is subject to the actual terms provided therein.

Additionally, Catalyst Investments, LLC (“Catalyst Investments”), another Disney affiliate, purchased on December 31, 2009 ten percent of the then-outstanding shares of common stock of the Company for $2,500,000 (the “Catalyst Investment”).

Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.

Results of Operations

We believe that, due to the complex nature and long term cycle of our business operations, period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied on as an indication of future performance. However, it is still important that you review the audited financial statements filed on the Form 10-K for the year ended December 31, 2014 and the related notes in addition to thoroughly reading our current plan of operations.

For Three Months Ended September 30, 2015 and 2014

The Company’s revenues for the three months ended September 30, 2015 increased by $152,641 or 25.3% compared to the three months ended September 30, 2014. The new sources of revenue may not replace the former Silver Creek revenue, will fluctuate and are uncertain in their conversion to positive cash flow.

For the three months ended September 30, 2015, net income was $182,628 compared to net income of $46,702 for the three months ended September 30, 2014.

Total operating costs were reduced overall by $20,017 in areas including decreases in wages and benefits, commission, and other general administrative. The reductions were offset by increases in legal and professional expenses of $83,020 relating to the Company’s exploration of alternative sources to replace the Silver Creek Agreement.

For Nine Months Ended September 30, 2015 and 2014

The Company’s revenues for the nine months ended September 30, 2015 increased by $187,833 or 11.1% compared to the nine months ended September 30, 2014. Revenues increased from various sources for new projects in development as well as creative consultations for third parties. The new sources of revenue may not replace the former Silver Creek revenue, will fluctuate and are uncertain in their conversion to positive cash flow.

For the nine months ended September 30, 2015, net income was $151,456 compared to net loss of $255,334 for the nine months ended September 30, 2014.

Net loss for the nine months ended September 30, 2014 included the write-off $130,268 for expenses incurred on behalf of SLPC after a settlement with the other equity owner.

Total operating costs were reduced overall by $76,679 in areas including decreases in wages and benefits, commission, and other general administrative. The reductions were offset by increases in legal and professional expenses of $140,716 relating to the Company’s exploration of alternative sources to replace the Silver Creek Agreement.

Liquidity and Capital Resources

Our liquidity and capital resources were provided principally through our agreement with Silver Creek Pictures. We have a deficiency in working capital of $3,591,375 and $3,596,455 as of September 30, 2015 and December 31, 2014, respectively. The increase in accounts payable by $148,900 relates to the increase in legal and profession expenses. As of September 30, 2015 and December 31, 2014 cumulative advances received from Silver Creek were $4,196,667. Silver Creek is entitled to recoup these amounts from projects which were in development during the term of the Silver Creek Agreement.

The Silver Creek Agreement expired at the end of 2014 and the agreement was not extended. During the nine months ended September 30, 2015, new sources of revenues resulted in an increase in cash flow. These revenue streams relate to various new projects in development after the Silver Creek Agreement expired, as well as, creative consultation for third parties. New project development revenues need not be paid to Silver Creek and are available to the Company for operation requirements. There can be no assurances that we will be successful in continuing to find other revenue streams sufficient to support our current operational requirements.

Deferred compensations to executives totaled $1,277,917 and 1,427,917 as of September 30, 2015 and December 31, 2014, respectively. During the nine months ended September 30, 2015, the Company paid down deferred compensation totaling $150,000.

Off Balance Sheet Arrangements

We are not party to any material off-balance sheet financing arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Under the direction of our Chief Executive Officer, we evaluated our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective as of September 30, 2015.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonable likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company may become involved in various legal proceedings in the normal conduct of its business.

Stan Lee Media, Inc.

Stan Lee Media, Inc. (“SLM”) was a publicly-traded entity listed on the NASDAQ during 1999. SLM operated as a typical dot com company during the dot com bubble, in that it created and developed new properties and franchises for the internet, in this case under the Stan Lee signature, but without any sustainable revenue source other than new debt or equity financings. While Stan Lee was the Chairman of the Board of Directors and Chief Creative Officer of SLM and Gill Champion was the Chief Operating Officer of SLM, the President and Chief Executive Officer of SLM was a party who is unrelated to the Company. Stan Lee terminated his employment agreement with SLM in January 2001 because, among other reasons, SLM had ceased paying him thereunder.

SLM filed for bankruptcy protection in February 2001 and ceased operations during July 2001. SLM does not have any working relationship, association or dealings with the Company, other than the Company having acquired the right to distribute some of SLM’s intellectual property, subject to an agreement to pay SLM a royalty out of any revenues received from such intellectual property. This SLM intellectual property has only produced approximately $2,000 of revenues from December 2001 to December 2010 and the Company does not consider it material to the Company’s business. No revenues have been earned in the years ended December 2011 to 2015. SLM’s bankruptcy petition was eventually dismissed as a result of SLM’s failure to pay required court fees and its corporate charter was revoked by its state of incorporation, Colorado, for failure to pay franchise taxes.

On July 9, 2007, SLM filed a lawsuit in the United States District Court for the Central District of California against Stan Lee, QED and the Company entitled Stan Lee Media, Inc. v. Lee, et al. (the “SLM Suit”). In this suit, SLM sought declaratory relief and asserted claims for misappropriation of corporate opportunity, breach of contract, civil conspiracy, an accounting for profit, violation of the Lanham Act, copyright infringement, cybersquatting, and unfair business practices naming various defendants, including the Company. Specifically, SLM petitioned the court for an order declaring that SLM is the rightful owner of certain intellectual property and, as such, is the only entity that can use and benefit from such property. In January 2011, the U.S. District Court for the Central District of California directed that SLM file a Consolidated Complaint in that Court, consolidating all the litigation pending in that Court. In February 2011, SLM filed its Consolidated Complaint seeking substantially the same relief sought in the complaint previously filed and dismissed in New York Federal Court. In March 2011, the Company filed a motion to dismiss the newest complaint on the grounds that the claims are barred by res judicata and statutes of limitation, among other grounds, based in part on the prior New York decision. On August 23, 2012, Judge Wilson dismissed the case. On October 29, 2014, the dismissal was affirmed by the Ninth Circuit Court of Appeals. SLM filed a writ of certiorari on February 12, 2015 to the US Supreme Court. On March 30, 2015, the writ of certiorari was denied by the US Supreme Court.

ITEM 1A—RISK FACTORS

There are no changes to the risk factors set forth in the “Risk Factors” section of our Form 10-K for the year ended December 31, 2014.

ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NONE.

ITEM 6—EXHIBITS

Exhibit No.		Description
31.1		Certification by Principle Executive Officer
31.2		Certification by Principle Financial Officer
32.1		Section 1350 Certification by Principal Executive Officer
32.2		Section 1350 Certification by Principal Financial Officer
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	POW! Entertainment, Inc.

November 16, 2015	By:	/s/ GILL CHAMPION
		Gill Champion
		President and Chief Executive Officer
		Principal Executive Officer


November 16, 2015	By:	/s/ BICK LE
		Bick Le
		Principal Financial Officer