EXPLANATORY NOTE
This is a post-qualification amendment to an offering statement on Form 1-A originally filed by Fig Publishing, Inc. (“Fig”) on December 21, 2015; amended thereafter by Fig; and qualified thereafter by the U.S. Securities and Exchange Commission on September 29, 2016.
The purpose of this post-qualification amendment is to add to the offering statement, as amended and qualified, an offering of an additional class of securities. The securities initially offered under the offering statement consisted of shares of a particular series of non-voting preferred stock of Fig, par value $0.0001 per share, designated Fig Game Shares – PSY2. The additional securities being added to the offering statement by means of this post-qualification amendment consist of shares of a separate, particular series of non-voting preferred stock of Fig, par value $0.0001 per share, designated Fig Game Shares – Wasteland 3. Each separate series of non-voting preferred stock of Fig is governed by different payment and liquidation terms. Proceeds from the sale of all such securities shall be used by Fig for its general operations and working capital needs.
An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time an offering circular that is not designated as a Preliminary Offering Circular is delivered and the offering statement filed with the Commission becomes qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.
| Preliminary Offering Circular | Subject to Completion, Dated December 16, 2016 |
Fig Publishing, Inc.
Up to 1,250 Fig Game Shares – Wasteland 3
$1,000.00 per Share
This Regulation A, Tier 2 offering is for shares of a particular series of non-voting preferred stock, par value $0.0001 per share, of Fig Publishing, Inc., a Delaware corporation (“we”, our “Company” or “Fig”). We call this series “Fig Game Shares – Wasteland 3”. We are offering a maximum of 1,250 Fig Game Shares – Wasteland 3 at $1,000.00 per Share, on a best efforts basis. This offering is being conducted to raise money for our general operations and working capital needs.
Fig Game Shares – Wasteland 3 are shares of capital stock of Fig with no voting rights, which are designed to reflect the economic performance of a particular video game co-publishing license agreement that we have entered into with a third-party video game developer, inXile Entertainment, Inc. (“inXile”). Under this license agreement (as amended and restated, the “Wasteland 3 License Agreement”), we will co-publish the video game Wasteland 3, being developed by inXile. Provided Wasteland 3 is successfully developed and published, inXile and Fig will thereafter each receive sales receipts from Wasteland 3 pursuant to the Wasteland 3 License Agreement and those receipts will be shared as follows:
| ● | Receipts will be allocated into a revenue share for inXile and a revenue share for Fig, in the proportions described in greater detail in this offering circular. See “The Current Game, Developer and Shares – Fig Game Shares – Wasteland 3 – Anticipated Sharing of Sales Receipts from Wasteland 3”. |
| ● | Fig will allot part of its revenue share to Fig Game Shares – Wasteland 3 and the remaining part to securities offered in a separate offering under Rule 506(c) of Regulation D under the Securities Act of 1933 (the “Securities Act”), by a limited liability company of which Fig is the managing member, which securities are, similarly to Fig Game Shares – Wasteland 3, designed to reflect the economic performance of Wasteland 3. These allotments will be made in the same proportion that the proceeds from the two separate securities offerings bear to the total funds to be provided from Fig’s general account in support of the development of Wasteland 3. The size of the allotments will not be finally determined until both offerings are closed and we know the amount of the proceeds from each offering. However, as part of the crowdfunding campaign for Wasteland 3 conducted on Fig.co in September and October 2016, we received investment reservations of $1,144,000 in this offering and investment commitments of $1,046,000 in the Rule 506(c) offering. We are currently in the process of closing the Rule 506(c) offering. Assuming that, when both offerings are closed, this offering generates $1,000,000 of proceeds and the Rule 506(c) offering generates $1,046,000 of proceeds, Fig would allot 48.88% of its revenue share to Fig Game Shares – Wasteland 3 and 51.12% of its revenue share to the other securities. The final allotments will depend on the final amounts closed upon in the two offerings. |
| ● | Fig will pay a minimum of 70% of the Fig Game Shares – Wasteland 3 allotment to the holders of Fig Game Shares – Wasteland 3, in the form of dividends, subject to our dividend policy. |
| ● | Fig’s board of directors may in its discretion from time to time pay more than 70% of the Fig Game Shares – Wasteland 3 allotment to the holders of Fig Game Shares – Wasteland 3, if in its view business conditions permit it. |
For greater detail regarding the revenue sharing and payment of dividends described, see “The Current Game, Developer and Shares – Fig Game Shares – Wasteland 3 – Anticipated Sharing of Sales Receipts from Wasteland 3” and “Our Dividend Policy”.
Amounts will only become available for such sharing and payment of dividends if and when Wasteland 3 generates sales receipts, and the total amount available for Fig’s revenue share – and consequently for dividends – will depend on the amount of such sales receipts. In all events, our board of directors may decide not to pay a dividend or to reduce the size of a dividend if it believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. Dividends on Fig Game Shares – Wasteland 3 will be declared every six months, as of every May 15 and November 15, and paid thereafter, in all events after such time (if ever) as Wasteland 3 is successfully developed and published and Wasteland 3 sales receipts begin to be received. Aggregate dividend amounts will be distributed equally among all holders of Fig Game Shares – Wasteland 3, in proportion to the number of shares held.
An investment in our Fig Game Shares – Wasteland 3 is not an investment in any game, game developer or license agreement. Proceeds from this offering may be used to fund the development of other games, as well as other expenditures not related to Wasteland 3. There is no trading market for Fig Game Shares – Wasteland 3 and we do not expect one to develop, in part because we have imposed certain transfer restrictions on these shares. As a result, investors should be prepared to retain their Fig Game Shares – Wasteland 3 for as long as these shares remain outstanding, and should not expect to benefit from any share price appreciation. The principal economic benefit of holding Fig Game Shares – Wasteland 3 is expected to be the opportunity to receive dividends on the basis described above.
Fig Game Shares – Wasteland 3 will be available for purchase exclusively on Fig.co. Fig Game Shares – Wasteland 3 will be issued in book-entry electronic form only. FundAmerica Stock Transfer, LLC is the transfer agent and registrant for Fig Game Shares – Wasteland 3. Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or your net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
These are speculative securities. Investing in them involves significant risks. You should invest in them only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 11.
| Number of Shares | Price to Public | Underwriting Discounts and Commissions (1) | Proceeds to Fig (2) | |||||||||||||
| Per Share | 1 | $ | 1,000 | $ | 0.00 | $ | 1,000 | |||||||||
| Total Maximum | 1,250 | $ | 1,250,000 | $ | 0.00 | $ | 1,250,000 | |||||||||
| (1) | Our Company does not intend to use commissioned sales agents or underwriters. The securities being offered hereby will be offered only by us and by persons associated with us in reliance upon the exemption from registration contained in Rule 3a4-1 of the Securities Exchange Act of 1934. |
| (2) | Does not reflect the deduction of expenses of the offering, which we will pay, and which we estimate will be approximately $50,000. |
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
Fig Publishing, Inc.
599 Third St., Suite 211
San Francisco, CA 94107
(415) 689-5605
Fig.co
Information contained on Fig.co is not incorporated by reference into this offering circular, and you should not consider information contained on Fig.co to be part of this offering circular.
The date of this offering circular is __________, 2016
We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted. You should rely only on the information contained in this offering circular. We have not authorized anyone to provide you with any information other than the information contained in this offering circular. The information contained in this offering circular is accurate only as of its date, regardless of the time of its delivery or of any sale or delivery of our securities. Neither the delivery of this offering circular nor any sale or delivery of our securities shall, under any circumstances, imply that there has been no change in our affairs since the date of this offering circular. This offering circular will be updated and made available for delivery to the extent required by the federal securities laws.
Throughout this offering circular, unless the context requires otherwise, references to “Fig Game Shares” include all of the separate series of non-voting preferred stock, par value $0.0001 per share, that we have outstanding as of the date of this offering circular, with each series reflecting the economic performance of a different, particular video game co-publishing license agreement that we have entered into with a third-party video game developer. In addition, unless the context requires otherwise, references to the “Shares” refer only to the particular series of Fig Game Shares being offered pursuant to this offering circular. References to our board of directors (our “Board”) in this offering circular refer to only one person, Justin Bailey, who is the sole director of our Company. See “Directors, Executive Officers and Other Significant Individuals”.
Some of the statements in this offering circular constitute forward-looking statements. These statements relate to future events or our future financial performance, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expect,” “intend,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “will,” and similar words or phrases or the negative or other variations thereof or comparable terminology. All forward-looking statements are predictions or projections and involve known and unknown risks, estimates, assumptions, uncertainties and other factors that may cause our actual transactions, results, performance, achievements and outcomes to differ adversely from those expressed or implied by such forward-looking statements.
You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this offering circular, including in “Risk Factors” and elsewhere, identify important factors that you should consider in evaluating our forward-looking statements. These which factors include, among other things:
| ● | National, international and local economic and business conditions that could affect our business; | |
| ● | Markets for our products and services; | |
| ● | Our cash flows; | |
| ● | Our operating performance; | |
| ● | Our financing activities; | |
| ● | Our tax status; | |
| ● | Industry developments affecting our business, financial condition and results of operations; | |
| ● | Our ability to compete effectively; and | |
| ● | Governmental approvals, actions and initiatives and changes in laws and regulations or the interpretation thereof, including without limitation tax laws, regulations and interpretations. |
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be given to any investor by anyone that the expectations reflected in our forward-looking statements will be attained or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to re-issue this offering circular or otherwise make public statements in order to update our forward-looking statements beyond the date of this offering circular.
The following summary highlights selected information contained in this offering circular. This summary does not contain all the information that may be important to you. You should read all the information contained in this offering circular, including, but not limited to, the “Risk Factors” section.
Our Business
Overview
Fig is a community powered publisher of video games. Fig’s business is to identify, license, contribute funds to the development of, market, arrange distribution for, and earn receipts from sales of video games developed by third-party video game developers with whom we enter into license agreements to publish those games. We search for new games and game ideas with the potential to generate significant earnings with the help of our publishing model.
We are evolving the video game publishing model in a number of key ways:
| ● | Crowdfunding Campaigns |
| ● | Focused Curation |
| ● | Fig Game Shares |
| ● | Preservation of Developers’ Intellectual Property Ownership |
We believe that involving the community of gamers and fans in our game publishing will result in games that are more aligned with consumer demand, more creatively innovative and more commercially successful. See “Our Business – Overview”.
To date, our Company has entered into a number of video game co-publishing license agreements with game developers. See the section of this offering circular entitled “Games licensed”. The particular game to which the Fig Game Shares in this offering relate is described in the section entitled “The Current Game, Developer and Shares”.
Market Opportunity
Our goal is to provide game developers and game fans a more balanced and sustainable approach to game publishing. We aspire to provide a publishing solution that retains the best, and discards the worst, of traditional publishing and self-publishing with rewards-only crowdfunding. Based on our industry experience, traditional publishing arrangements and rewards-only crowdfunding each have limitations that make it difficult for developers to both maintain their intellectual property rights while raising enough funds to develop their game.
In traditional publishing arrangements, particularly with large video game publishers, publishers provide funding to developers in exchange for the intellectual property rights to the developer’s game, including distribution rights and rights to sequel games and other derivative works. The developer is paid a royalty, which can be disproportionately favorable to the publisher. In the principal alternative to traditional publishing arrangements that has so far been attempted – namely, rewards-only crowdfunding – developers have found it difficult to raise enough money to meet an entire game development budget and additionally finance post-development marketing and distribution efforts.
Our publishing model is an alternative to both these models and is intended to bridge the gap between traditional publishing models and self-publishing through rewards-only crowdfunding.
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Key Aspects of Our Business
Identification
We consider and evaluate games being developed for any game-playing platform and technology and in any genre. We believe that we have extensive video game industry contacts through which we may access developers and games that meet our criteria. Prior to entering into a license agreement to publish a particular game, we evaluate the game and the developer to determine whether, in our opinion, the game is likely to be successfully developed and become a commercial success. In making this determination, we focus on a particular set of factors, as set forth in “Our Business – Key Aspects of Our Business – Identification”.
In order to help us gather the information we need and want to make a decision as to whether to seek to publish a game, we present the developer of each game we may publish with a due diligence questionnaire, the form of which is an exhibit to the offering statement, filed with the SEC to which this offering circular relates. The information received in response to the questionnaire is part of what we consider in deciding whether to seek to publish the game.
Licensing
It is our intention that each video game co-publishing license agreement we enter into be based on a template license agreement that acts as a standard baseline. The material terms of our baseline license agreement are set forth in the section entitled “Our Business – Key Aspects of Our Business – Licensing”. Generally, only certain terms of the baseline license agreement will be subject to negotiation with each developer. Please refer to the section entitled “The Current Game, Developer and Shares” for the terms of the license agreement that have been agreed with the developer of the particular game to which the Fig Game Shares in this offering relate, as well as a description of the ways in which that license agreement may deviate from the baseline terms.
Crowdfunding Campaigns
As part of our process of deciding which games to publish, we host crowdfunding campaigns on our Parent’s website, Fig.co. These crowdfunding campaigns allow third-party developers to raise funds for their games, and they allow us to gauge interest in an offering of Fig Game Shares that would reflect our economic returns as a publisher of the game. A crowdfunding campaign must be successful, in our view, before we will greenlight our publishing of a game. If the crowdfunding campaign is not successful, the license agreement will terminate. If it is successful, the license agreement will continue, we will begin providing the developer with the amount of funds to be provided from Fig’s general account in support of the development of the game (such amount, the “Fig Funds”) and the developer will proceed with developing the game and delivering it pursuant to the terms of the license agreement, so that we may publish it as we have planned.
For a description of how the crowdfunding campaign for the game associated with the Fig Game Shares being offered in this offering may have differed, or may in the future differ, from this standard model, see “The Current Game, Developer and Shares”.
Rewards Portion of a Crowdfunding Campaign
Fig believes that the rewards portion of a crowdfunding campaign helps rally the gamer community to provide financial support for the development of a game through the pre-purchase of rewards. Backers pledge to pay the developer a certain amount of money in order to receive their rewards bundle of choice.
Investment Portion of a Crowdfunding Campaign
We expect all of our crowdfunding campaigns to include an offering of securities – either a particular series of Fig Game Shares issued by Fig, or other securities that are similar to Fig Game Shares that will be issued by a Fig affiliate, or both – which would pay returns based on the economic performance of the game that is the subject of the crowdfunding campaign. Provided the game is successfully developed and published, sales receipts will thereafter be received from the game and will generally be shared as described under the subheading “—Fig Game Shares”, below.
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Publishing Services
If the crowdfunding campaign meets its goal, and the other conditions to the license agreement are met, we will publish the game. Our publishing services include:
| ● | The Fig Funds, which will be disbursed to the developer of the game pursuant to an agreed-upon schedule that reflects the game development timeline and the relative needs of the developer and Fig; | |
| ● | Community building; | |
| ● | Marketing; | |
| ● | Distribution; and | |
| ● | Providing advice and consultation services to developers. |
Business Development
We support developers in business development activities to pursue commercial and strategic partnerships with other companies in the game industry, including hardware manufacturers, peripheral makers, platforms, advertisers and technology providers.
Fig Game Shares
Overview
As described above, we expect all of our crowdfunding campaigns to include an offering of securities – either a particular series of Fig Game Shares issued by Fig, or other securities that are similar to Fig Game Shares that will be issued by a Fig affiliate, or both – which would pay returns based on the economic performance of the game that is the subject of the crowdfunding campaign. Provided the game is successfully developed and published, sales receipts will thereafter be received from the game and will generally be shared as described below under “—Sharing of Sales Receipts and Determination of Dividends”. Amounts will only become available for the revenue sharing and payment of dividends described if and when the game generates sales receipts, and the total amount available for Fig’s revenue share – and consequently for dividends – will depend on the amount of such sales receipts.
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Sharing of Sales Receipts and Determination of Dividends
Provided a game is successfully developed and published, sales receipts will thereafter be received from the game and will generally be shared as follows: (1) receipts will be allocated into a revenue share for the developer and a revenue share for Fig, in the proportions specified in the license agreement for the game; (2) depending on the particular campaign, Fig may be paid a service fee; (3) depending on the particular campaign, Fig may allot part of its revenue share to the Fig Game Shares and another part to separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game, it may keep a third allotment for itself (the size of the allotment to the Fig Game Shares being determined by the application of a percentage called the “Fig Game Shares Allotment Percentage”); (4) Fig will pay a specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, in the form of dividends, subject to our dividend policy; and (5) Fig’s board of directors may in its discretion from time to time pay more than the specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, if in its view business conditions permit it.
This sharing will typically be determined using the revenue sharing and dividend formula set forth below. The starting amount, in the first column of the table, is the price paid for the game by a consumer in a typical sales transaction in which, pursuant to Fig’s license agreement for the game, all of that price, minus the distributor’s fee, is collected by Fig, the developer or both (depending how the terms of the license agreement dictate sales receipt collection):
| Game sales price | – | distributor’s fee | = | gross receipts | |
| – | developer’s revenue share | = | Fig’s revenue share | ||
| – | Fig Service Fee (if any) | = | Fig’s revenue share (adjusted) | ||
| x | Fig Game Shares Allotment Percentage (if applicable) | ||||
| x | a specified dividend rate | ||||
| = | Aggregate dividends to Fig Game Share holders (to be divided evenly among all shares outstanding) |
In regard to the table above:
| o | The size of the developer’s revenue share may vary over time based on whether particular sales targets have been met for the game, as specified in the license agreement for the game. For example, the developer’s revenue share may increase after the cumulative revenue share paid to Fig reaches a certain target threshold. |
| o | The Fig Service Fee is an amount that Fig will keep as compensation toward the cost of platform and publishing services, in campaigns in which Fig imposes such a fee. |
| o | After the allocation of the developer’s revenue share, the remaining amount will be Fig’s revenue share (or its adjusted revenue share, if there has also been a Fig Service Fee deducted). From this amount, Fig will determine the dividends to be paid to Fig Game Share holders, by (1) multiplying Fig’s revenue share by the Fig Game Shares Allotment Percentage, if applicable, and (2) applying the specified dividend rate. |
| o | The Fig Game Shares Allotment Percentage will be applied in campaigns in which the total amount of Fig Funds is greater than the proceeds of the Fig Game Shares offering. This is expected to occur if, in addition to the Fig Game Shares offering, there has been an offering of separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game. The allotments will be made in the same proportions that the proceeds from these separate securities offerings and the additional funding from Fig, as applicable, bear to the total Fig Funds amount. In such circumstances, the allotment of revenue among the Fig Game Shares, the other securities and Fig, as applicable, will represent an equitable division of Fig’s revenue share among the different sources of funding that have made it possible to prudently provide the particular Fig Funds amount. |
| o | The end result will be the aggregate dividends to be paid to Fig Game Shares holders, to be divided evenly among all such Fig Game Shares outstanding. In all events, Fig’s board of directors may in its discretion from time to time pay more than this end result to the holders of the Fig Game Shares, if in its view business conditions permit it. In addition, our Board may decide not to pay a dividend, or to reduce its size, if our Board believes it would be necessary or prudent to retain earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. |
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For greater detail regarding the revenue sharing and payment of dividends described, see “Our Dividend Policy”. A version of this table, incorporating numbers for the particular series of Fig Game Shares being offered in this offering, is set forth in summary form below in “— The Offering” and in greater detail in the separate section entitled “The Current Game, Developer and Shares”.
The application of the revenue sharing and dividend formula set forth above to sales receipts received by Fig will be undertaken on a regular basis by Fig’s accounting staff, and Fig will publicly disclose, in its annual and semi-annual reports filed with the SEC, a table containing the information set forth above for each of its licensed games. See the table setting forth such information as of the date specified therein in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Game-Specific Accounting – Accounting for a Particular Game’s Sales”. This table has not been, and future updates of the table will not be, prepared in accordance with generally accepted accounting principles, or GAAP. Non-GAAP disclosures have limitations as analytical tools; should not be viewed as a substitute for or in isolation from GAAP financial measures; and may not be comparable to other companies’ non-GAAP financial measures. In addition, Fig does not plan to have the calculations resulting from, or the methodologies underlying, its revenue sharing and dividend formula subjected to stand-alone audits. As a result, our allocations of revenues to each series of Fig Game Shares will not be audited on a periodic basis. There can be no assurance that there will not be errors or misstatements in such calculations or methodologies, which could reduce Fig’s revenue share from a particular game, or the dividends available to holders of the related series of Fig Game Shares, or both.
Other Key Aspects of Fig Game Shares
The proceeds of all of our multiple, separate series of Fig Game Shares, including the Shares offered in this offering, go into our general account, and will be used to support Fig’s operations and business activities generally. The Fig Game Shares that investors receive will all be, regardless of the series of Fig Game Shares, capital stock of Fig without any rights to vote on any matters relating to our Company, the Fig Game Shares or otherwise. See “Description of Company Securities”. Our different series of Fig Game Shares will differ from each other in that each series will pay holders of those securities dividends, if any, based on Fig’s revenue share from a different, particular game.
An investment in our Fig Game Shares is not an investment in any game, game developer or license agreement. Proceeds from the offering of a particular series of Fig Game Shares may be used to fund the development of games other than the game with which that series of Fig Game Shares is associated, as well as other expenditures not related to the game with which that series of Fig Game Shares is associated.
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The Offering
| Issuer | Fig Publishing, Inc. | |
Securities
|
A maximum of 1,250 shares of a series of non-voting preferred stock, par value $0.0001 per share, which we call our “Fig Game Shares – Wasteland 3”. Fig Game Shares – Wasteland 3 are shares of capital stock of Fig with no voting rights, which are designed to reflect the economic performance of a particular video game co-publishing license agreement that we have entered into with a third-party video game developer, inXile. Under this license agreement (as amended and restated, the “Wasteland 3 License Agreement”), we will co-publish the video game Wasteland 3, being developed by inXile. Provided Wasteland 3 is successfully developed and published, inXile and Fig will thereafter each receive sales receipts from Wasteland 3 pursuant to the Wasteland 3 License Agreement and those receipts will be shared among inXile, Fig and holders of Fig Game Shares – Wasteland 3, as further described below under “— Sharing of Sales Receipts and Determination of Dividends”. | |
| Price per Share | $1,000.00 | |
| Offering Type | Regulation A, Tier 2 offering of shares, being made by our Company on a best efforts basis. | |
Offering Proceeds
|
We expect to raise up to a maximum of $1,250,000 of proceeds from the sale of the Fig Game Shares – Wasteland 3 offered in this offering, assuming the sale of 1,250 of these shares at an offering price of $1,000.00 per share. Fig will receive all proceeds raised. Offering expenses, which we estimate will be approximately $50,000, will be paid by us. See “Plan of Distribution”. | |
Use of Proceeds
|
This offering is being conducted to raise money for our general operations and working capital needs. We expect to spend such funds on: |
| ● | The development of multiple games that we have agreed to publish under various co-publishing license agreements (presumably, but not necessarily, including the game whose potential sales receipts will underlie any dividends that will be declared on the Fig Game Shares being offered in this offering); |
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| ● | Marketing and other publishing efforts in support of the multiple games we are publishing; |
| ● | Outreach to find new games that we would consider publishing; and |
| ● | Other general activities and operations. | ||
There can be no assurance as to the total amount of proceeds we will ultimately raise in this offering. Given the current, early stage of our business, in which we have entered into licenses to publish video games that are still being developed, we expect to spend most of any proceeds raised to support the development of such games; a lesser amount on identifying new games to publish; and an amount on game marketing and other publishing efforts that will be low at first but will increase as more of our licensed games approach the completion of their development stages. Whether we raise the maximum amount in this offering, or less, we expect to pursue this same use of proceeds at proportional levels of spending.
See “Use of Proceeds”. | |||
Sharing of Sales Receipts and Determination of Dividends
|
Fig Game Shares – Wasteland 3 are designed to reflect the economic performance of the Wasteland 3 License Agreement, which we have entered into with inXile, the developer of Wasteland 3. Under the Wasteland 3 License Agreement, we will co-publish Wasteland 3. Provided Wasteland 3 is successfully developed and published, inXile and Fig will thereafter each receive sales receipts from Wasteland 3 pursuant to the Wasteland 3 License Agreement and those receipts will be shared as follows: |
| ● | Receipts will be allocated into a revenue share for inXile and a revenue share for Fig, in the proportions described in greater detail in this offering circular. See “The Current Game, Developer and Shares – Fig Game Shares – Wasteland 3 – Anticipated Sharing of Sales Receipts from Wasteland 3”. | ||
● |
Fig will allot part of its revenue share to Fig Game Shares – Wasteland 3 and the remaining part to certain securities, offered in a separate offering under Rule 506(c) of Regulation D by a limited liability offering by (the “Fig WL3 Units”) by Fig WL3, LLC, a limited liability company of which Fig is the managing member. Similarly to Fig Game Shares – Wasteland 3, these securities are also designed to reflect the economic performance of Wasteland 3. These allotments will be made in the same proportion that the proceeds from the two separate securities offerings bear to the amount of funds to be provided from Fig’s general account in support of the development of the game (such amount, the “Fig Funds”). The size of the allotments will not be finally determined until both offerings are closed and we know the amount of the proceeds from each offering. However, as part of the crowdfunding campaign for Wasteland 3 conducted on Fig.co in September and October 2016, we received investment reservations of $1,144,000 in this offering and investment commitments of $1,046,000 in the offering of Fig WL3 Units. We are currently in the process of closing the offering of the Fig WL3 Units. Assuming that, when both offerings are closed, this offering generates $1,000,000 of proceeds and the offering of Fig WL3 Units generates $1,046,000 of proceeds, Fig would allot 48.88% of its revenue share to Fig Game Shares – Wasteland 3 and 51.12% of its revenue share to the Fig WL3 Units. The final allotments will depend on the final amounts closed upon in the two offerings. | ||
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Fig will pay a minimum of 70% of the Fig Game Shares – Wasteland 3 allotment to the holders of Fig Game Shares – Wasteland 3, in the form of dividends, subject to our dividend policy.
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Fig’s board of directors may in its discretion from time to time pay more than 70% of the Fig Game Shares – Wasteland 3 allotment to the holders of Fig Game Shares – Wasteland 3, if in its view business conditions permit it. |
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For greater detail regarding the revenue sharing and payment of dividends described, see “The Current Game, Developer and Shares – Fig Game Shares – Wasteland 3 – Anticipated Sharing of Sales Receipts from Wasteland 3” and “Our Dividend Policy”.
This sharing of Wasteland 3 sales receipts will be determined using the revenue sharing and dividend formula illustrated in the table below. The starting amount, in the first column of the table, is the price we expect a consumer will pay for one copy of the game at the time the game is launched, in a typical sales transaction in which, pursuant to the Wasteland 3 License Agreement, all of that price, minus the distributor’s fee, is collected by inXile or Fig. The ending amount, at the bottom of the last column of the table, is the amount available for dividends that will have been generated by that one sale. Investors should note that, because this dividend scenario is presented on a per-game basis, rather than a per-share basis, the ending amount would be divided evenly among all Fig Game Shares – Wasteland 3 outstanding at the time of the dividend, up to 1,250 shares if all the shares in this offering are sold.
The table below embodies a number of assumptions, and is presented for illustrative purposes only. Although we believe the assumptions represent fair estimates of how the sharing of Wasteland 3 sales receipts will work, there can be no assurance that any one or more of these assumptions will in fact apply, and in particular there can be no assurance that Wasteland 3 will be successfully developed, published and sold and will generate sales receipts that are sufficient to pay inXile, Fig and the holders of Fig Game Shares – Wasteland 3 as contemplated below. See “The Current Game, Developer and Shares – Fig Game Shares – Wasteland 3 – Anticipated Sharing of Sales Receipts from Wasteland 3” for a discussion of the assumptions and calculations embodied in the table below, including, among other things, (1) the game sales price (which we present at the game’s expected initial release price, but which is subject to discounting by the publisher and by distributors (typically, but not always, with the acquiescence of the publisher), after a year or more if the game sells well, or faster if the game sells less well) and (2) the distributor’s fee and (3) the developer’s and Fig’s respective revenue shares (Fig’s revenue share will initially be 31%, but will decrease to (a) 10% after Fig receives sales receipts equal to 1.36 times the Fig Funds and (b) 0% after Fig receives less than $1,000 under the Wasteland 3 License Agreement for three consecutive months, subject to reinstatement at the prior rate if Fig thereafter receives $1,000 or more under the Wasteland 3 License Agreement for three consecutive months). |
$49.99 Game sales price |
– | $15.00 distributor’s fee |
= | $34.99 gross receipts | |
| – | 24.14 developer’s revenue share |
= | 10.85 Fig’s revenue share | ||
| x | 48.88% Fig Game Shares Allotment Percentage | ||||
| x | 70% specified dividend rate | ||||
| = | $ 3.71 Aggregate dividends to Fig Game Shares – Wasteland 3 holders (to be divided evenly among all such shares outstanding, up to 1,250 if all shares in this offering are sold) |
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In regard to the table above:
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o |
After the allocation of the developer’s revenue share, the remaining amount will be Fig’s revenue share. From this amount, Fig will determine the dividends to be paid to the holders of Fig Game Shares – Wasteland 3, by (1) multiplying Fig’s revenue share by the Fig Game Shares Allotment Percentage and (2) applying the specified dividend rate of 70%.
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o |
By applying the Fig Game Shares Allotment Percentage, Fig will allot part of its revenue share to Fig Game Shares – Wasteland 3 and another part to the Fig WL3 Units offered in a separate offering under Rule 506(c) of Regulation D by Fig WL3, LLC, a limited liability company of which Fig is the managing member. These securities are also designed to reflect the economic performance of Wasteland 3. The allotments will be made in the same proportion that the proceeds from the separate securities offerings bear to the total Fig Funds to be provided to inXile in support of the development of Wasteland 3. The size of the allotments will not be finally determined until both offerings are closed and we know the amount of the proceeds from each offering. However, as part of the crowdfunding campaign for Wasteland 3 conducted on Fig.co in September and October 2016, we received investment reservations of $1,144,000 in this offering and investment commitments of $1,046,000 in the offering of Fig WL3 Units. We are currently in the process of closing the offering of the Fig WL3 Units. Assuming that, when both offerings are closed, this offering generates $1,000,000 of proceeds and the offering of Fig WL3 Units generates $1,046,000 of proceeds, Fig would allot 48.88% of its revenue share to Fig Game Shares – Wasteland 3 and 51.12% of its revenue share to the Fig WL3 Units. The final allotments will depend on the final amounts closed upon in the two offerings.
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o |
The end result will be the aggregate dividends to be paid to the holders of Fig Game Shares – Wasteland 3, to be divided evenly among all such Fig Game Shares outstanding. In all events, Fig’s Board may in its discretion from time to time pay more than this end result to the holders of Fig Game Shares – Wasteland 3, if in its view business conditions permit it. In addition, our Board may decide not to pay a dividend, or to reduce the size of a dividend, if it believes it would be necessary or prudent to retain earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. | ||
Amounts will only become available for such sharing and payment of dividends if and when Wasteland 3 generates sales receipts, and the total amount available for Fig’s revenue share – and consequently for dividends – will depend on the amount of such sales receipts. Aggregate dividend amounts will be distributed equally among all holders of Fig Game Shares – Wasteland 3, in proportion to the number of shares held.
For greater detail regarding the revenue sharing and payment of dividends described, see “The Current Game, Developer and Shares – Fig Game Shares – Wasteland 3 – Anticipated Sharing of Sales Receipts from Wasteland 3” and “Our Dividend Policy”. | ||
| Timing of Dividends | Dividends on Fig Game Shares – Wasteland 3 will be declared every six months, as of every May 15 and November 15, and paid thereafter, in all events after such time (if ever) as Wasteland 3 is successfully developed and published and Wasteland 3 sales receipts begin to be received.
See “Our Dividend Policy”. |
Where to Buy
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Fig Game Shares – Wasteland 3 will be available for purchase exclusively on Fig.co. These Fig Game Shares will be issued in book-entry electronic form only. FundAmerica Stock Transfer, LLC is the transfer agent and registrant for Fig Game Shares – Wasteland 3.
Our Company does not intend to use commissioned sales agents or underwriters. The securities being offered hereby will be offered only by us and by persons associated with us in reliance upon the exemption from registration contained in Rule 3a4-1 of the Securities Exchange Act of 1934.See “Plan of Distribution”. |
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| Limitations on Your Investment Amount | Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or your net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A, which states:
"In a Tier 2 offering of securities that are not listed on a registered national securities exchange upon qualification, unless the purchaser is either an accredited investor (as defined in Rule 501 (§230.501)) or the aggregate purchase price to be paid by the purchaser for the securities (including the actual or maximum estimated conversion, exercise, or exchange price for any underlying securities that have been qualified) is no more than ten percent (10%) of the greater of such purchaser's:
(1) Annual income or net worth if a natural person (with annual income and net worth for such natural person purchasers determined as provided in Rule 501 (§230.501)); or
(2) Revenue or net assets for such purchaser's most recently completed fiscal year end if a non-natural person”.
For general information on investing, we encourage you to refer to www.investor.gov. |
No Trading Market; Transfer Restrictions
|
There is no trading market for Fig Game Shares – Wasteland 3 and we do not expect one to develop, in part because we have imposed certain transfer restrictions on these shares. As a result, investors should be prepared to retain their Fig Game Shares – Wasteland 3 for as long as these shares remain outstanding, and should not expect to benefit from any share price appreciation. The principal economic benefit of holding Fig Game Shares – Wasteland 3 is expected to be the opportunity to receive dividends based on sales of Wasteland 3, as described herein. See “Description of Company Securities”. | |
| No Voting Rights | Holders of Fig Game Shares – Wasteland 3 are not entitled to vote on any matters, including, but not limited to, any matters relating to the development of Wasteland 3. See “Description of Company Securities”. | |
| Characterization of Fig Game Shares as “Preferred” | We characterize our Fig Game Shares as “preferred” stock because, in the event of a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of our Company, after payment or provision for payment of the debts and other liabilities of the Company, the holders of each separate series of Fig Game Shares shall have a preference over holders of other securities of the Company in the receipt of (x) all dividends and other distributions declared or accrued on such series of Fig Game Shares by our Board but not yet paid, plus (y) an amount equal to the value of the total assets of the Game Shares Asset (as defined in “Description of Company Securities – Preferred Stock”) corresponding to such series of Fig Game Shares, less the total liabilities of such Game Shares Asset, in each case ratably in proportion to the number of shares of such series of Fig Game Shares held by them and, depending on the particular campaign, subject to the application of the Fig Game Shares Allotment Percentage (as described in “Description of Company Securities – Preferred Stock”). However, in such event such holders shall not be entitled to any additional amounts. As a result, in the event of a Company liquidation or similar occurrence, the holders of a particular series of Fig Game Shares will have preferred rights over specific declared or accrued dividend amounts and related assets and liabilities, but no rights in respect of other assets of the Company, and no rights in respect of Company assets generally, and in some circumstances, holders of Fig’s common stock (including our Parent) could receive more assets than holders of preferred stock. See “Description of Company Securities – Preferred Stock – Liquidation, Dissolution, etc.” | |
| Certain U.S. Federal Income Tax Considerations | Fig Game Shares – Wasteland 3 should be treated as stock of our Company for U.S. federal income tax purposes. There are, however, no court decisions or other authorities directly bearing on the tax effects of the issuance and classification of stock with the features of Fig Game Shares – Wasteland 3, so the matter is not free from doubt. In addition, the Internal Revenue Service has announced that it will not issue advance rulings on the classification of an instrument with characteristics similar to those of the Fig Game Shares – Wasteland 3. Accordingly, no assurance can be given that the views expressed in this paragraph, if contested, would be sustained by a court. In addition, it is possible that the Internal Revenue Service could successfully assert that the issuance of Fig Game Shares – Wasteland 3 could be taxable to us. Please see “Certain U.S. Federal Income Tax Considerations”. Before deciding whether to invest in Fig Game Shares – Wasteland 3, you should consult your tax advisor regarding possible tax consequences. | |
Risk Factors
|
These are speculative securities. Investing in them involves significant risks. You should invest in them only if you can afford a complete loss of your investment. See “Risk Factors”. |
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The investment described herein is highly speculative and involves a high degree of risk of loss of all or a material portion of an investor’s entire investment. Prospective investors should give careful consideration to the following actual and potential risk factors in evaluating the merits and suitability of an investment in our Company. Before deciding to make an investment in our Company, you should carefully consider the following risk factors as well as other information contained in this offering circular and the exhibits to the offering statement in which this offering circular has been filed with the Securities and Exchange Commission (the “SEC”).
The sections “Risks Related to Our Business” and “Risks Related to Fig Game Shares” contain risks that apply generally to all series of Fig Game Shares we issue, now and in the future. For a description of the particular risks that additionally apply to the Fig Game Shares being offered in this offering, please see “Risks Related to The Current Game, Developer and Shares,” below.
References to our board of directors (our “Board”) in this “Risk Factors” section refer to only one person, Justin Bailey, who is the sole director of our Company. See “Directors, Executive Officers and Other Significant Individuals”.
Risks Related to Our Business
We have little operating history, which may make it difficult for you to evaluate the potential success of our business and to assess our future viability.
We were incorporated in Delaware on October 8, 2015 as a wholly owned subsidiary of our Parent. We have only recently begun operations and have to date relied substantially on our Parent for support in the conduct of our business. We have not yet earned a significant amount of revenues and we have little operating history, which may make it difficult for potential investors to evaluate our business and assess our future viability and prospects. Investment in our Company is highly speculative because it entails significant risk that we may never become commercially viable. We have not yet demonstrated the ability to successfully market or distribute a game. We will need to transition from a company focused on identifying developers, negotiating license agreements and raising funds, including through the sale of Fig Game Shares, to a company that is also capable of publishing and earning revenues from games. We may not be successful in such a transition. As a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.
Our independent registered public accounting firm has expressed in its report on our audited financial statements a substantial doubt about our ability to continue as a going concern.
We have not yet generated sufficient revenues from our operations to fund our activities and are therefore dependent upon external sources for financing our operations. To date, we have depended substantially on our Parent to fund our operations and there is a risk that we and our Parent may be unable to obtain the financing, on acceptable terms or at all, necessary to continue our operations. As a result, our independent registered public accounting firm has expressed in its auditors’ report on the financial statements included as part of this offering circular a substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include any adjustments that might result were we unable to continue as a going concern. If we cannot continue as a going concern, our Fig Game Share holders may lose their entire investments.
We may encounter limitations on the effectiveness of our internal controls and a failure of our internal controls to prevent error or fraud may harm our business and holders of Fig Game Shares.
Because we operate with minimal employees of our own and depend on our Parent for the conduct of a significant portion of our administrative operations, we may encounter limitations on the effectiveness of our internal controls over financial reporting, public disclosures and other matters. For example, as a result of our staffing, our processing of financial information may suffer from a lack of segregation of duties, such that journal entries and account reconciliations are not reviewed by someone other than the preparer. If we encounter limitations on the effectiveness of our internal controls and are unable to remediate them, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in an accurate, complete and timely manner. This could harm our business and holders of Fig Game Shares.
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As an issuer of securities under Regulation A, we do not expect to be required to assess the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. In addition, our independent registered public accounting firm has not assessed the effectiveness of our internal control over financial reporting and will not as a result of this offering be required to assess the effectiveness of our internal control over financial reporting. As a result of the foregoing, for the foreseeable future, there will not be any attestation from us or our independent registered public accounting firm concerning our internal control over financial reporting.
A significant portion of our operations have been and will continue to be conducted with the assistance of, including the financial assistance of, our Parent, which is also in the early stages of its business. Our Parent has no obligation to continue to support our operations.
Our Parent was formed in October 2014 and began operations in April 2015. Our Parent is currently in the early stages of its business and has a limited operating history. We are dependent on the continued support of our Parent. A significant portion of our operations has been and will continue to be conducted with the assistance of, including the financial assistance of, our Parent. Therefore, risks regarding our operations and financial condition are also subject to the risk that our Parent may reduce its operational or financial support.
The games to which we have co-publishing rights will not generate sales until they have been developed and are available for sale, which, in the case of any game, may take at least a year and maybe multiple years, following our offer of the Fig Game Shares pursuant to which dividends are expected to be paid if such game provides us with sales receipts. See “The Current Game, Developer and Shares” for the delivery date of the game described in this offering circular. If our Company fails to generate sufficient cash receipts from sales of games or is unable to receive such cash receipts quickly enough and on a continuing basis, our Parent may be unwilling or unable to continue assisting us operationally or financially. In any such case, we may be forced to significantly delay, scale back or discontinue our operations.
In order to support our general operations and working capital needs for the next 12 months, we may need to raise additional capital. Such financing may be expensive and time-consuming to obtain, and there may not be sufficient investor or commercial interest to enable us to obtain such funds on attractive terms or at all.
At the current stage of our business, we cannot rely on existing Fig Service Fee arrangements, and we likely cannot rely on existing revenue sharing arrangements, to finance our operations. In order to support our projected operating expenses for the next 12 months, we may need to raise additional capital, from our Parent, which has been an ongoing source of support for our business, or from other sources, or from both. Such financing may be expensive and time-consuming to obtain, and there may not be sufficient investor or commercial interest to enable us, or our Parent, to obtain such funds on attractive terms or at all. There can be no assurance that financial support from our Parent or from other sources will be available in the amounts and at the times needed for us to continue to operate and grow our revenue-generating operations and improve our financial position.
In the event we breach the terms of a license agreement, we would have limited recourse and holders of Fig Game Shares could be adversely affected.
In the event we were to breach the terms of a license agreement, a developer would have the right to terminate such license agreement. If a license agreement is terminated, we will no longer have rights to publish the game associated with such agreement and to receive sales receipts from sales of such game. In the event that a developer terminates a license agreement due to our material breach, there would not be any mechanism pursuant to which such developer would be obligated to return any funds to us. It is part of our business strategy to attract talented developers by offering them license terms that are less restrictive than terms available from more traditional publishers. However, these less restrictive terms – such as not requiring developers to give us rights to their intellectual property – mean that, in the event of a breach of or dispute regarding a license agreement, we will have fewer means available than a traditional publisher might have for enforcing our rights under the license agreement or compelling the developer to continue with development, return funds or take other actions beneficial to us.
In the event one or more developers breach the terms of a license agreement, we would have limited recourse and such developers may not develop the game as expected, on time or at all.
Each license agreement will be between a developer and us and holders of Fig Game Shares will have no rights under any license agreement, whether as third-party beneficiaries or otherwise. In the event that we terminate any license agreement due to a material breach by a developer – for example, if it fails to deliver a game on time or at all – we will likely not make any dividend payments to holders of the relevant Fig Game Shares.
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We intend to enforce all contractual obligations to the extent we deem necessary and in the best interests of our Company and shareholders, including but not limited to holders of Fig Game Shares. However, there can be no assurance that a developer can or will honor the terms of its license agreement or develop its game to be successful. Even if, after a delay, a developer or a substituted party were able to resume performance under the associated license agreement and we decide to make or resume making dividend payments to the holders of associated Fig Game Shares, the delay might effectively reduce the value of any recovery that holders of such Fig Game Shares might receive.
Furthermore, in the event that a developer defaults or breaches the terms of a license agreement and we elect to terminate the license agreement, we would no longer have rights to publish the game or receive sales receipts. Holders of the associated Fig Game Shares may lose their entire investment and their opportunity to receive dividends in the event a developer defaults or breaches the terms of a license agreement.
We may not have the right to distribute a game on all platforms on which it may be played. In addition, developers may not be required to deliver their respective games for all of the licensed platforms.
Each license agreement grants us the right to publish and distribute a game on certain platforms, which may not include all potential platforms on which such game may be played. Furthermore, a license agreement may limit the exclusivity of the distribution rights with respect to the licensed platforms to, for example, a geographic region. A game may be successful on platforms that are not the licensed platforms, in which case we would not receive game sales receipts. The holders of the Fig Game Shares will not benefit from any dividends from an associated game that succeeds on platforms that are not the licensed platforms.
We have incurred losses since our inception and we expect to continue to incur losses for the foreseeable future. We expect our operations to continue to consume substantial amounts of cash.
Our financial statements have been prepared on a “carve-out” basis for stand-alone reporting purposes. On this carve-out basis, for the period from October 27, 2014 (inception) to September 30, 2015, we reported a net loss of approximately $389,000. We expect to continue to incur losses for the foreseeable future and we expect that these losses may increase, as we continue identifying and negotiating with developers and entering into new license agreements and thereby incurring more costs, even though the initial games we have licensed may still be in development and therefore not yet generating sales. If a lack of available capital means that we are unable to expand our operations or otherwise take advantage of business opportunities, our business, financial condition and results of operations could be adversely affected.
We expect that, in order to maintain and grow our operations, we will need to publish multiple games. There can be no assurance that we will be able to publish enough games to sustain our business model.
The selection of commercially successful games from among undeveloped or incompletely developed games is a difficult undertaking, subject to numerous risks, including the risks of failing to correctly anticipate market preferences, failing to publish a game at a time when it can attract market attention and sales, failing to develop a game to a sufficiently sophisticated level so that it can win a lucrative audience, overdeveloping a game so that its initial costs cannot be recouped and other, similar risks. We intend to hedge these risks in part by developing multiple games and so giving our Company multiple chances of publishing successful games. Expanding the number of games we publish should also allow us to achieve certain economies of scale in regard to marketing, distribution and other functions. However, if we fail to publish enough games, we may fail to publish a sufficient number of successful games to support our business model and we may fail to achieve economies of scale. There can be no assurance that we will be able to publish a sufficient number of successful games to achieve revenues that exceed our costs and margins that justify our continued operations.
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Our license agreements omit many of the restrictive provisions contained in traditional publisher and distributor agreements with game developers. The omission of these provisions reduces the means available to us to enforce the performance of a developer under the license agreement and may increase the risk that a developer may not develop a game on time and as planned.
In many traditional video game publishing deals, the publisher takes an ownership interest in the developer’s intellectual property rights in the game being developed. Our license agreements are not secured by any such ownership interests or guaranteed or insured by any third party. Therefore, we will be more limited than a traditional publisher in our ability to pursue remedies against the developer if a game is not developed on time or as planned.
Many traditional video game publishing deals involve “advances against royalties”, pursuant to which the funding provided by the publisher to the developer to develop the game is treated as pre-paid royalties and the developer must effectively “pay back” such funding through reductions in later, post-development royalties. We do not treat the Fig Funds, paid to developers to assist in the development of their games, as advances against royalties. Fig Funds will be non-recoupable (except in certain circumstances if the license agreement is terminated). As a result, Fig will not see a greater share of the initial sales receipts of the game than a traditional publishing arrangement that allows for the recoupment of advances.
In many traditional video game publishing deals, the publisher provides funding to the developer subject to strict milestone provisions. Typically, our license agreements do not involve milestone provisions. Without milestone provisions or with less strict milestone provisions, a developer receiving Fig Funds payments may feel less incentive to develop its game at a pace and to the standards (and in particular, to the intermediate standards imposed prior to the completion of development) that a traditional publisher might be able to impose.
Each license agreement is expected to relate to one game title only and not to any derivative works stemming from such game, including prequels, sequels or spin-offs.
The license agreement does not permit us to publish any derivative works of a developer’s game, including any prequels, sequels, spin-offs or other video games based upon or otherwise featuring any of the settings, characters or “universe” of the game created by a developer. Neither we nor the holders of Fig Game Shares will benefit from sales of any of the foregoing and these sales may reduce sales of the game we are publishing on the licensed platforms.
We may experience significant fluctuations in game sales receipts due to a variety of factors.
Sales of games we publish may experience significant fluctuations due to a variety of factors, including the timing of a game’s release, a game’s popularity, seasonality of demand, competitive new game launches and other factors. In addition, the retail price of a game is subject to discounting by the publisher and by distributors (typically, but not always, with the acquiescence of the publisher). A game that sells well may maintain its retail price for a year or more, although games that sell less well are typically discounted faster, in order to spur sales volumes. Our expectations of game sales are based on certain assumptions and projections and our operating results will be adversely affected by a failure of the games we publish to meet sales expectations. There can be no assurance that we can maintain consistent sales receipts for any game and any significant fluctuations in sales of a particular game may adversely affect our ability to make dividend payments to the holders of the associated Fig Game Shares.
A game may have a short life cycle or otherwise fail to generate significant sales receipts.
The video game industry is characterized by short product lifecycles and the frequent introduction of new games. Many video games do not achieve sustained market acceptance or do not generate a sufficient level of sales to offset the costs associated with product development and distribution. A significant percentage of the sales of new games generally occurs within the first three months following the release of a game. Any competitive, financial, technological or other factor which impairs our ability to introduce and sell games at commercial launch could adversely affect our business and our ability to pay dividends to holders of Fig Game Shares.
Our ability to increase the sales of any game may be limited and unsuccessful publishing of any game may reduce or eliminate the dividends that might otherwise have been paid to holders of Fig Game Shares based on the sales receipts from such game.
There can be no assurance that we will publish any game in a manner that creates value for the associated Fig Game Shares. A game may be marketed through a diverse spectrum of advertising and promotional programs and strategies. Our ability and the ability of any other co-publishers and distributors on the licensed platforms to publish and distribute a game is dependent in part upon the success of these programs and strategies. If the marketing for a game fails to resonate with consumers or advertising rates or other media placement costs increase, game sales may fail to grow or may decline, which could ultimately negatively affect our business and our ability to pay dividends to holders of Fig Game Shares.
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If a developer delivers its game for some but not all licensed platforms, this may result in reduced game sales.
In order for us to successfully distribute a game and earn cash from game sales, a developer may need to develop versions of its game which are not yet optimized for some or all of the licensed platforms or updated versions of the licensed platforms. Owners of such licensed platforms may establish restrictive conditions for a developer and its game and as a result the game may not work well or at all, with such licensed platforms. As new platforms are released or updated, a developer may encounter problems in developing versions of its game for use with such platforms and may need to devote resources to the creation, support and maintenance of the game with such platforms. If a developer is unable to successfully expand the types of platforms on which its game may be made available or if the versions of a game created for such platforms do not function well, are not attractive to consumers and game players or do not work as well on newer versions of the platforms, our business could suffer and our ability to pay dividends to holders of Fig Game Shares could be reduced.
The process of developing and publishing new video games is lengthy, expensive and uncertain.
Typically, considerable time, effort and resources are required to complete the development of a new video game. A developer may experience delays in developing a game. Delays, expenses, technical problems or difficulties could force the abandonment of, or compel material changes to the design and build of, the game. In addition, the costs associated with developing a game for new platforms could increase development expenses. Additionally, if a developer does not provide a game on a timely basis, we may be unable to publish such game within our expected cost parameters or at all. We include agreed game delivery dates in the license agreements we enter into with game developers. However, game developers may not always be able to achieve those delivery dates, and if they fail to do so, we may have little practical recourse for maximizing the value of our rights but giving the developer more time to deliver the game. Moreover, the costs of publishing may be higher than anticipated. Any financial, technological or other factor which delays or impairs our ability to introduce and sell a game in a timely and cost-effective manner could adversely affect our business and our ability to pay dividends to holders of Fig Game Shares.
Many, and possibly most, independent video game developers may from time to time experience business difficulties as well as successes.
Difficulties can arise game developers in the development of their games for a number of reasons, For example, difficulties can arise from the fact that game development is often a lengthy process, which must be financed by funding sources other than sales of the unfinished game. In addition, game development can be a complex process, subject to creative and technical challenges. In such a context, unforeseen delays can often arise, putting stress on timetables, budgets and funding resources. By working with game developers, Fig exposes its own business to the risks of such developers experiencing such difficulties.
There can be no assurance that that any particular game that we agree to publish will succeed in the market.
The selection of commercially successful games from among undeveloped or incompletely developed games is a difficult undertaking, subject to numerous risks, including the risks of failing to correctly anticipate market preferences, failing to publish a game at a time when it can attract market attention and sales, failing to develop a game to a sufficiently sophisticated level so that it can win a lucrative audience, overdeveloping a game so that its initial costs cannot be recouped and other, similar risks. There can be no assurance that any particular game that we agree to publish will succeed in the market. To the extent we are unable to pick a sufficient number of commercially successful games, our business would suffer and we may be unable to pay dividends to holders of Fig Game Shares.
We may allocate time and resources across any of the games we publish, in our discretion.
Holders of a particular series of Fig Game Shares will receive dividends from us pursuant to our dividend policy, to the extent that the particular game associated with that series of Fig Game Shares is commercially successful and we receive sales receipts from that game. The success of games not associated with that series of Fig Game Shares would not, under our dividend policy, support the payment of dividends to that series of Fig Game Shares. Therefore, the holders of a particular series of Fig Game Shares may have an interest in our Company devoting as much of its marketing and other publishing resources as possible to the game associated with their series of Fig Game Shares, rather than to other games, in order to maximize that game’s sales. However, we intend to distribute our marketing and other publishing efforts across our games in a manner that serves the interests of our Company and its shareholders as a whole. As a result, we may allocate resources among different games in a way that holders of particular series of Fig Game Shares may not want and your desired allocation of resources as a holder of a particular series of Fig Game Shares may conflict with the allocations we choose to make.
Any loss or deterioration of our relationships with developers may adversely affect our business.
We will work closely with each developer in distributing and marketing games. We believe that strong partnerships with developers are crucial for the successful publishing of their games and for building and expanding our publishing business. However, we may not be able to maintain good and mutually beneficial relationships with all our developers. Any loss or deterioration of a relationship with a developer could adversely affect the development of the associated game, our efforts to successful publish the game and, ultimately, the availability of dividends for the holders of the Fig Game Shares associated with that game.
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A developer may have a limited operating history, which could make it difficult for us to evaluate the developer’s future prospects and for the developer to deliver a developed game on time and as planned.
It may be especially difficult for us to select a commercially successful game before it is developed, if the developer is a business with little operating history. Unanticipated problems, expenses and delays may frequently be encountered when establishing a new business and a new developer may face not only the challenges of developing a new game but also the simultaneous challenges of establishing and growing its business. As a result, a game being developed by a new developer may present additional risks compared to a game being developed by an established developer. If a developer fails to develop a game on time and as planned, it could harm our business and undercut the availability of dividends for the holders of the Fig Game Shares associated with that game.
The evaluation procedures we conduct when selecting a potential developer and its game may not reveal all relevant risks or other information regarding such developer or game and may result in an inaccurate assessment of the commercial prospects of a game.
Prior to entering into a license agreement with a developer, we conduct due diligence on the developer and, among other things, seek to estimate projected game income. However, our evaluation process and due diligence may not uncover all relevant facts necessary to accurately project the sales of a particular game or otherwise judge the commercial prospects of a particular game accurately. In any such case, we may make an inaccurate assessment of the commercial prospects of a game, which could adversely affect our performance as a publisher and undercut the availability of dividends for the holders of the Fig Game Shares associated with that game.
A developer, our Company or both may fail to anticipate changing consumer preferences.
Our business is subject to all of the risks generally associated with the video game industry, which has been cyclical in nature and characterized by periods of significant growth and rapid declines. Our future operating results and ability to pay dividends to holders of Fig Game Shares will depend on numerous factors beyond our control, including:
| ● | Critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted; | |
| ● | The ability of distributors on licensed platforms to generate cash receipts from sales of games; | |
| ● | The ability of any co-publishers to successfully publish games on their licensed platforms; | |
| ● | Each developer’s ability to maintain technological solutions and employee expertise sufficient to respond to changes in demand in regard to their games and licensed platforms; | |
| ● | International, national and regional economic conditions, particularly economic conditions adversely affecting discretionary consumer spending; | |
| ● | Changes in consumer demographics; and | |
| ● | The availability of other forms of entertainment competing for the time of game consumers. |
In order to plan for promotional activities, each developer, our Company, any other co-publishers and the licensed platforms must each anticipate and respond to rapid changes in consumer tastes and preferences. A decline in the popularity of a technological type of video game or a video game genre or the video game industry as a whole could cause sales of a game to decline dramatically. The period of time necessary to develop a game or finalize agreements with licensed platforms is difficult to predict. During this period, the projected consumer appeal of a particular game could decrease, potentially adversely affecting our business and the availability of dividends for the holders of the Fig Game Shares associated with that game.
If a developer experiences a change of control during the development of a game, the impact on our business would be uncertain.
If a developer is acquired or experiences a change of control, directly or indirectly, during its development of a game, this may cause an interruption in the development of the game. Our baseline license agreement with developers cannot be assigned by the developer to another person without our consent, which would provide us with the ability to withhold consent in a situation in which the developer wishes to assign the license agreement and we are not satisfied with the prospects for license agreement performance if it were so assigned. In change of control scenarios not involving the assignment of the license agreement, we would likely have less influence, and possibly none, on the extent to which the change of control would affect performance under the license agreement. For example, we could not guarantee that the new management or controlling parties of the developer would adequately perform under the license agreement, and we might not have sufficient resources to pursue successful remedies against the developer. If a change of control led to a termination of the license agreement, we would under certain circumstances have the right to be paid back in respect of Fig Funds. However, we might not have sufficient resources to pursue successful remedies against the developer. Change of control at a developer may adversely affect our ability and rights to publish a game, which could negatively affect our business and our ability to pay dividends on the Fig Game Shares associated with that game.
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A developer may seek additional funding to develop its game in addition to the Fig Funds payments that we provide.
A developer may seek funding to develop a game from various sources and not all of those sources may be certain at the time we enter into a license agreement with a developer and begin providing Fig Funds in support of the development of the game. Even if the sources have been established, funding from these sources may be subject to milestone payments and other restrictive provisions and these payments may not materialize in a timely manner or at all. We endeavor to work with developers who are able to source an entire development budget (including the Fig Funds and amounts raised from the rewards portion of the crowdfunding campaign on Fig.co). However, there can be no assurance that developers will be ready, willing and able to produce the funds, in addition to the Fig Funds and amounts raised from the rewards portion of the crowdfunding campaign on Fig.co, that are necessary to complete the development of a game, as and when they are needed. Shortfalls in funding packages for the development of a particular game could adversely affect our business and the availability of dividends for the holders of the Fig Game Shares associated with that game.
Our business strategy depends on our maintaining productive relationships with many distributors. Certain distributors may control a disproportionate share of the market for the delivery of video games, which may result in distribution arrangements with unfavorable terms.
We cannot predict whether and under what terms and conditions distributors on licensed platforms will agree to distribute a game, and we and any other co-publishers may not be able to attract a sufficient number of distributors to sell such game. For example, distributors may not view an agreement to sell a game as an attractive value proposition due to any number of factors, such as the assumptions and estimates used to determine the estimated future sales receipts of such game. As a result, we or any other co-publishers may be forced to revise the terms of distribution agreements. There are many third-party distributors that make video games available for sale, but certain of these distributors control a disproportionate share of the market for the distribution of video game products, which could lead to unfavorable terms with such distributors. If we or any other co-publishers fail to attract distributors on the licensed platforms or such distributors demand terms that substantially reduce the potential cash receipts from a game, our business and the availability of dividends for the holders of the Fig Game Shares associated with that game could be adversely affected.
Furthermore, under a license agreement, a developer must consent to each agreement between us and a distributor, which consent may not be unreasonably withheld. If we are unable to secure developer consent to particular distributor agreements, we may achieve lower receipts from sales of the game.
There is intense competition among video game publishers for promotional support from distributors. Promotional support could include, for example, highlighting a developer’s game on a distributor’s storefront landing page. To the extent that the numbers of games and game platforms increase, competition may intensify and may require us to increase our marketing expenditures. Distributors typically devote the most and highest quality promotional support to those products expected to be best sellers or editorially featured. We cannot be certain that a developer’s game or our publishing efforts will achieve or maintain “best seller” status or be editorially featured. Due to increased competition for promotional support from distributors, distributors are in an increasingly better position to negotiate favorable terms of sale, including significant price discounts. Each game will constitute a small percentage of most distributors’ sales volume. We cannot be certain that distributors will provide the games we publish with adequate levels of promotional support on acceptable terms.
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Distributors may refuse, fail or become unable to make payments pursuant to distribution agreements.
Our future success depends in part on us, or the developers of the games we publish, as called for under the applicable license agreement, receiving payments from the sales of a game by distributors on the licensed platforms. A distributor may dispute or may be unwilling or unable to make payments to which we, or the developer, are entitled. In such event, although there may be audit rights with some distributors, we may become involved in a dispute with a distributor regarding the payment of such amounts, including possible litigation. Disputes of this nature could harm relationships with the distributor and could be costly and time-consuming to pursue. Payment defaults by, or the insolvency or business failure of, distributors could negatively affect our business and the availability of dividends for the holders of the Fig Game Shares associated with that game.
If the developer or a co-publisher receives the sales receipts before Fig under a license agreement, it may refuse, fail or become unable to make payments to which we are entitled.
If a developer or co-publisher receives game sales receipts before Fig in compliance with the applicable license arrangements, our future success will depend in part on our receiving payments from them equal to Fig’s agreed revenue share. A developer or co-publisher may dispute its obligations to pay us, or may be unwilling or unable to make payments to which we are entitled. In such an event, although we may have direct or indirect audit rights with a developer or co-publisher, we may become involved in a dispute regarding the payment of such amounts, including possible litigation. Disputes of this nature could harm relationships and could be costly and time-consuming to pursue. Payment defaults by, or the insolvency or business failure of, developers or co-publishers could negatively affect our business and the availability of dividends for the holders of the Fig Game Shares associated with that game. To hedge against these risks, we seek under our license agreements to have the developer deliver to us an agreed number of valid Steam game keys for the associated game on agreed licensed platforms. (A Steam game key is used in the sale and digital distribution of a game, and unlocks a game for use and ownership once it is purchased and activated by the end-user consumer.) In the event Fig is underpaid the amounts it is owed under the license agreement, it can then sell the Steam game keys in an amount sufficient to offset any amounts by which it has been underpaid, retaining 100% of the sales receipts from the Steam game keys sold. However, there can be no assurance that having for a particular game will be an effective or sufficient way to offset some or all of the lost revenue we may experience from underpayments from developers or co-publishers.
We are dependent upon the key executives and personnel of our Company and our Parent.
Our success is dependent on the efforts of certain key personnel, including our CEO and sole director, Justin Bailey and our COO, Jonathan Chan. Our success is also dependent on the efforts of certain other personnel of our Parent. The loss of the services of one or more key employees from our Company or our Parent could adversely affect our business and prospects. Our success is also dependent upon our ability and the ability of our Company and Parent to hire and retain additional qualified operating, marketing, technical and financial personnel. Competition for qualified personnel in the video game industry is intense and our Company and our Parent may each have difficulty hiring or retaining necessary personnel. If our Company or our Parent fails to hire and retain the respective personnel necessary, our business could be negatively affected and the availability of dividends for the holders of the Fig Game Shares associated with that game could be reduced.
There may be actual, potential or perceived conflicts of interest among our Company, our Parent, developers and their respective directors, officers, employees, members and managers and these conflicts may not be resolved in your favor.
Justin Bailey, our Chief Executive Officer and sole director, receives a salary, benefits and equity compensation from our Parent. Mr. Bailey is the CEO and a director of our Parent. Our Parent holds all the outstanding shares of our common stock and thus has sole control of our Company. Our Parent provides our Company with management and administrative services, including the services of Justin Bailey and is compensated for the provision of such services. Jonathan Chan, our COO, also receives a salary, benefits and equity compensation from our Parent. See “Interests of Management and Others in Certain Transactions”. These relationships may represent actual, potential or perceived conflicts of interest among our Company and our Parent, for example in circumstances where our officers and director are faced with decisions that could have different implications for our Company and our Parent. Any such conflicts may not be resolved in your favor.
There may be actual, potential or perceived conflicts of interest among our Company, our Parent, developers and the Advisory Board members of our Parent and these conflicts may not be resolved in your favor.
Our Parent has entered into various agreements with video game developers, which we refer to as “Studio Partner Agreements”. Pursuant to each of these Studio Partner Agreements, as amended, each developer received warrants to purchase common stock of our Parent, which warrants vest and become exercisable upon the applicable developer launching a rewards crowdfunding campaign on Fig.co and engaging our Company to publish or one of its games. These Studio Partner Agreements may give rise to actual or perceived conflicts of interest. For example, the recipients of our Parent’s equity securities under the Studio Partner Agreements may launch a rewards crowdfunding campaign on Fig.co with the intention of having its warrants vest or increasing the value of such securities, rather than conducting successful campaigns that benefit the Company and the holders of Fig Game Shares.
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Our Parent has also entered into agreements with the members of its Advisory Board, which we refer to as “Advisory Board Agreements”. Pursuant to each of these Advisory Board Agreements, as amended, the advisors have received options to purchase common stock of our Parent, which options vest and become exercisable upon the recipient joining the Advisory Board of our Parent. These Advisory Board Agreements may give rise to actual or perceived conflicts of interest. For example, the members of our Parent’s Advisory Board may weigh the interests of their own game development companies more heavily than the interests of our Company, holders of Fig Game Shares or our other game development partners when advising our Parent on our business, including our relations with developers (including their own companies), distributors and other third parties.
Dependence on third-party network suppliers may adversely affect our business.
Our success may depend in part upon the capacity, reliability and performance of third party network infrastructures. Distributors on licensed platforms depend on third parties to provide uninterrupted and error-free service through their telecommunications networks in order to distribute a game or for customers to play a game. This service is subject to physical, technological, security and other risks. These risks include physical damage, power loss, telecommunications failure, capacity limitation, hardware or software failures, defects and breaches of physical and cyber security by computer viruses, system break-ins and others. In any such event, players of games we publish may experience interruptions or delays in their ability to purchase or play such games. Any failure on the part of distributors or their third-party suppliers to ensure that a high data transmission capacity is achieved and maintained could significantly reduce customer demand for any particular game we publish and negatively affect our business and the availability of dividends for the holders of the Fig Game Shares associated with that game.
The video game industry is subject to the increasing regulation of content, consumer privacy and distribution. Non-compliance with laws and regulations could adversely affect our business and our ability to pay dividends to holders of Fig Game Shares.
The video game industry is subject to increasing regulation of content, consumer privacy, distribution and online hosting and delivery in the various countries where we intend to publish games. Such regulation could harm our business by limiting the size of the potential market for our publishing activities and by requiring additional efforts on our part to address varying regulations. For example, data protection laws in the United States and Europe impose various restrictions on websites. If our Company, a developer, any co-publishers and distributors on the licensed platforms do not successfully respond to these regulations, game sales may decrease and our business may suffer. Generally, any failure of our Company, any developer, any co-publishers or any distributors on the licensed platforms to comply with laws and regulatory requirements applicable to our business may, among other things, limit our ability to collect game sales receipts and could subject us to damages, lawsuits, administrative enforcement actions and civil and criminal liability.
Competition in the video game industry is intense and, as a result, we may not be able to achieve our publishing goals, which could adversely affect our business.
Competition in the video game industry is intense. Many new games are introduced each year on a variety of platforms, but only a relatively small number of “hit” titles account for a significant portion of total sales. Competitors of ours range from large established companies to emerging start-ups and we expect new competitors to continue to emerge throughout the world. If competing publishers publish games more successfully than us or distribute games more successfully than our distributors, our sales receipts may decline, which may adversely affect our ability to pay dividends to holders of Fig Game Shares.
Relatively few games achieve significant market acceptance in the video game industry. Each game competes with games that may be developed and published by companies that are substantially larger and have better access to funds than our Company. In addition, other companies not currently in the video game industry, including media companies and film studios, may increase their focus on the video game industry and may become significant competitors of ours. Current and future competitors may also gain access to wider distribution networks than we can. Increased competition may also result in price reductions, reduced gross margins and loss of market share for games, any of which could ultimately have a material adverse effect on sales of the games we publish and may reduce our ability to pay dividends to holders of Fig Game Shares.
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Game sales may depend upon the performance and popularity of particular licensed platforms.
Our receipts may be dependent on a small number of licensed platforms that decline in popularity for reasons beyond our control. Additional development costs to play a game on a new licensed platform may be greater than such costs for current licensed platforms if a developer does not have the ability to re-utilize development engines for the new platform. If a licensed platform for which new software is developed or modified does not attain significant market penetration, our business could be harmed. From time to time, shortages of physical consoles that may be used to access a game on a licensed platform may negatively affect the sales of such game. We cannot ensure that a game will receive positive reception in the marketplace upon release, that any licensed platform will maintain its popularity or that a game will be playable on any new licensed platforms.
If a game contains defects, the game’s reputation and our reputation could be harmed and game sales could be adversely affected.
A game is a complex software program and will be difficult to develop, manufacture (in the case of games distributed in physical copy) and distribute. Although a developer and distributors may have quality controls in place to detect defects in the software or physical copies of a game, these quality controls may be subject to human error, overriding and resource constraints and may not be effective in detecting defects in a game before it has been reproduced and released into the marketplace. The occurrence of defects or malfunctions could result in product recalls, product returns and the diversion of our resources, which could adversely affect game sales. Any of these occurrences could also result in the loss of or delay in market acceptance of the game and a loss of sales, which could adversely affect our business and our ability to pay dividends to holders of Fig Game Shares.
Sales receipts from a game may be reduced by the proliferation of “cheating” programs and scam offers that may seek to exploit a game and its players, which could affect the game-playing experience and lead players to stop playing the game.
Unrelated third parties may develop “cheating” programs that enable players to exploit vulnerabilities in a game, play them in an automated way or obtain unfair advantages over other players of a game who do play fairly. These programs degrade the experience of players who play the game fairly. In addition, unrelated third parties may attempt to scam players of a game with fake offers of game benefits. If a developer or distributor is unable to devote their resources to discover and disable these programs quickly, a game’s reputation may become damaged and players may stop playing the game. This may result in lost sales receipts from players who may have purchased a game, increased costs relating to developing technological measures to combat such programs and activities, legal claims relating to the diminution in value of the game’s virtual currency and goods and increased customer service costs needed to respond to dissatisfied players. These occurrences could adversely affect our business and our ability to pay dividends to holders of Fig Game Shares.
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Games may be subject to piracy by a variety of organizations and individuals and if a developer and the licensed platforms are not successful in combating and preventing piracy, our business could be harmed.
Highly organized pirate operations in the video game industry have been expanding globally. In addition, the proliferation of technology designed to circumvent the protection measures each developer will use in a game, the availability of broadband access to the Internet and the ability to download pirated copies of games from various Internet sites all have contributed to ongoing and expanded piracy. Although a developer and the licensed platforms will take steps to make the unauthorized copying and distribution of a game more difficult, such efforts may not be successful in controlling the piracy of the game. This could have a negative effect on our business and our ability to pay dividends to holders of Fig Game Shares.
If a game was found to contain hidden, objectionable content, sales of a game could drop and our business could suffer.
Throughout the history of the video game industry, many video games have been designed to include certain hidden content and gameplay features that are accessible through the use of in-game cheat codes or other technological means that are intended to enhance the gameplay experience. However, in several cases, the hidden content or features were included but unauthorized. From time to time, such hidden content and features have contained profanity, graphic violence and sexually explicit or otherwise objectionable material. If such content or features are included in any game that we publish, this may adversely affect the game’s reputation, causing our business to suffer.
To the extent a game is distributed as a physical copy, we may be subject to various additional risks.
To the extent a distributor on a licensed platform distributes a game in physical copy, the distributor must work with physical retailers, secure adequate supplies of physical copies of the game and ensure that retailers maintain effective inventory and cost controls. Physical copies of games generally require working with independent manufacturers and if those manufacturers do not provide physical copies of a game on favorable terms without delays, the distributor will be unable to deliver the game on competitive terms to retailers when they require them. Additionally, video game retailers typically have a limited amount of physical shelf space and marketing and promotional resources. We cannot be certain that manufacturers will provide physical copies of a game on favorable terms without delays and that retailers will provide a game with adequate levels of shelf space and promotional support on acceptable terms.
If a developer or its game infringes the intellectual property rights of others, disputes and litigation could negatively affect sales of the game.
Some of the images and other content in a developer’s game may inadvertently infringe the intellectual property rights of others. Although a developer will make efforts to ensure that its game does not violate the intellectual property rights of others, it is possible that third parties may still claim infringement. Infringement claims against a developer or us, whether valid or not, may be time consuming and expensive to defend. Such claims or litigation could require us to stop publishing a game, require a developer to redesign the game or require an additional license to distribute the game, all of which would be costly and may negatively affect our business and our ability to pay dividends to holders of Fig Game Shares.
If a developer is not granted trademark, patent and copyright protection for its game, such developer may have difficulty safeguarding its designs, potentially resulting in competitors adopting them and undercutting game sales.
Our success will depend, in part, on each developer’s ability to obtain and enforce intellectual property rights over its game. No assurance can be given that any intellectual property rights of a developer will not be challenged, invalidated or circumvented or that any rights granted will provide competitive advantages. Any challenge, invalidation or circumvention of the intellectual property rights in a game may adversely affect our right to publish the game pursuant to our license agreement. There is no assurance that we or any developer will have sufficient resources to successfully prosecute our interests in any litigation that may be brought. A developer’s failure to adequately protect its intellectual property could result in competitors using its game designs, which would impair our ability to successfully publish the game. Such an event could adversely affect our business and our ability to pay dividends to holders of Fig Game Shares.
Our Parent owns all of our common stock, and therefore has effective control over all Company decision-making.
Our Parent owns, and will be able to exercise voting rights with respect to, all of our outstanding common stock. Our common stock is entitled to one vote per share, while the holders of Fig Game Shares will not have voting rights. As a result, our Parent will continue to hold all of the voting power of our outstanding capital stock following each offering of Fig Game Shares. Such voting power gives our Parent effective control over all Company decision-making. Our Parent is entitled to vote its shares in its own interest, which may not always be in the interests of our shareholders generally or in the interest of a particular series of Fig Game Shares.
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You may not have remedies if the actions of our director or officers adversely affect the value of any particular series of our Fig Game Shares.
Holders of a particular series of Fig Game Shares may not have any remedies if any action by our director or officers has an adverse effect on only that series of Fig Game Shares. Principles of Delaware law established in cases involving differing treatment of multiple classes or series of stock provide that, subject to any applicable provisions of a company’s certificate of incorporation, a board of directors generally owes an equal duty to all shareholders and does not have separate or additional duties to any subset of shareholders. Judicial opinions in Delaware involving stock that track interests of a particular asset have established that decisions by directors or officers involving differing treatment of holders of such shares may be judged under the business judgment rule. In some circumstances, our director or officers may be required to make a decision that is viewed as adverse to the holders of a particular series of Fig Game Shares. Under the principles of Delaware law and the business judgment rule referred to above, you may not be successful in challenging such a decision on the grounds that it had a disparate impact upon the holders of one series of Fig Game Shares.
We may dispose of assets of our Company without your approval.
Our amended and restated certificate of incorporation does not provide voting rights to holders of Fig Game Shares. As a result, our Company or all or substantially all of its assets may be sold or otherwise disposed of, without any person having to seek the approval of any holders of Fig Game Shares. The only shareholder approval that would be required for a sale or other disposal of all or substantially all of our assets would be the approval of the holders of our common stock.
The requirements of complying on an ongoing basis with Regulation A under the Securities Act may strain our resources and divert management’s attention.
Because we are conducting an offering pursuant to Regulation A under the Securities Act, we will be subject to certain ongoing reporting requirements. Compliance with these rules and regulations may increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our resources. The requirements of Regulation A may also make it more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board, as well as qualified officers. Moreover, as a result of the disclosure of information in this offering circular and in other public filings we make, our business operations, operating results and financial condition will become more visible, including to competitors and other third parties.
If we become subject to regulations governing investment companies, broker-dealers or investment advisers, our ability to conduct business could be adversely affected.
The SEC regulates to a substantial degree the manner in which “investment companies,” “broker-dealers” and “investment advisers” are permitted to conduct their business activities. We believe we have conducted our business in a manner that does not make us an investment company, broker-dealer or investment adviser, and we intend to continue to conduct our business to avoid any such characterizations. If, however, we are deemed to be an investment company, broker-dealer or investment adviser, we may be required to institute burdensome compliance requirements and our activities may be restricted, which would adversely affect our business and our ability to pay dividends to holders of Fig Game Shares.
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Risks Related to Fig Game Shares
There are numerous risks with respect to how we structure our business and the structure of our Fig Game Shares. Only investors who can bear the loss of their entire investment should purchase our Fig Game Shares.
Our business model and licensing approach, and the terms of our Fig Game Shares, are novel. As with any new business model, and any new investment opportunity, there are numerous risks, including the risks outlined in this “Risk Factors” section. However, because of the newness of our business model, and our securities, there may possibly be additional risks and uncertainties that we are unable to reasonably foresee at this time. An investment in our Fig Game Shares is highly risky and speculative. Our Fig Game Shares are suitable for purchase only for investors of adequate financial means. If you cannot afford to lose all of the money you plan to invest in our Fig Game Shares, you should not purchase them.
Any dividends paid to holders of a particular series of Fig Game Shares will reflect the economic performance of only one game. Therefore, any decrease in the popularity of such game would adversely affect the financial performance of the associated Fig Game Shares.
Because any dividends paid to holders of each series of Fig Game Shares will reflect the economic performance of only one game, any decrease in the popularity of such game would adversely affect the financial performance of the Fig Game Shares associated with that game. The receipts we may receive with respect to a particular game will be driven by the performance and popularity of the game. We cannot guarantee how long each game that we publish will sustain its level of popularity. To prolong the lifespan of a game, the game’s developer may need to improve and update it from time to time, on a timely basis, with new features that appeal to existing game players and attract new game players. Nevertheless, consumers may lose interest in a game over time, or competitors may introduce more popular games that compete with such game, the game may lose its popularity and this may cause our sales receipts for such game to decrease. Poor or mediocre reviews of such game on a distributor’s website or in other media could cause sales of the game to significantly decrease, which may ultimately adversely affect our ability to pay dividends to holders of the associated Fig Game Shares.
In the case of a license agreement under which we are owed a Fig Service Fee, any dividends paid to holders of a particular series of Fig Game Shares will be paid from amounts remaining after the deduction of the Fig Service Fee and the developer’s revenue share. Therefore, the greater the size of either of these deductions, the smaller the amount remaining from which dividends will be paid to holders.
In the case of a license agreement under which we are owed a Fig Service Fee, any dividends paid to holders of a particular series of Fig Game Shares will be paid from amounts remaining after the deduction of the Fig Service Fee and the developer’s revenue share. In the case of a particular game, if the Fig Service Fee and the developer’s revenue share are high, less will remain from any sales receipts received from the game from which dividends to holders of the associated Fig Game Shares can be declared. In the case of a particular game, high levels of the Fig Service Fee or the developer’s revenue share, without a corresponding high level of game sale receipts, may adversely affect our ability to pay dividends to holders of the associated Fig Game Shares.
An investment in our Fig Game Shares is not an investment in any game, game developer or license agreement. Proceeds from this offering may be used to fund the development of other games, as well as other expenditures not related to the game that is associated with the series of Fig Game Shares being offered.
An investment in our Fig Game Shares represents an investment in our Company and will be used for our general operations and working capital needs. An investment in any series of our Fig Game Shares represents an opportunity for investors to support the development and publication of all the games our Company has under license and all the Company’s business activities generally, in return for the opportunity to receive dividends from the Company that reflect the Company’s receipts, if any, from sales of a particular game.
The Fig Game Shares do not provide investors with an interest in any game or developer, nor do they represent an interest in any license agreement, distribution agreement or other agreement, obligation or asset associated with any particular game or developer. The developers and distributors with which we contract are entities separate and distinct from us, and the Fig Game Shares do not represent any obligation on the part of or any interest in any such third parties. Holders of Fig Game Shares may look only to us for dividend payments with respect to any Fig Game Shares held by them.
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Our Board may decide not to pay a dividend or to reduce the size of a dividend if our Board believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations.
We intend to issue multiple series of Fig Game Shares and to pay dividends to the holders of each series of Fig Game Shares separately, in each case based on the economic performance of a game to which that particular series of Fig Game Shares relates. In all events, our Board may decide not to pay a dividend or to reduce the size of a dividend if our Board believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations. In any such case, the unpaid dividend amount will accrue for future payment. However, if our Board decides not to pay a dividend or to reduce its size because Fig is facing difficult financial or operating conditions, there can be no assurance as to whether or when those conditions might improve and whether or when Fig would reinstate dividend payments or pay past-due dividend amounts. In addition, dividends will not be declared or paid if prohibited under applicable law. See “Our Dividend Policy”.
If we fail to provide a sufficiently large Fig Funds amount to support the development of a game, or otherwise fail to provide sufficient support to the publication of the game, the game may not reach its full commercial potential, and our ability to pay dividends to holders of the related Fig Game Shares could be adversely affected.
In order to maximize the amount from which our Board may declare dividends to the holders of a particular series of Fig Game Shares, we must succeed in maximizing the commercial potential of the related game. We may fail to maximize the commercial potential of a particular game for a variety of reasons, including, for example, failing to provide Fig Funds large enough to support the development of the game to a commercially attractive level of sophistication, failing to market the game effectively or failing to provide other publishing services in an effective manner. If we are unable to deploy the Fig Funds and our other services in a way that helps a game reach its full commercial potential, our ability to pay dividends to holders of the related Fig Game Shares, and the size of the amount from which our Board may declare dividends to the holders of the related Fig Game Shares, could be adversely affected. In particular, if we were to raise proceeds from the offering of a particular series of Fig Game Shares, and then pay Fig Funds which amount did not reflect any of the proceeds raised, the holders of those Fig Game Shares would still be eligible to receive dividends pursuant to our dividend policy, but to the extent the Fig Funds were too small to successfully develop the game, the commercial success of the game would suffer and the size of the amount from which our Board may declare dividends would likely be reduced.
We do not plan to subject our allocation of game sales receipts, determination of dividends or allocation of Game Shares Assets to stand-alone audits.
The determination of the amount of dividends (if any) to pay to holders of a particular series of Fig Game Shares will be made by the application of Fig’s formula for allocating sales receipts from the related game and determining the portion of Fig’s revenue share that will be payable as dividends to such holders. The application of this revenue sharing and dividend formula for a particular series of Fig Game Shares will be undertaken on a regular basis by Fig’s accounting staff. In addition, the determination of the particular Fig assets and liabilities attributable to a particular game over which the holders of the related series of Fig Game Shares will have preferential rights in a liquidation of Fig, or in respect of which such holders may receive dividends or be subject to a redemption of their securities in the event of a disposition of that game, will be made by the application of the definition of “Game Shares Asset” set forth in the certificate of designations for that series of Fig Game Shares to Fig’s assets and liabilities.
In no such case does Fig plan to have the calculations resulting from, or the methodologies underlying, its revenue sharing and dividend formula, or its application of the Game Shares Assets definition, subjected to stand-alone audits. As a result, our allocations of revenues and assets to each series of Fig Game Shares will not be audited on a periodic basis. There can be no assurance that there will not be errors or misstatements in those calculations, methodologies and applications, which could reduce Fig’s revenue share from a particular game, the dividends available to holders of the related series of Fig Game Shares or the assets attributed to a specific game, or increase the liabilities attributed to a specific game, or some combination of the foregoing.
If we were to enter bankruptcy or similar proceedings, there could be no assurance that holders of Fig Game Shares would be able to recover their investments.
If we were to enter a bankruptcy or similar proceeding, there could be no assurance that holders of Fig Game Shares would be able to recover their investments. In the event of a Company liquidation or similar occurrence, after the payment or provision for payment of our Company’s debts and other liabilities, the holders of a particular series of Fig Game Shares will have preferred rights over dividend amounts declared or accrued in respect of their Fig Game Shares but not paid, and assets and liabilities related to the associated game, but no rights in respect of other assets of the Company, and no rights in respect of Company assets generally, and in some circumstances, holders of Fig’s common stock (including our Parent) could receive more assets than holders of preferred stock. See “Description of Company Securities – Preferred Stock – Liquidation, Dissolution, etc.” We could be compelled to enter such a bankruptcy or similar proceeding if we became unable to pay our debts as they became due. In any such circumstance, after the payment or provision for payment of the Company’s debts and other liabilities, there might be limited or no assets remaining for distribution to holders of our Fig Game Shares. In any such case, holders of Fig Game Shares would lose some or all of their investments.
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Our Board or management may make decisions that adversely affect some of our licensed games and not others. Our capital structure could give rise to actual, potential or perceived conflicts of interest in this decision-making.
Our issuance of Fig Game Shares in separate series, each of which will pay dividends (if any) reflecting sales receipts from a different game, could give rise to occasions where the interests of holders of one series of Fig Game Shares may diverge or appear to diverge from the interests of holders of another series of Fig Game Shares. In addition, there may be conflicts of interest between holders of any of our series of Fig Game Shares and the holder or holders of our common stock. Our officers and director owe fiduciary duties to our Company as a whole and all of our shareholders, as opposed to holders of a particular series of Fig Game Shares. Decisions deemed to be in the best interest of our Company and all of our shareholders may not be in the best interest of a particular series of Fig Game Shares when considered independently. Examples include decisions relating to:
| ● | The timing of a merger or other change of control transaction involving our Parent; | |
| ● | Operational and financial matters that could be considered detrimental to one series of Fig Game Shares but beneficial to another series of Fig Game Shares; | |
| ● | The creation of any new series of Fig Game Shares; and | |
| ● | The payment of any dividends in respect of any series of Fig Game Shares. |
Developers of the games we license may have other relationships with Fig, including as shareholders of our Parent, as members of our Advisory Board or otherwise. Such relationships may give rise to real or perceived conflicts of interest between such developers, on the one hand, and holders of our Fig Game Shares, other developers and other persons with whom we deal, on the other hand. We have no established procedures for identifying such conflicts and minimizing the extent to which we might favor any such developer’s interests over the interests of such other parties.
We have various relationships with different members of the game developer community. For example, certain individuals who own and run developers hold shares of our Parent, and serve on our Advisory Board. Our current game licenses include licenses that we have entered into with developers that are run by such individuals, and we expect that game licenses we enter into in the future will also, on occasion, be entered into with such developers. In such circumstances, real or perceived conflicts of interest may arise, between such developers, on the one hand, and holders of our Fig Game Shares, other developers and other persons with whom we deal, on the other hand. For example, we may on occasion decide that our overall business will best be served by focusing our publishing energies more on one particular game than another. However, if the developer of the game being focused on is a member of our Advisory Board, it may appear to holders of Fig Game Shares related to the other game that the developer’s interests have affected our business decision.
We have no established procedures for identifying such real or perceived conflicts and minimizing the extent to which we might favor (as a matter of fact or as a matter of perception) any such developer’s interests over the interests of such other parties. We intend to distribute our marketing and other publishing efforts across our games, and otherwise operate our business, in a manner that serves the interests of our Company and its shareholders as a whole. Nevertheless, real or perceived conflicts of interest between developers with whom we have relationships, on the one hand, and other parties, on the other hand, may arise, we do not have established procedures for identifying such real or perceived conflicts and minimizing their effects, and these conflicts may not be resolved in your favor.
No market or other independent valuation of our Company or any of our capital stock has been used to set the offering price of the Fig Game Shares.
The offering price of the Fig Game Shares has been determined solely by our Company, based on a number of factors, some of which bear no relation to established, formal valuation criteria such as assets, earnings, net worth or book value. We makes no representations, whether express or implied, as to the value of our Fig Game Shares and there can be no assurance that the offering price of our Fig Game Shares represents the fair value of such stock. No independent fair market valuation of our Company or any of our capital stock has been used to set the offering price of the Fig Game Shares.
There is no trading market for Fig Game Shares.
There is no trading market for our Fig Game Shares and we do not expect that any such market will ever develop, in part because our amended and restated certificate of incorporation imposes certain restrictions on the transfer of our Fig Game Shares. As a result, investors should be prepared to retain their Fig Game Shares for so long as they remain outstanding and should not expect to benefit from share price appreciation. Potential investors should consider their investment in our Fig Game Shares as a long-term, illiquid investment of indefinite duration.
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We have the right to void a sale of Fig Game Shares under certain circumstances.
We have the right to void a sale of Fig Game Shares, and cancel the shares or compel the shareholder to return them to us, if we have reason to believe that such shareholder acquired Fig Game Shares as a result of a misrepresentation, including with respect to such shareholder’s representation that it is a “qualified purchaser” or an “accredited investor” as defined pursuant to Regulation A or Regulation D, promulgated under the Securities Act, respectively, or if the shareholder or the sale to the shareholder is otherwise in breach of the requirements set forth in our certificate of incorporation, certificates of designations or bylaws, copies of which are exhibits to the offering statement in which this offering circular has been filed with the SEC.
Following a defined time after the delivery of a particular developed game, we will have the right to cancel the associated series of Fig Game Shares, under certain circumstances.
Following a defined time after the delivery of a particular developed game, we will have the right to cancel the associated series of Fig Game Shares, under certain circumstances. We will maintain a cancellation right in respect of each series of Fig Game Shares, in order to be able to withdraw the series from the market and avoid the costs of continuing to have the series outstanding after the associated game has lost most or all of its earning power. In general, we expect that our right to cancel a series of Fig Game Shares will become effective after the passage of a pre-determined amount of time (typically, a number of years), and after the game has failed to meet a pre-determined earnings floor. For a description of our cancellation right with respect to the Fig Game Shares being offered in this offering, see “The Current Game, Developer and Shares”. Although the purpose of our cancellation rights is to help us avoid incurring unnecessary administrative costs, and thereby benefit our Company and shareholders as a whole, there can be no assurance that we will not cancel a series of Fig Game Shares before the earning power of the associated game has been completely and irreversibly exhausted, and thereby deny the holders of such Fig Game Shares some additional amount of dividends.
We may allow the participation of non-U.S. investors in this offering, based in part on their representations to us that their participation will not violate the laws of their home jurisdictions. There can be no assurance that such representations will be accurate and no assurance that we will not suffer harm or have to rescind sales made in this offering if such participation violates non-U.S. laws.
We may allow the participation of non-U.S. investors in this offering, based on, among other things, their representations to us that their participation will be in compliance with non-U.S. laws that may govern their actions. Regardless of these representations and any other checks we may undertake, there can be no assurance that such participation will always be in compliance with applicable non-U.S. laws. If there is such non-compliance, there can be no assurance that we will not be harmed as a result, by any required rescission of sales or the withdrawal of investors, the attempt by U.S. or foreign jurisdictions to impose penalties or fines on us, or otherwise.
If the security of confidential information relating to investors or users of Fig.co is breached or otherwise subjected to unauthorized access, such information could be stolen or misused.
Fig.co will store users’ and investors’ personally identifiable, sensitive data. Fig.co is hosted in data centers that are generally compliant with industry security standards and Fig.co uses security monitoring services; however, any accidental or willful security breach or other unauthorized access could cause secure information to be stolen or misused, including misuse for criminal purposes such as fraud or identity theft. Because techniques used to obtain unauthorized access to systems change frequently, and generally are not recognized until they are launched against a target, the system administrators of Fig.co and Fig.co’s third-party hosting facilities may be unable to anticipate these techniques or implement adequate preventive measures. In addition, many states have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause investors and developers to lose confidence in the effectiveness of Fig.co. Any security breach, whether actual or perceived, could harm Fig.co’s and our reputation and could adversely affect our business.
Risks Related to the Current Game and Developer
There can be no assurance that inXile will be able to successfully develop Wasteland 3.
There can be no assurance that inXile will be able to develop Wasteland 3 on time or at all, or that Wasteland 3 will function as intended once developed. Unanticipated problems, expenses and delays are often encountered in developing any game. If inXile encounters any such problems, expenses or delays while developing Wasteland 3, it may not be able to successfully address them and stay on budget and on schedule. If inXile cannot, our business and our ability to pay dividends to holders of Fig Game Shares – Wasteland 3 could be negatively affected.
Business difficulties at inXile could delay or prevent the development of Wasteland 3.
If inXile experiences difficulties in its business, it may be unable to develop Wasteland 3 on time or as planned, or may otherwise fail to deliver or help maintain a potentially commercially successful game. This could harm our business and undercut the availability of dividends for the holders of the Fig Game Shares associated with Wasteland 3.
There are actual, potential and perceived conflicts of interest between our Company, our Parent, inXile and their respective directors, officers, employees, members and managers, and these conflicts may not be resolved in your favor.
Brian Fargo, the Chief Executive Officer and founder of inXile, serves as a member of our Parent’s Advisory Board. inXile owns an equity interest in our Parent. These relationships may give rise to actual or perceived conflicts of interest. For example, Mr. Fargo, as CEO and founder of inXile, may weigh the interests of inXile more heavily than the interests of our Company or holders of Fig Game Shares, including Fig Game Shares – Wasteland 3, when offering advice to our Parent that is relevant to our Company’s business.
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We are not charging a Fig Service Fee to the developer of Wasteland 3.
We have agreed under the terms of the Wasteland 3 License Agreement not to charge a Fig Service Fee to the developer of Wasteland 3. We have decided not to charge such a fee in part because, in our view, it will be of benefit to our Company and its shareholders, including the holders of Fig Game Shares – Wasteland 3, and of particular benefit early in the Company’s operating history, for the Company to (i) publish a game with the strong commercial potential that we foresee for Wasteland 3, even without an associated Fig Service Fee, and (ii) work with a game developer with the track record and reputation of inXile to help drive awareness of and credibility and new user registrations for our new business, even without an associated Fig Service Fee. Nevertheless, there can be no assurance that our decision not to charge a Fig Service Fee at this time, and in connection with this game and this developer, will ultimately help our business and prospects.
The terms of the Wasteland 3 License Agreement differ from the terms of other license agreements between Fig and developers in that the Wasteland 3 License Agreement provides that inXile will collect most or all of the receipts from sales of Wasteland 3, and then allocate such receipts among itself, Fig and any third-party co-publisher(s) that inXile has engaged to publish the game.
The Wasteland 3 License Agreement provides that inXile will collect most or all of the receipts from distributors from the sale of Wasteland 3, net of distributor fees, and then allocate such receipts among itself, Fig and any third-party co-publisher(s) that inXile has engaged to publish Wasteland 3. This arrangement differs from the arrangements used in other Fig license arrangements, in which Fig, rather than the developer, collects sales receipts from distributors. Although Fig believes that the arrangement under the Wasteland 3 License Agreement will not adversely affect Fig’s receipt of its revenue share from Wasteland 3, there can be no assurance that the arrangement will not lead to nonpayment or underpayment to Fig of its Wasteland 3 revenue share.
The terms of the Wasteland 3 License Agreement differ from the terms of other license agreements between Fig and developers in that, under the Wasteland 3 License Agreement, Fig’s revenue share is equal to a percentage of the revenue inXile receives, and inXile retains the ability to enter into separate license agreements with other co-publishers, which could reduce the revenues inXile receives and thereby indirectly reduce Fig’s revenue share.
Under the Wasteland 3 License Agreement, Fig’s revenue share is equal to a percentage of the revenue inXile receives, and inXile retains the ability to enter into separate license agreements with other co-publishers. As a result, if inXile were to take steps on its own that resulted in it receiving lower game revenues, for example by entering into one or more additional co-publishing arrangements with third parties under which inXile incurred obligations that were greater than any additional revenue earned, then Fig’s revenue share from Wasteland 3 would indirectly be reduced. Although Fig believes that the arrangement under the Wasteland 3 License Agreement will not adversely affect Fig’s revenue share from Wasteland 3, because Fig does not expect inXile to take steps that might reduce inXile’s revenues from Wasteland 3, including by entering into one or more additional co-publishing arrangements with third parties, there can be no assurance that, under the arrangement, inXile’s game revenues will not go down and Fig’s revenue share thereby indirectly be reduced.
The Wasteland 3 License Agreement relates to Wasteland 3 only and does not relate to the Wasteland games previously developed by inXile, or any other derivative works stemming from Wasteland 3, including prequels, sequels or spin-offs.
Investors in this offering are subscribing for Fig Game Shares that will pay dividends, if any, based on sales receipts from the sale of Wasteland 3. Other than downloadable additional content or expansions developed by inXile for Wasteland 3, these Fig Game Shares will not pay dividends relating to any derivative works, including the Wasteland, Wasteland 2 or Wasteland 2: Director’s Cut games previously developed by inXile, or any prequels, sequels, spin-offs, or other video games based upon or otherwise featuring any of the settings, characters or “universe” of Wasteland 3 that may be created by inXile. Although holders of Fig Game Shares – Wasteland 3 will not benefit from sales of any of the forgoing works, such sales may reduce sales of Wasteland 3 on the platforms licensed to us.
We do not have rights to Wasteland 3 on platforms other than the Microsoft Windows, Apple Macintosh and Linux personal computing operating systems, and the PlayStation 4 and Xbox One consoles.
Holders of Fig Game Shares – Wasteland 3 will not benefit from sales of Wasteland 3 on platforms other than the Microsoft Windows, Apple Macintosh and Linux personal computing operating systems, and the PlayStation 4 and Xbox One consoles. These licensed platforms exclude, among others, virtual reality platforms and mobile device platforms. Although holders of Fig Game Shares – Wasteland 3 will not benefit from sales on any unlicensed platforms, such sales may reduce sales of Wasteland 3 on the platforms licensed to us, because consumers who play games on those other platforms may choose to purchase the game there rather than on the Microsoft Windows, Apple Macintosh or Linux personal computing operating systems or the PlayStation 4 or Xbox One consoles.
inXile owns a warrant to purchase shares of our Parent pursuant to a Founding Studio Partner Agreement, as amended, and owns an option to purchase shares of our Parent pursuant to an Advisory Board Agreement, as amended.
Pursuant to a Founding Studio Partner Agreement, as amended, with inXile, inXile owns warrants to purchase 276,186 shares of common stock of our Parent, which vest in connection with Fig’s co-publishing of Wasteland 3. In addition, pursuant to an Advisory Board Agreement with inXile, as amended, inXile owns non-qualified stock options to purchase 200,000 shares of common stock of our Parent, which options fully vest and became exercisable on June 21, 2017. These relationships may represent actual, potential or perceived conflicts of interest among our Company and our Parent, for example in connection with decisions that could have different implications for our Company and our Parent.
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We expect to raise up to a maximum of $1,250,000 of proceeds from the sale of the Fig Game Shares offered in this offering, assuming the sale of 1,250 of these shares at an offering price of $1,000.00 per share. Fig will receive all proceeds raised. Offering expenses, which we estimate will be approximately $50,000, will be paid by us. See “Plan of Distribution”.
This offering is being conducted to raise money for our general operations and working capital needs. We expect to spend such funds on:
| ● | The development of multiple games that we have agreed to publish under various publishing and co-publishing license agreements (presumably, but not necessarily, including the game whose potential sales receipts will underlie any dividends that will be declared on the Fig Game Shares being offered in this offering); |
| ● | Outreach to find new games that we would consider publishing; |
| ● | Marketing and other publishing efforts in support of the multiple games we are publishing; and |
| ● | Other general activities and operations. |
There can be no assurance as to the total amount of proceeds we will ultimately raise in this offering. Because the offering is being made on a best efforts basis and without a minimum offering amount, our Company may close the offering at any level of proceeds raised. In addition, because all proceeds will go into our general account and will be used to support our operations and business activities generally, we do not expect to substantially change our priorities for the use of proceeds based on the level of proceeds raised. Given the current, early stage of our business, in which we have entered into licenses to publish video games that are still being developed, we expect to spend most of any proceeds raised to support the development of such games; a lesser amount on identifying new games to publish; and an amount on game marketing and other publishing efforts that will be low at first but will increase as more of our licensed games approach the completion of their development stages. Whether we raise the maximum amount in this offering, or less, we expect to pursue this same use of proceeds at proportional levels of spending.
In order to support our general operations and working capital needs for the next 12 months, we may need to raise additional capital. Such financing may be expensive and time-consuming to obtain, and there may not be sufficient investor or commercial interest to enable us to obtain such funds on attractive terms or at all. See “Risk Factors”.
Our Parent owns 100% of our outstanding shares of common stock and will continue to do so after this offering. The Fig Game Shares offered in this offering are shares of capital stock of Fig with no voting rights. Any Company officer, director, promoter, employee or affiliate, any game developer, or any friends or family of any of the foregoing, may purchase shares in any of our Fig Game Shares offerings, but only at the same price and on the same terms as other investors in that offering. Our Company will not reserve any portion of the Fig Game Shares offered hereby for sale to any Company officer, director, promoter, employee or affiliate, any game developer, any friends or family of any of the foregoing, or any other person.
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The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2016:
| ● | on an actual basis; and | |
| ● | on a pro forma basis, after giving effect to the receipt of a $1,000,000 capital contribution made to us by our Parent in July 2016. |
The table has not been adjusted to reflect the receipt of any proceeds from this offering or the ongoing offering under Regulation A of Fig Game Shares –PSY2, any expenses of either offering or the issuance of any Fig Game Shares – Wasteland 3 or any Fig Game Shares –PSY2. Fig Game Shares – PSY2 are shares of preferred stock of the Company, $0.0001 par value, with terms substantially similar to the terms of the Fig Game Shares – Wasteland 3, except that while Fig Game Shares – Wasteland 3 offer dividends based on returns that may be received from the sale of Wasteland 3, Fig Game Shares – PSY2 offer dividends based on returns that may be received from the sale of a separate game published by Fig, Psychonauts 2. Fig conducted a crowdfunding campaign for Psychonauts 2 on Fig.co in December 2015 and January 2016; the Regulation A offering statement for Fig Game Shares – PSY2 was qualified by the SEC in September 2016; and the Regulation A offering has not yet closed.
As part of the crowdfunding campaign for Wasteland 3 on Fig.co, conducted in September 2016 and October 2016, we received:
| ● | investment commitments of $1,046,000 in an offering of securities under Rule 506(c) of Regulation D under the Securities Act, conducted by a limited liability company of which Fig is the managing member, which securities are separate from Fig Game Shares – Wasteland 3 but, similarly to Fig Game Shares – Wasteland 3, are designed to reflect the economic performance of Wasteland 3; and | |
| ● | investment reservations of $1,144,000 in this offering. |
We are currently in the process of closing the Rule 506(c) offering, and the final amount of proceeds received in that offering may differ from the amount of investment commitments received. In addition, the reservations in this offering are non-binding, and there can be no assurance as to how much of the reserved amount may or may not convert to sales after this offering is qualified with the SEC. In addition, because this offering is being made on a best efforts basis and without a minimum offering amount, we may close it at any level of proceeds raised. For these reasons, there is no specific level of proceeds from this offering that could be considered sufficiently probable to merit inclusion in the table. Expenses of this offering, which we estimate will be approximately $50,000, will be paid by us.
As part of the crowdfunding campaign for Psychonauts 2 on Fig.co, conducted in December 2015 and January 2016, we received:
| ● | investments of $159,500 in an offering of Fig Game Shares – PSY2 under Rule 506(c) of Regulation D under the Securities Act, conducted by us; and | |
| ● | investment reservations of $1,870,000 in an offering of Fig Game Shares – PSY2 under Regulation A under the Securities Act, conducted by us. |
The Rule 506(c) offering closed on November 7, 2016, at which time we took the proceeds from that offering into our general account. However, the reservations in the Regulation A offering are non-binding, and there can be no assurance as to how much of the reserved amount may or may not convert to sales at the time the Regulation A offering is closed. In addition, because the Regulation A offering is being made on a best efforts basis and without a minimum offering amount, we may close it at any level of proceeds raised. For these reasons, there is no specific level of proceeds from that offering that could be considered sufficiently probable to merit inclusion in the table. Expenses of that offering will be paid by Fig’s parent, Loose Tooth Industries, Inc., pursuant to the Cost Sharing Agreement, as described in “Our Business – Cost Sharing Agreement with Our Parent”.
You should read this table together with our financial statements and the related notes thereto, included elsewhere in this offering circular. Our Company's condensed consolidated statements of financial condition at March 31, 2016 and the Company's condensed consolidated statement of operations for the six months ended March 31, 2016 are presented based on the Company’s actual results as a stand-alone company. The Company’s financial statements prior to its formation on October 8, 2015 have been prepared on a “carve-out” basis from the Parent’s accounts and reflect the historical accounts directly attributable to the Company together with allocations of costs and expenses incurred by the Parent. These allocations may not be reflective of the actual level of assets, liabilities, income or costs that would have been incurred had the Company operated as a separate legal entity.
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| As of March 31, 2016 | ||||||||
| Actual | Pro Forma(1) | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Balance Sheet Data(2) | ||||||||
| Cash | $ | 7,980 | $ | 1,007,980 | ||||
| Long term debt | - | - | ||||||
| Stockholder’s equity (deficit): | ||||||||
| Preferred stock, $0.0001 par value; 100,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2016 | - | - | ||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized; 1,000,000 shares issued and outstanding as of March 31, 2016 | 100 | 100 | ||||||
| Additional paid-in capital | 1,569,636 | 2,569,636 | ||||||
| Accumulated deficit | (1,122,520 | ) | (1,122,520 | ) | ||||
| Total stockholder's equity | $ | 447,216 | $ | 1,447,216 | ||||
| Total capitalization | $ | 447,216 | $ | 1,447,216 | ||||
| (1) | In July 2016, our Parent contributed an additional $1,000,000 to us. |
| (2) | Does not reflect the receipt on November 7, 2016 of proceeds of $159,500 in an offering by us of Fig Game Shares – PSY2 to accredited investors under Rule 506(c), or the receipt on November 29, 2016 of proceeds of $29,000 in an offering by a limited liability company of which Fig is the managing member of Series Make Sail Units, associated with the video game Make Sail, to accredited investors and Fig under Rule 506(c). Fig purchased 8 Series Make Sail Units for $8,000. Additionally, does not reflect the $1,000,000 borrowed under the loan and security agreement entered into by us and our Parent with Silicon Valley Bank on September 30, 2016. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources of the Company”. |
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Overview
Fig is a community powered publisher of video games. Fig’s business is to identify, license, contribute funds to the development of, market, arrange distribution for, and earn receipts from sales of video games developed by third-party video game developers with whom we enter into license agreements to publish those games. We search for new games and game ideas with the potential to generate significant earnings with the help of our publishing model.
We are evolving the video game publishing model in a number of key ways:
| ● | Crowdfunding Campaigns. As part of our greenlighting process (through which we decide which games to publish and which not to publish), we host crowdfunding campaigns on our Parent’s website, Fig.co. These crowdfunding campaigns allow third-party developers to raise funds through the pre-sale of games, digital items, merchandise and experiences. They also allow us to gauge interest in an offering of Fig Game Shares that would reflect our economic returns as a publisher of the game. A crowdfunding campaign must be successful, in our view, before we will greenlight our publishing of a game. This allows us to predicate our greenlighting of a game on whether its crowdfunding campaign was, in our view, sufficiently successful, and allows us to calibrate the amount of funding we contribute to the development of the game. In this manner, the voice of the community is heard in our publishing. |
| ● | Focused Curation. We conduct crowdfunding campaigns for only a small number of games each month. We believe this focus helps the gaming community concentrate their attention on each game, which we believe provides better game marketing. In our view, existing rewards-only crowdfunding platforms on which self-publishing developers depend often allow individual game campaigns to become lost in a crowd of concurrent campaigns. |
| ● | Fig Game Shares. We offer the opportunity for gamers and fans to connect with games in a new way, by investing in our Company and receiving in exchange securities that reflect our economic returns as a publisher of the game. |
| ● | Preservation of Developers’ Intellectual Property Ownership. We do not require developers to license or transfer away their core intellectual property rights, or rights to derivative works including prequels, sequels or spinoffs, in order to get their game published by us. We believe this approach to intellectual property ownership will provide us with a competitive advantage over traditional video game publishers in attracting talented developers with exciting game ideas. |
We believe that involving the community of gamers and fans in our game publishing will result in games that are more aligned with consumer demand, more creatively innovative and more commercially successful.
To date, our Company has entered into a number of video game co-publishing license agreements with game developers. See the section of this offering circular entitled “Games Licensed”. The particular game to which the Fig Game Shares in this offering relate is described in the section entitled “The Current Game, Developer and Shares”.
Industry Trends
There are a number of key trends that our Company believes will continue to drive the growth and popularity of video games. The growth of digital distribution and gameplay is making it easier for customers to discover, buy and engage with a variety of games. At the same time, digital distribution and gameplay make it harder for developers to find audiences for their games without relying on paid marketing. The emergence of new platforms on which to play games, such as has occurred recently with mobile devices, is expanding the range of possible gameplay experiences. In particular, the ubiquity and convenience of mobile devices allow players to engage with games in new play patterns, and allow publishers and distributors to develop new monetization models. Advancements in technology, such as virtual reality, augmented reality, mixed reality and smart TVs, will continue to drive more immersive and entertaining gaming experiences. In addition, players can engage with games for longer periods of time as they purchase additional content and services that are provided to them digitally. Our Company hopes that these trends will enable each of its games to achieve increased sales and increase the size and engagement of the gamer community.
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Market Opportunity
Our goal is to provide game developers and game fans a more balanced and sustainable approach to game publishing. We aspire to provide a publishing solution that retains the best, and discards the worst, of traditional publishing and self-publishing with rewards-only crowdfunding. The following are anecdotal views based on our industry experience.
Traditional Publishing Arrangements
In traditional publishing arrangements, particularly with large video game publishers, the publisher provides funding to a developer for a particular video game’s development in exchange for the intellectual property rights to the game, which include distribution rights as well as rights to sequel games and other derivative works (such as film and merchandise rights). The intellectual property rights to a game are a developer’s most important asset, and turning them over to a publisher not only relinquishes creative control over the game but also creates a relationship with the publisher that is similar to employment. The developer is paid a royalty that is typically half or less than half of the net revenue earned from the game. The formulas by which developers earn royalties can be disproportionately favorable to the publisher. Most publishing deals involve what is known as “advances against royalties”. In other words, the amounts provided by the publisher to the developer to create the game are treated as pre-paid royalties. This means that the developer must effectively “pay back” the advances at the previously negotiated royalty rate; that publishers take all the game’s revenue until they have received, typically, two to three times the amount advanced; and that only thereafter would developers receive any money from their game.
Self-Publishing with Rewards-Only Crowdfunding
Rewards-only crowdfunding has made the self-publishing of video games a more viable option for developers, but rewards-only crowdfunding alone has its limits. Developers have found it difficult to raise enough money through rewards-only crowdfunding to meet an entire game development budget and additionally finance post-development marketing and distribution efforts.
Our Alternative
As described more fully above and below, our publishing model is intended to bridge the gap between traditional publishing models and self-publishing through rewards-only crowdfunding.
Key Aspects of Our Business
Identification
We consider and evaluate games being developed for any game-playing platform and technology and in any genre. We believe we have extensive video game industry contacts though the directors, officers, advisors and affiliates of our Company and our Parent, and we seek to use these contacts to access developers and games that meet our criteria. Through our contacts, we seek to establish working relationships with promising developers and their advisors, in order to begin the process of educating them about our business, the benefits of a video game co-publishing license agreement with us and the benefits of a continuing relationship with us.
Prior to entering into a license agreement to publish a particular game, we evaluate the game and the developer to determine whether, in our opinion, the game is likely to be successfully developed and become a commercial success. We consider a great game to be a distillation of a complex set of factors. But, in our selection of games to publish, we focus in particular on the following factors:
| ● | The experience of the developer and the talents of the developer’s team. | |
| ● | The developer’s track record for the delivery of games on time and within budget. | |
| ● | Historical sales performance of prior games. | |
| ● | The degree of likelihood that the current game can be developed on time and as envisioned. | |
| ● | Estimates of potential sales of the current game. |
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| ● | Whether the developer will be using technologies, such as game engines, with which the developer has successfully created games in the past. | |
| ● | The developer’s past releases on the platforms that the developer is targeting for the current game. | |
| ● | The extent of the developer’s existing social community and fan base, as well as the social community and fan base of any game franchise to which the current game will belong. |
In order to help us gather the information we need and want to make a decision as to whether to seek to publish a game, we present the developer of each game we may publish with a due diligence questionnaire, a copy of which is an exhibit to the offering statement in which this offering circular has been filed with the SEC. The information received in response to the questionnaire is part of what we consider in deciding whether to seek to publish the game.
Licensing
It is our intention that each video game co-publishing license agreement we enter into be based on a template license agreement that acts as a standard baseline. The material terms of our baseline license agreement are summarized below. Generally, only certain terms of the baseline license agreement will be subject to negotiation with each developer. Please refer to the section entitled “The Current Game, Developer and Shares” for the terms of the license agreement that have been agreed with the developer of the particular game to which the Fig Game Shares in this offering relate, as well as a description of the ways in which that license agreement may deviate from the baseline terms below.
Fig Baseline License Agreement Material Terms
| Term | Description | |
Conditions
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All of Fig’s obligations under the license agreement are conditioned on the success, as determined by Fig, of a crowdfunding campaign on Fig.co. In addition: |
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if Fig’s due diligence of the developer and the game has not been completed to Fig’s satisfaction prior to the execution of the license agreement, Fig’s obligations under the license agreement will be further conditioned on Fig’s satisfactory completion of that due diligence; and
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| ● | to the extent that, in Fig’s judgment, the developer’s level of experience and sophistication requires it, Fig may further condition its obligations under the license agreement upon the receipt from the developer, at appropriate times, of sufficiently detailed development timelines and budgets, as well as evidence of progress under such timelines and of performance under such budgets. |
| Fig Funds | The amount of funds to be provided from Fig’s general account in support of the development of the game (the “Fig Funds”) will be disbursed to the developer of the game pursuant to an agreed-upon schedule that reflects the game development timeline and the relative needs of the developer and Fig. The license agreement will set forth a range within which the precise Fig Funds amount will be determined by Fig. See “—Crowdfunding Campaigns”, below. The Fig Funds will be non-recoupable (except in certain circumstances if the license agreement is terminated). |
| Developer Obligations |
Among other obligations, the developer must: |
| ● | provide interim versions of the game for inspection upon 30 days’ notice, | ||
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not grant liens over its intellectual property in the game to third parties;
maintain records of its use of the Fig Funds;
meet with Fig on a quarterly basis;
give Fig meaningful rights to consult on and inspect the status and progress of game development. |
| License |
Fig shall have a license to an identified version of the game in connection with co-publishing, distributing, advertising, marketing and promoting the game to consumers for use on each of the specified licensed platforms, including updates of and enhancements to the game (although such rights may or may not extend to downloadable content, or “DLCs”).
The developer will retain the ability to license to co-publishers publishing rights on the same platforms licensed to Fig. Should material co-publishing arrangements exist, the license agreement will contain agreed-upon methods by which Fig will effectively be credited with some or all of the cash from sales arranged by such co-publishers (including the developer as a co-publisher), or by which Fig can pre-approve such co-publishing arrangements should certain conditions exist, or by which Fig’s right to a certain minimum level of sales receipts is otherwise protected. Fig expects that co-publishing arrangements, and the consequent agreed-upon methods by which Fig’s rights to sales receipts will be protected, may be more elaborate in respect of some types of games (for example, sequels to successful past games and games developed by larger developers with longer industry track records). |
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| Security regarding Sales Receipt Payments | The developer will deliver to Fig an agreed upon number of valid Steam game keys for the associated game on agreed licensed platforms (“Fig Keys”) no later than 14 days from the commercial launch of the game. The Fig Keys will be solely owned by Fig. In the event Fig is underpaid the amounts it is owed under the license agreement, it can then sell the Steam game keys in an amount sufficient to offset any amounts by which it has been underpaid, retaining 100% of the sales receipts from the Steam game keys sold. | |
| Licensed Game | Fig’s license will extend to updates of and enhancements to the game that the developer may generate. The license may or may not extend to DLCs. The license will not include derivative works of the game (such as prequels, sequels or spinoffs). |
Licensed Platforms
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The game will be licensed for use on either (i) a specific list of platforms, (ii) all platforms or (ii) all platforms except for a specific list of platforms.
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| Committed Platforms | The developer may not be obligated to deliver the game in executable format for all licensed platforms. The license agreement may provide that the developer is only obligated to deliver the game in executable format on a certain subset of licensed platforms, which we refer to as “Committed Platforms”. |
| Game Delivery Date | The developer will agree to deliver the game in executable format for the licensed platforms (or in some cases, the Committed Platforms only) by a designated game delivery date. | |
| Derivative Works Holdback | The developer may be required to wait for a period of time before releasing derivative works of the game (such as prequels, sequels or spinoffs), which requirement we refer to as the “derivative works holdback”. | |
| Developer Revenue Share | The developer’s revenue share will be a certain percentage of the sales receipts received in respect of the game. The revenue share rate will be a fixed rate, although the fixed rate may increase after one or more game sales thresholds are reached. | |
| Termination for Cause | The developer and our Company shall each have the right to terminate the license agreement upon a material default or breach by the other party, which the breaching party is not able to remedy within thirty days. | |
Resource Schedule, Quarterly Meetings |
The Fig Funds will be disbursed to the developer of the game pursuant to an agreed-upon schedule that reflects the game development timeline and the relative needs of the developer and Fig. The developer will be required to meet with Fig on a quarterly basis to discuss the development status of the game and any other matters of concern. | |
| Indemnification | The parties agree to mutual indemnification for claims arising out of: (i) breach of the license agreement; (ii) any claims by the indemnifying party’s creditors to the effect that the indemnified party is responsible or liable for the indemnifying party’s obligations; and (iii) the use of the licensed rights. |
In the event that a developer materially breaches the terms of its license agreement, for example by failing to deliver the game, the holders of Fig Game Shares must rely on our Company to pursue any claims against the developer. The license agreement will be between the developer and the Company, and a holder of Fig Game Shares will have no rights under the license agreement, as a third-party beneficiary or otherwise. We intend to enforce all contractual obligations under our license agreements to the extent we deem necessary and in the best interests of the Company and holders of Fig Game Shares.
All sales receipts received by Fig in respect of sales of a particular game, pursuant to the license agreement between Fig and the developer of that game, will be deposited into a separate account or sub-account under Fig’s control. From the cash available in the sub-account, Fig will pay dividends to holders of the Fig Game Shares associated with that game, pursuant to its dividend policy. See “Our Dividend Policy”.
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The foregoing description of our baseline license agreement material terms is a summary only and is qualified in its entirety by reference to the particular license agreement that has been agreed with the developer of the game to which the Fig Game Shares in this offering relate, a copy of which is an exhibit to the offering statement in which this offering circular has been filed with the SEC.
There can be no assurance that our assessments with respect to any developer and the potential sales of any game will be accurate, and a failure of any of our assessments could have a materially adverse impact on our business and our ability to pay dividends to holders of Fig Game Shares.
Fig Service Fee
Depending on the particular game and crowdfunding campaign, Fig may retain a percentage, generally expected to be 10%, of game sales receipts, which we refer to as the “Fig Service Fee”. The Fig Service Fee will serve as compensation toward the cost of platform and publishing services, in campaigns in which Fig imposes such a fee. Fig may apply a higher or lower Fig Service Fee depending on the degree of services and corresponding expenses that Fig predicts will be necessary to successfully publish a game, as well as other factors. In certain cases, Fig may determine that, because it is still building its business, because it desires to attract high quality developers, because the desirability of publishing the particular game is especially high, or for other reasons relating to Fig’s assessment of the business advantages that may accrue to Fig and its security holders, the Fig Service Fee maybe lower than the percentage indicated above or nominal, or there may be no such fee.
Crowdfunding Campaigns
As part of our greenlighting process, we host crowdfunding campaigns on our Parent’s website, Fig.co. These crowdfunding campaigns allow the developers with whom we have entered into license agreements to raise funds through the pre-sale of games, digital items, merchandise and experiences. They also allow us to gauge interest in the game, decide not to publish the game if interest is insufficient and, if we are to publish the game, help us determine what amount to provide to the developer in support of the completion of the game.
A crowdfunding campaign must be successful, in our view, before we will greenlight our publishing of a game. If the crowdfunding campaign is not successful, the license agreement will terminate. If it is successful, the license agreement will continue, we will begin providing the developer with the Fig Funds and the developer will proceed with developing the game and delivering it pursuant to the terms of the license agreement, so that we may publish it as we have planned.
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The interaction of our decision to enter into a license agreement in respect of a particular game, conduct a crowdfunding campaign for the game, and proceed thereafter based on the success or lack of success of the crowdfunding campaign, is illustrated below:
As described in the illustration above, the parties will enter into the license agreement with a range agreed for the Fig Funds amount, but without the precise Fig Funds amount having been determined by Fig. Next, a crowdfunding campaign for the game will be launched on Fig.co and will last, typically, 30 to 40 days. As the outset of the crowdfunding campaign, Fig will set the goal that the campaign must reach to be successful. The goal will be posted on Fig.co in the web pages relating to the crowdfunding campaign. The goal will be the dollar amount that Fig and the developer agree will be needed to complete the development of a commercially marketable version of the game, aside from funding that the developer will itself provide or arrange. The goal can be met in the crowdfunding campaign through a combination of rewards pledges and the Fig Funds. By the end of the crowdfunding campaign, Fig will determine, based on a number of factors (many of which will relate to Fig’s assessment of the success of the crowdfunding campaign), the precise amount of the Fig Funds within the range previously agreed. If the Fig Funds, as finally determined, and the rewards pledges, together add up to the goal of the crowdfunding campaign, then the license agreement will remain in effect. If they do not add up to the goal, the license agreement will terminate and Fig will not publish the game. Fig may decide to increase or decrease the Fig Funds during the course of the crowdfunding campaign and before setting the final amount of Fig Funds. If it does so, it expects to adjust the size of the Fig Funds as posted on Fig.co. Note that, in any scenario in which an increase of the amount of the Fig Funds above the minimum amount set forth in the license agreement is required to be made, or maintained, in order for the crowdfunding campaign goal to be met, Fig will retain its discretion to make or maintain that increase, or not, even if as a result of Fig not making or maintaining that increase the goal is not met, the crowdfunding campaign fails and the license agreement is terminated.
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In the case of certain games, Fig expects that the developer may have third-party sources of funds that will be used to finance the development of the game. In such cases, Fig expects that the budget agreed by the parties for the development of the game and, by extension, the goal set by Fig for the crowdfunding campaign, will reflect this additional funding. For example, if Fig and the developer agree that $500,000 will be needed to complete the development of a commercially marketable version of the game, and the developer will provide $50,000 of this and a third party known to the developer will provide another $150,000, then the goal for the crowdfunding campaign will be $300,000, which will need to be met by a combination of rewards pledges and the finally determined Fig Funds amount, if the license agreement is to continue in effect.
If the crowdfunding campaign reaches its goal, the developer will receive the proceeds of all the rewards pledges made. The developer will receive these directly from the backers who made rewards pledges, through the credit cards whose information the backers provided to Fig.co when they made their pledges. Fig will not be involved in this payment process. If the crowdfunding campaign does not meet its goal, then the rewards pledges made will not be collected, and the developer will receive nothing from the rewards crowdfunding portion of the campaign.
In addition, if the crowdfunding campaign reached its goal, Fig will pay the Fig Funds to the developer as agreed in the license agreement. All of the Fig Funds will be paid by Fig from its general funds. There will be no direct payment of any proceeds from any sale of any Fig Game Shares to any developer, for any purpose. The Fig Funds will be non-recoupable (except in certain circumstances if the license agreement is terminated).
This description of the crowdfunding campaign process is a summary of how we expect the process to work typically for games under license. For a description of how the crowdfunding campaign for the game associated with the Fig Game Shares being offered in this offering may have differed, or may in the future differ, from this standard model, see “The Current Game, Developer and Shares”.
Below, we describe additional, key aspects of the crowdfunding campaign.
Rewards Portion of a Crowdfunding Campaign
Fig believes that the rewards portion of a crowdfunding campaign helps rally the gamer community to provide financial support for the development of a game through the pre-purchase of rewards – tiered bundles of games, digital items, physical merchandise and experiences, including t-shirts, figurines, posters or in-game content that enhance the game-playing experience. Camping trips, city tours, consulting on the design of in-game content and beer tastings are some of the experiences that have been offered on prior rewards campaigns. Backers pledge to pay the developer a certain amount of money in order to receive their rewards bundle of choice. To make a pledge, a backer must give a credit card authorization for the pledge amount, which will be processed only if the overall crowdfunding campaign meets its goal.
Investment Portion of a Crowdfunding Campaign
As described above, we expect all of our crowdfunding campaigns to include an offering of securities – either a particular series of Fig Game Shares issued by Fig, or other securities that are similar to Fig Game Shares that will be issued by a Fig affiliate, or both – which would pay returns based on the economic performance of the game that is the subject of the crowdfunding campaign. Provided the game is successfully developed and published, sales receipts will thereafter be received from the game and will generally be shared as follows: (i) receipts will be allocated into a revenue share for the developer and a revenue share for Fig, in the proportions specified in the license agreement for the game; (ii) depending on the particular campaign, Fig may be paid a service fee; (iii) depending on the particular campaign, Fig may allot part of its revenue share to the Fig Game Shares and another part to separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game, it may keep a third allotment for itself (the size of the allotment to the Fig Game Shares being determined by the application of a percentage called the “Fig Game Shares Allotment Percentage”); (iv) Fig will pay a specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, in the form of dividends, subject to our dividend policy; and (v) Fig’s board of directors may in its discretion from time to time pay more than the specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, if in its view business conditions permit it. In all events, our Board may decide not to pay a dividend or to reduce the size of a dividend if it believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. See “Our Dividend Policy”. Aggregate dividend amounts will be distributed equally among all holders of the same series of Fig Game Shares, in proportion to the number of shares held, without regard to whether the shares were bought in this offering or otherwise.
The offering being conducted pursuant to this offering circular is such an offering of Fig Game Shares. The Fig Game Shares being offered hereby are being offered under Regulation A under the Securities Act. We refer to each of our offerings of our various series of Fig Game Shares or other Fig securities, if they are conducted under Regulation A, as a “Regulation A Offering”.
In addition to a Regulation A Offering, we expect that particular crowdfunding campaigns may from time to time also include an offering of Fig Game Shares by Fig, or other securities issued by a Fig affiliate, in each case under Rule 506 of Regulation D under the Securities Act of 1933 (each an “Accredited Investor Offering”). Such an offering would only be open to investors that are “accredited investors” within the meaning of Rule 501 under Regulation D. Accredited investors who visit Fig.co in connection with a crowdfunding campaign must follow the directions posted on Fig.co in order to participate in any Accredited Investor Offering being conducted. The offering being conducted pursuant to this offering circular is not an Accredited Investor Offering.
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The proceeds of all of our multiple, separate series of Fig Game Shares, including the Shares offered in this offering, go into our general account, and will be used to support Fig’s operations and business activities generally.
The Fig Game Shares that investors receive will all be, regardless of the series of Fig Game Shares, capital stock of Fig without any rights to vote on any matters relating to our Company, the Fig Game Shares or otherwise. See “Description of Company Securities”. Our different series of Fig Game Shares will differ from each other in that each series will pay holders of those securities dividends, if any, based on Fig’s revenue share from a different, particular game. Investors in Fig Game Shares should be particularly aware of the following:
| ● | The time delay between a purchase of Fig Game Shares and the receipt of dividends (if any) could be extensive. Game development can take months or years, and dividends will become available to holders of Fig Game Shares only after development is successfully completed and the game begins to sell commercially. The cancellation or delay of a game’s release is also an important determinant as to whether dividends will become available to such holders. In addition, the period of time between a purchase of Fig Game Shares and the commercial sale of the related game could be increased if the game is not delivered at the time agreed in the related license agreement. |
| ● | There is no trading market for Fig Game Shares and we do not expect one to develop, in part because we may have imposed certain transfer restrictions on the particular series of Fig Game Shares being offered. As a result, investors should be prepared to retain their Fig Game Shares for as long as those shares remain outstanding and should not expect to benefit from any share price appreciation. Any such transfer restrictions applicable to the series of Fig Game Shares being offered in this offering are described in this offering circular in the section entitled “The Current Game, Developer and Shares”. |
| ● | Amounts will only become available for revenue sharing and payment of dividends if and when the game generates sales receipts, and the total amount available for Fig’s revenue share – and consequently for dividends – will typically depend on both the amount of Fig’s receipts from sales of the game and the amount of funds Fig provides to the developer for the development of the game, in all events as specified in the license agreement for the game. |
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Below, we present a series of different descriptions and illustrations as to how we expect to allocate game sales receipts and determine dividends based on the sale of a particular game. First, we illustrate the general flow of funds among Fig, game developers, game distributors and investors in Fig Game Shares:
Next, we set forth the formula we intend to use to determine revenue sharing and dividends for games generally. The starting amount, in the first column of the table, is the price paid for the game by a consumer in a typical sales transaction in which, pursuant to Fig’s license agreement for the game, all of that price, minus the distributor’s fee, is collected by Fig, the developer or both (depending how the terms of the license agreement dictate sales receipt collection):
| Game sales price | – | distributor’s fee | = | gross receipts | |
| – | developer’s revenue share | = | Fig’s revenue share | ||
| – | Fig Service Fee (if any) | = | Fig’s revenue share (adjusted) | ||
| x | Fig Game Shares Allotment Percentage (if applicable) | ||||
| x | a specified dividend rate | ||||
| = | Aggregate dividends to Fig Game Share holders (to be divided evenly among all shares outstanding) |
In regard to the table above:
| o | The size of the developer’s revenue share may vary over time based on whether particular sales targets have been met for the game, as specified in the license agreement for the game. For example, the developer’s revenue share may increase after the cumulative revenue share paid to Fig reaches a certain target threshold. |
| o | The Fig Service Fee is an amount that Fig will keep as compensation toward the cost of platform and publishing services, in campaigns in which Fig imposes such a fee. |
| o | After the allocation of the developer’s revenue share, the remaining amount will be Fig’s revenue share (or its adjusted revenue share, if there has also been a Fig Service Fee deducted). From this amount, Fig will determine the dividends to be paid to Fig Game Share holders, by (1) multiplying Fig’s revenue share by the Fig Game Shares Allotment Percentage, if applicable, and (2) applying the specified dividend rate. |
| o | The Fig Game Shares Allotment Percentage will be applied in campaigns in which the total amount of Fig Funds is greater than the proceeds of the Fig Game Shares offering. This is expected to occur if, in addition to the Fig Game Shares offering, there has been an offering of separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game. The allotments will be made in the same proportions that the proceeds from these separate securities offerings and the additional funding from Fig, as applicable, bear to the total Fig Funds amount. In such circumstances, the allotment of revenue among the Fig Game Shares, the other securities and Fig, as applicable, will represent an equitable division of Fig’s revenue share among the different sources of funding that have made it possible to prudently provide the particular Fig Funds amount. |
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| o | The end result will be the aggregate dividends to be paid to Fig Game Shares holders, to be divided evenly among all such Fig Game Shares outstanding. In all events, Fig’s board of directors may in its discretion from time to time pay more than this end result to the holders of the Fig Game Shares, if in its view business conditions permit it. In addition, our Board may decide not to pay a dividend, or to reduce its size, if our Board believes it would be necessary or prudent to retain earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. |
For greater detail regarding the revenue sharing and payment of dividends described, see “Our Dividend Policy”.
Following a defined time after the delivery of a particular developed game, our Board may, under certain circumstances, in its discretion, cancel the associated series of Fig Game Shares. We will maintain a cancellation right in respect of each series of Fig Game Shares in order to be able to withdraw the series from the market and avoid the costs of continuing to have the series outstanding after the associated game has lost most or all of its earning power. In general, we expect that our right to cancel a series of Fig Game Shares will become effective after the passage of a pre-determined amount of time (typically, a number of years) and after the game has failed to meet a pre-determined earnings floor. For a description of our cancellation right with respect to the Fig Game Shares being offered in this offering, see “The Current Game, Developer and Shares”. The purpose of our cancellation rights is to help us avoid incurring unnecessary administrative costs, and thereby benefit our Company and shareholders as a whole.
The proceeds of all of our multiple, separate series of Fig Game Shares, including the Shares offered in this offering, go into our general account, and will be used to support Fig’s operations and business activities generally. An investment in our Fig Game Shares is not an investment in any game, game developer or license agreement. Proceeds from the offering of a particular series of Fig Game Shares may be used to fund the development of games other than the game with which that series of Fig Game Shares is associated, as well as other expenditures not related to the game with which that series of Fig Game Shares is associated.
For a discussion of the game and the developer related to the Fig Game Shares offered pursuant to this offering circular, see the section of this offering circular entitled “The Current Game, Developer and Shares”.
Crowdfunding’s Overall Role in Our Publishing
Our crowdfunding campaigns serve critical publishing functions for us. First, the crowdfunding campaign is an event that drives marketing and awareness for the game. When we launch crowdfunding campaigns, the press can provide coverage and stories can be shared on social media channels such as Facebook and Twitter.
Our crowdfunding campaigns also present an opportunity to build or extend the fan community for a game. Our campaign page hosts a commenting forum where fans can discuss the game and the crowdfunding campaign. After a campaign is completed, we continue to message and communicate with this community through email newsletters and Fig’s social media channels. A Fig crowdfunding campaign gives the game the ability to stand apart from, for example, the 3,500+ PC games that are released each year on the Steam video game distribution website (or “storefront”) alone. It also helps achieve search engine optimization (“SEO”) for the game, by providing an early and intense occurrence of the game title in search engine search results. This also provides an advantage to Fig when it seeks to judge the marginal utility of distributing a game through channels that typically require a higher revenue share.
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A crowdfunding campaign also serves as a key indicator for us of the commercial potential for a game. For example, hundreds if not thousands of backers are typically needed for the rewards portion of the crowdfunding campaign to contribute successfully to the campaign goal. We analyze the crowd’s reactions to and engagements with the campaign to decide on the precise amount of the Fig Funds and, in many cases, whether the campaign will succeed and the publishing of the game will continue, or not.
Publishing Services
If the crowdfunding campaign meets its goal, and the other conditions to the license agreement are met, we will publish the game. Our publishing services include the following.
Fig Funds and Game Development Monitoring
The Fig Funds will be disbursed to the developer of the game pursuant to an agreed-upon schedule that reflects the game development timeline and the relative needs of the developer and Fig. The Fig Funds will be non-recoupable (except in certain circumstances if the license agreement is terminated).
Community Building
Our Company believes that one of the key components to the long-term commercial success of a game is having a vibrant community of fans and followers that will purchase, virally market and promote the game. The Company provides community tools such as a forum for fan comments on the rewards portion of the game's crowdfunding campaign page, and communication tools such as an “Updates” section and email tools for the developer to use to communicate with and cultivate its fan community, not only during the crowdfunding campaign but also during the period after the campaign, leading up to the game’s commercial launch.
The community developed in respect of a particular game and developer will receive regular updates from Fig on the development and publishing of the game, in a few ways:
| ● | Fig.co website. After a crowdfunding campaign is completed, post-campaign website pages remain accessible on the Fig.co website. These pages include a section dedicated to game development updates. |
| ● | Email updates. Email updates regarding a game’s development are sent to investors on a regular basis. We aspire to maintain an update cadence of one per month per game, on average. |
| ● | Press statements. We anticipate releasing press statements when a game’s development is complete and the game is released for first commercialization. |
Marketing
Fig’s crowdfunding campaigns present a unique opportunity to galvanize fans and gamers to support a game, thereby spreading early awareness of the game and starting a community behind the game. We amplify the marketing and promotion of our crowdfunding campaigns through our own marketing and public relations efforts. For each of our games, we monitor our marketing spend for consumer acquisition, re-targeting and brand marketing across the Internet and social networks, relying principally on Facebook and targeted gaming sites for advertisements and social engagement. We seek to optimize our advertising spend by dynamically changing advertising copy, audience segments and channels during the period when particular ads are being shown.
Fig intends to involve the community of Fig backers more intensely in the marketing of games, by providing easier tools for community members to share messaging and advertising about our games on their social networks. We believe that genuine grassroots involvement, driven by loyal and invested fans, represents powerful a marketing asset for our games.
Our Company’s marketing and promotional efforts are intended to maximize consumer interest in a game, promote name recognition for the game, assist sales and distribution platforms in their efforts and properly position and sell the game. Other marketing activities may include:
| ● | Implementing public relations campaigns using online advertising (including on Facebook, Twitter, You Tube, Vimeo and/or other online social networks and websites). The Company intends to label and market each game in accordance with the applicable principles and guidelines of the Entertainment Software Rating Board (“ESRB”), an independent self-regulatory body that assigns ratings and enforces advertising guidelines for the interactive software industry. |
| ● | Assisting in securing promotional features on various distribution sites. |
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| ● | Spending marketing and advertising dollars on customized market segments defined in part based on previous crowdfunding campaigns. |
| ● | Engaging in early marketing and promotional activities usually associated with the later-stage commercialization of games, including the marketing and promotion of games through Fig.co’s user community and through the community of our Parent’s developer-advisers. |
| ● | Employing various other marketing methods designed to promote consumer awareness, including through social media, co-operative advertising and product sampling through demonstration software distributed over the Internet or through digital online services. |
In addition to engaging in the marketing of its licensed games, as described above, Fig has also begun to provide marketing services on a standalone basis to game developers, separate from the Fig game publishing business. Fig will continue to take marketing-only engagements with developers that are not also publishing clients, in part in order to strengthen Fig’s overall marketing capabilities and audience network.
Distribution
Our Company will support the distribution of each game once the game is commercially released, through various digital distribution channels. We identify and secure agreements with third-party distributors to distribute, deliver, transmit, stream, resale, wholesale or otherwise exploit the licensed game on the licensed platforms, and we monitor the performance of those agreements after they are entered into. For example, if Microsoft Windows is a platform that the developer has licensed to us for distribution of its game, we would seek to secure agreements with distributors on that platform, such as Steam, Humble Bundle and Amazon. Distributors will be responsible for remitting receipts from sales of the game to us, after taking their share of sales amounts (typically 30%) as their fee. The Company has relationships with all the major digital distributors of games (also known as “storefronts”), such as Steam, Xbox One Store, PlayStation Store, Apple AppStore, Google Play Store, Gog.com, EA Origin and Humble Bundle. The Company also plans to sell games directly on the Company's affiliated website, Fig.co, which we expect will already have a strongly associated SEO due to previous crowdfunding campaigns. When a game is sold on a digital storefront, the Company will continue to market and merchandise the game on that storefront by arranging special promotions and merchandising with that storefront.
Other distribution activities may include:
| ● | Securing promotional features on licensed platforms. |
| ● | Conducting market research and creating and implementing marketing and sales plans. |
| ● | Negotiating and entering into agreements to distribute the game through worldwide distributors. |
| ● | Partnering with the developer to secure relationships and promotions through particular additional distributors. |
| ● | Arranging for the localization of a game being distributed in a number of different markets. |
| ● | Arranging for the porting of the game to new platforms. |
| ● | Extending the lifetime sales of a game by reducing the wholesale price of the game to video game platforms at various times during the life cycle of the game. Price concessions may occur at any time in the game’s product life cycle, but they typically occur three to nine months after a product’s initial launch. The Company may also provide volume rebates to stimulate continued product sales. |
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Distribution arrangements are typically terminable on short notice.
New gaming platforms, such as virtual reality, are expected to continue to emerge in the future. The Company intends to evaluate new platform publishing opportunities on a case-by-case basis as they emerge.
Other Services
In addition to the foregoing, Fig anticipates providing advice and consultation generally to the developers of its licensed games, including for example creative advice, advice regarding which technologies to use or platforms to focus on, advice regarding marketing approaches and hiring decisions and advice on other game and game business topics, in particular when Fig is dealing with less experienced developers.
Business Development
We support developers in business development activities to pursue commercial and strategic partnerships with other companies in the game industry, including hardware manufacturers, peripheral makers, platforms, advertisers and technology providers.
Personnel
Our principals have extensive experience in the business of publishing video games. Justin Bailey, our Chief Executive Officer and sole director, has been active in the video game industry for many years, having published a wide variety of free-to-play, premium and mobile games and having helped to secure many millions of dollars in game financing from publishers, investors and crowdfunding participants in recent years. Jonathan Chan, our COO, has several years of experience at the large video game publisher Electronic Arts Inc., where he focused on business development deals in the publishing and distribution of games. See “Directors, Executive Officers and Other Significant Individuals”.
Our principals are supported by employees and contractors of our Parent, including individuals dedicated to marketing, design, community relations and developer relations functions. As of November 30, 2016, five such individuals provided such support.
Our Company and our Parent
Our Company was incorporated on October 8, 2015 in Delaware as a wholly owned subsidiary of Loose Tooth Industries, Inc., a Delaware corporation (our “Parent”). The Company has only recently begun operations and has to date relied substantially on our Parent for support in the conduct of its business. The Company has been operating under a cost sharing agreement entered into between the Company and our Parent (the “Cost Sharing Agreement”), which is described in more detail below.
Our Parent was formed as a limited liability company in October 2014, was incorporated in March 2015 and began operations in April 2015. Our Parent is a provider of video game publishing services and the operator of Fig.co, an online technology platform created to facilitate fundraising for video game development. From its inception until August 2015, our Parent was developing the proprietary technology behind Fig.co, seeking out and evaluating video game developers and games and building relationships with various video game distributors. As of November 30, 2016, our Parent had hosted a total of 11 crowdfunding campaigns on Fig.co since August 2015. We expect to run all of our crowdfunding campaigns on Fig.co.
Cost Sharing Agreement with Our Parent
We operate under a cost sharing agreement entered into between ourselves and our Parent (the “Cost Sharing Agreement”) pursuant to which we and our Parent have each agreed to share costs pursuant to an allocation policy. Pursuant to this policy and as reflected in the Cost Sharing Agreement, our Parent allocates costs in most instances pursuant to pre-determined formulas. For example, the allocation of costs associated with the payment of employee salaries is based on our estimate of each employee’s time attributed to the business activities of Fig and our Parent. Our Parent allocates (i) 50% of the salary of each of our Chief Executive Officer, Justin Bailey, and one other employee, to Fig, and the remaining 50% of each such salary to our Parent; and (ii) 100% of the salaries of our COO, Jonathan Chan, to Fig. As our Parent provides us with management and administrative services, as well as services relating to information technology provision and support, distribution rights management and other support operations, facilities, human resources, tax planning and administration, accounting, treasury and insurance, the costs of these activities are allocated 50% to our Parent and 50% to the Company.
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In addition, under the Cost Sharing Agreement, our Parent may allocate to itself some or all of the expenses of Fig’s securities offerings. For a description of the allocation of offering expenses being followed in this offering, see “Use of Proceeds”.
The allocation policy and Cost Sharing Agreement may be adjusted in certain cases to reflect any changes to the business activities of Fig or our Parent that may arise in the future. We or our Parent may also reimburse the other party for any costs paid by such party that should have been allocated to the other party. Pursuant to the Cost Sharing Agreement, we have agreed to review our allocation policy from time to time to determine its suitability for our and our Parent’s businesses and to adjust the policy when necessary. For example, if our Parent is unable to perform any of the services we rely upon it to perform in support our business, due to financial difficulty or otherwise, we may have to perform those services or find another service-provider, and incur additional expenses, all of which would require adjustments to our allocation policy.
The Cost Sharing Agreement has an initial term through December 31, 2016, and will automatically renew for successive one-year terms each December 31, unless either party provides the other party with written notice of its intent not to renew at least three months prior to such date. In addition, we may terminate any specific service, or the entire agreement, without penalty, by providing 30 days’ prior written notice to our Parent, and our Parent may terminate any specific service, or the entire agreement, by providing 180 days’ prior written notice to us (provided that, in the case of termination of specific services, if we, in our sole determination, are unable to enter into a reasonable arrangement with a third party to perform such services, then our Parent will continue to perform such services for an additional period of 180 days upon receiving notice from the Company of such an event).
Competition
Our Company operates in a highly competitive industry. The Company competes with:
| ● | Traditional game publishers. The Company faces competition for distribution licenses from traditional sources such as established video game publishers, which include some of the largest corporations in the world. These competitors may be in a stronger position to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns. In addition, these competitors have longer operating histories, greater name recognition and more extensive financial resources than the Company. Traditional publishers range in size and cost structure from the very small, with limited resources, to the very large, with extensive financial, marketing, technical and other resources, such as Electronic Arts, Ubisoft, Tencent and Nexon. |
| ● | Existing rewards-only crowdfunding platforms. Developers may choose to self-publish their games using rewards-only crowdfunding on other platforms. |
| ● | Other games and forms of entertainment. The games we publish will compete with other online computer, console and mobile games. They will also compete with other, non-game forms of entertainment. |
Competition in the entertainment software industry is based on innovation, features, playability and product quality; name recognition; compatibility with popular platforms; access to distribution channels; price; marketing; and customer service. The industry in which the Company operates is driven by hit titles, which require increasing budgets for development and marketing. Competition for any game is influenced by the timing of competitive product releases and the similarity of such products to the relevant game.
For further discussion of the risks relating to our Company, its business and this offering, see the section of this offering circular entitled “Risk Factors”.
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Seasonality
The business of the Company is highly seasonal, with the highest levels of consumer demand for games, and a significant percentage of sales, occurring in the holiday season in the quarter ending December 31, and seasonal lows in sales volume occurring in the quarter ending June 30. Although sales of video games generally follow these seasonal trends, there can be no assurance that this will continue. The Company’s financial results may vary based on a number of factors, including the release date of a game, cancellation or delay of a game’s release and consumer demand for a particular game and for video games generally.
Conflicts of Interest
The Company expects to do business with entities owned or controlled by affiliates. The Company may, in its discretion, conduct business with such parties. See “The Current Game, Developer and Shares” and “Interests of Management and Others in Certain Transactions”.
Properties and Company Location
We are located at 599 Third Street, Suite 211, San Francisco, California 94107, in a space that is rented and paid for by our Parent. We do not own any real property.
Government Regulation Related to Conducting Business on the Internet
The Company is subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. In addition, laws and regulations relating to user privacy, data collection and retention, content, advertising and information security have been adopted or are being considered for adoption by many countries throughout the world. Set forth below are descriptions of various U.S. laws and regulations applicable to the Company in relation to its conduct of its business on the Internet.
Electronic Signatures in Global and National Commerce Act/Uniform Electronic Transactions Act
The Federal Electronic Signatures in Global and National Commerce Act (“E-SIGN”) and similar state laws, particularly the Uniform Electronic Transactions Act (“UETA”), authorize the creation of legally binding and enforceable agreements using electronic records and signatures. E-SIGN and UETA require businesses that wish to use electronic records or signatures in consumer transactions to obtain the consumer’s consent. When a developer or potential investor registers on Fig.co, the website is designed to obtain his, her or its consent to the transaction of business electronically and the maintenance of electronic records in compliance with E-SIGN and UETA requirements.
Electronic Fund Transfer Act and NACHA Rules
The federal Electronic Fund Transfer Act (“EFTA”) and Regulation E, which implements it, provide guidelines and restrictions regarding the electronic transfer of funds from consumers’ bank accounts. In addition, transfers performed by ACH electronic transfers are subject to detailed timing and notification rules and guidelines administered by NACHA. It is our policy to obtain necessary electronic authorization from developers and investors for transfers in compliance with such rules. Transfers of funds through Fig.co are intended to conform to the EFTA and its regulations and NACHA guidelines.
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As of the date of this offering circular, Fig has the following principal games licensed for publication, all of which are already under development: Psychonauts 2, Jay and Silent Bob: Chronic Blunt Punch, Consortium: The Tower, Make Sail, Wasteland 3, Trackless and Kingdoms and Castles. In addition, an affiliate of Fig has licensed the game Outer Wilds, which was the first game to be promoted on Fig.co and is also under development. The crowdfunding campaigns for Psychonauts 2, Jay and Silent Bob: Chronic Blunt Punch, Consortium: The Tower, Make Sail, Wasteland 3, Trackless and Outer Wilds have already been completed. Fig also entered into a license agreement for the game Jazon and the Dead, but the Jazon and the Dead campaign failed and Fig will not be publishing the game.
Set forth below is a table of all of games licensed for publication, identifying for each game its developer, crowdfunding campaign completion date, associated Fig Game Shares (or other securities) and associated Game Shares Asset. In the event of a liquidation or dissolution of Fig, holders of a particular series of Fig Game Shares would have preferential rights in respect of the associated Game Shares Asset, and in the event of a disposition of a Game Shares Asset, holders of the associated Fig Game Shares may receive some or all of the proceeds and have their securities redeemed. For purposes of the foregoing, “Game Shares Asset” means, in general, all assets and liabilities of the Company to the extent attributed to the publishing rights held under the associated license agreement, and the proceeds of any disposition thereof. For a more precise definition of “Game Shares Asset”, see “Description of Company Securities – Preferred Stock”. In keeping with Fig’s game publishing model, Game Shares Assets do not include intellectual property rights in the associated game.
| Game Title (1) | Developer | Crowdfunding Campaign Completion Date |
Associated
Fig Game Shares or Other Securities |
Associated
Game Shares Asset | ||||
| Outer Wilds | Mobius Digital | September 17, 2015 | Tranche
1 Units (2) |
NA(2) | ||||
| Psychonauts 2 | Double Fine Productions, Inc. | January 12, 2016 | Fig Game Shares – PSY2 |
License agreement with Double Fine Productions, Inc. for Psychonauts 2, and assets and liabilities attributed to the rights thereunder | ||||
| Jay and Silent Bob: Chronic Blunt Punch | Interabang Entertainment | March 31, 2016 | Fig Game Shares – JASB |
License agreement with Interabang Entertainment for Jay and Silent Bob: Chronic Blunt Punch, and assets and liabilities attributed to the rights thereunder | ||||
| Consortium: The Tower | Interdimensional Games Incorporated | May 11, 2016 | Fig Game Shares – CTT |
License agreement with Interdimensional Games Incorporated for Consortium: The Tower, and assets and liabilities attributed to the rights thereunder | ||||
| Make Sail | Popcannibal LLC | November 2, 2016 | Series Make Sail Units (3) |
License agreement with Popcannibal LLC for Make Sail and assets and liabilities attributed to the rights thereunder | ||||
| Wasteland 3 | inXile Entertainment, Inc. | November 3, 2016 | Fig Game Shares – Wasteland 3 and Fig WL3 Units (4) |
License agreement with inXile Entertainment, Inc. for Wasteland 3 and assets and liabilities attributed to the rights thereunder(5) | ||||
| Trackless | 12 East Games Entertainment, Inc. | November 17, 2016 | Series Trackless Units (3) |
License agreement with 12 East Games Entertainment, Inc. for Trackless and assets and liabilities attributed to the rights thereunder | ||||
| Kingdoms and Castles | Lion Shield LLC | January 5, 2017 | Series Kingdoms and Castles Units (3) | License agreement with Lion Shield LLC for Kingdoms and Castles and assets and liabilities attributed to the rights thereunder |
| (1) | Each of these games is being published by Fig, except for Outer Wilds, which was the first game to be promoted on Fig.co and is being published by Fig Productions 1 LLC, an affiliate of Fig. |
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| (2) | Outer Wilds was the first game to be promoted on Fig.co, and the structure relating to the associated license agreement and securities differs from the structure Fig is using in relation to Fig Game Shares. Fig Productions 1 LLC, an affiliate of Fig, is a party to the Outer Wilds license agreement and may make distributions related to sales under that license agreement to the holders of Tranche 1 Units issued privately by Fig Productions 1 LLC. |
| (3) | These games are being published by Fig, but the securities associated with each game are being issued privately in separate series by Fig Small Batch, LLC, an affiliate of Fig. |
| (4) | There are two separate issuances of securities associated with this game: the Fig Game Shares – Wasteland 3 being offered in this offering by Fig under Regulation A under the Securities Act, and the Fig WL3 Units being offered privately by Fig WL3, LLC, an affiliate of Fig. |
| (5) | Part of the 100% beneficial interest in this license agreement will be allotted to Fig Game Shares – Wasteland 3 and the remaining part to Fig WL3 Units. These allotments will be made in the same proportion that the proceeds from the two separate offerings of these securities bear to the total Fig Funds to be provided to inXile in support of the development of Wasteland 3. The size of the allotments will not be finally determined until both offerings are closed and we know the amount of the proceeds from each offering. However, as part of the crowdfunding campaign for Wasteland 3 conducted on Fig.co in September and October 2016, we received investment reservations of $1,144,000 in this offering and investment commitments of $1,046,000 in the Rule 506(c) offering. We are currently in the process of closing the Rule 506(c) offering. Assuming that, when both offerings are closed, this offering generates $1,000,000 of proceeds and the Rule 506(c) offering generates $1,046,000 of proceeds, Fig would allot 48.88% of the beneficial interest in this license agreement to Fig Game Shares – Wasteland 3 and 51.12% of beneficial interest in this license agreement to Fig WL3 Units. The final allotments will depend on the final amounts closed upon in the two offerings. |
Fig has near-term prospects for entering into additional game publishing license agreements that it believes represent substantial commercial opportunities.
THE CURRENT GAME, DEVELOPER AND SHARES
Fig Game Shares – Wasteland 3 (also referred to as the “Shares”) are the particular securities being offered in this offering. The Shares differ from all other series of Fig Game Shares in that the Shares provide their holders with a dividend based on the revenue share we receive from sales of the Wasteland 3 game, pursuant to the Wasteland 3 License Agreement. Provided Wasteland 3 is successfully developed and published, inXile and Fig will thereafter each receive sales receipts from Wasteland 3 pursuant to the Wasteland 3 License Agreement and those receipts will be shared as follows:
| ● | Receipts will be allocated into a revenue share for inXile and a revenue share for Fig, in the proportions described in greater detail in below, under the subheading “– Fig Game Shares – Wasteland 3 – Anticipated Sharing of Sales Receipts from Wasteland 3”. |
| ● | Fig will allot part of its revenue share to Fig Game Shares – Wasteland 3 and another part to the Fig WL3 Units offered in a separate offering under Rule 506(c) of Regulation D by Fig WL3, LLC, a limited liability company of which Fig is the managing member. These securities are also designed to reflect the economic performance of Wasteland 3. The allotments will be made in the same proportion that the proceeds from the separate securities offerings bear to the total Fig Funds to be provided to inXile in support of the development of Wasteland 3. The size of the allotments will not be finally determined until both offerings are closed and we know the amount of the proceeds from each offering. However, as part of the crowdfunding campaign for Wasteland 3 conducted on Fig.co in September and October 2016, we received investment reservations of $1,144,000 in this offering and investment commitments of $1,046,000 in the offering of Fig WL3 Units. We are currently in the process of closing the offering of the Fig WL3 Units. Assuming that, when both offerings are closed, this offering generates $1,000,000 of proceeds and the offering of Fig WL3 Units generates $1,046,000 of proceeds, Fig would allot 48.88% of its revenue share to Fig Game Shares – Wasteland 3 and 51.12% of its revenue share to the Fig WL3 Units. The final allotments will depend on the final amounts closed upon in the two offerings. |
| ● | Fig will pay a minimum of 70% of the Fig Game Shares – Wasteland 3 allotment to the holders of Fig Game Shares – Wasteland 3, in the form of dividends, subject to our dividend policy. |
| ● | Fig’s board of directors may in its discretion from time to time pay more than 70% of the Fig Game Shares – Wasteland 3 allotment to the holders of Fig Game Shares – Wasteland 3, if in its view business conditions permit it. |
The Wasteland 3 Game
Our Company has entered into a video game co-publishing license agreement (as amended and restated, the “Wasteland 3 License Agreement”) with inXile Entertainment, Inc., a California corporation, to co-publish the game Wasteland 3 on any and all current and future operating systems on which video games are played, excluding virtual reality platforms. The Wasteland 3 License Agreement sets forth the terms and conditions under which the Company will provide funding in support of the development of Wasteland 3 and which governs the distribution of receipts from distributors that result from sales of Wasteland 3. If and when Fig receives cash receipts after Wasteland 3 goes on sale, a portion of such cash will become available for the payment of dividends to the holders of Fig Game Shares – Wasteland 3.
Wasteland 3 will be a direct sequel to inXile’s critically acclaimed releases of Wasteland 2 and Wasteland 2: Director’s Cut, which have sold an aggregate of 600,000 units on PC platforms since the release of Wasteland 2 in September 2014. Brian Fargo, the Chief Executive Officer of inXile, and much of the team behind Wasteland 2, Wasteland 2: Director’s Cut and Torment: Tides of Numenera will be working together on this sequel.
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Wasteland 2, released in 2014, and Wasteland 2: Director’s Cut, released in 2015, are post-apocalyptic role-playing video games that take place in an alternate history timeline in the American Southwest, in which a nuclear war between the United States and Soviet Union occurred in 1998. Wasteland 2 is the direct sequel to the first ever post-apocalyptic computer role-playing game. The original Wasteland was the inspiration for the Fallout series of games, and the first role-playing game to allow players to split parties for tactical considerations, to face players with moral choices, and to make them deal with the consequences of their actions. Over the course of the game players are able to receive promotions, acquire new skills and equipment, and face new challenges with outcomes that change depending on the strategy used to defeat them. Wasteland 2: Director’s Cut uses the same storyline but contains a number of changes to Wasteland 2, including improved graphics, expanded voice-over work, rebalanced gameplay, among other game enhancements.
Wasteland 3 returns players to a post-apocalyptic setting, this time the savage lands of frozen Colorado, where survival is difficult and a happy outcome is never guaranteed. Players will face new difficult moral choices and make sacrifices that will change the game world. Each player’s reputation in the game is theirs to build from scratch, and the choices made could have far reaching decisions that will impact the shape of the game world. Wasteland 3 will include an updated dialog tree system, vehicles and environmental dangers, as well as a more fluid action system, improving on Wasteland 2’s tactical turn-based combat and encounter design. For the first time in the history of the Wasteland franchise, players will also have access to an online multiplayer system to journey into the post-apocalyptic wastes with their friends. Once a game is started, players can play Wasteland 3 missions with or without friends, with different consequences depending on the actions taken online or offline.
For a number of reasons discussed elsewhere in this offering circular, including in the sections entitled “Our Business” and “Risk Factors,” there can be no assurance that the Wasteland 3 game will generate earnings from which dividends will be paid to holders of Fig Game Shares – Wasteland 3. In addition, the final version of Wasteland 3 that is commercially released may differ from the game as currently described in this offering circular. Game development is a creative process, and Fig, as a publisher of the game, would expect to support that process rather than hinder it, and publish the final version of the game if it complies with the Wasteland 3 License Agreement, even if its development involves creative detours.
inXile Entertainment, Inc.
inXile Entertainment, Inc., a California corporation formed in 2002, is a privately held video game development studio with locations in Newport Beach, California and New Orleans, Louisiana. Headed by its chief executive officer, Brian Fargo, inXile includes among its individual developers both industry veterans and up-and-coming talent. inXile has embraced rewards crowdfunding as a way to support video game development, and was one of the first game studios to use rewards crowdfunding to finance multiple million-dollar projects, including Wasteland 2, Torment: Tides of Numenera and The Bard's Tale IV. In April 2012, inXile launched a Kickstarter campaign to fund Wasteland 2 and raised more than 300% of its initial goal of $900,000, collecting $2,933,252. In March 2013, inXile’s Kickstarter campaign for Torment: Tides of Numenera broke the then-existing record for the fastest Kickstarter drive to reach $1 million, raising that amount in seven hours and two minutes. At its conclusion, that campaign set the record at the time for the highest-funded video game on Kickstarter, with over $4 million pledged. In June 2015, inXile launched a third Kickstarter campaign to fund the development of The Bard's Tale IV, raising over $1.5 million.
inXile has a history of developing games on multiple platforms with critical and commercial success. inXile had its first game, The Bard’s Tale, published in 2004. Over inXile’s history, it has shipped 12 games across 15 platforms. During the most recent five full years, and since then, the following games developed by inXile have been published:
| Year of Release | Title | Platforms | ||
| 2011 | Hunted: The Demon's Forge | Microsoft Windows, PlayStation 3, Xbox 360 | ||
| 2012 | Choplifter HD | Microsoft Windows, Ouya, PlayStation Network, Xbox Live Arcade | ||
| 2014 | Wasteland 2 | Microsoft Windows, Linux, Mac OS X, PlayStation 4, Xbox One | ||
| 2015 | Wasteland 2: Director's Cut |
Windows, Mac, Linux, PlayStation 4, Xbox One |
inXile has developed games with development budgets across a wide range of sizes, from budgets of $250,000 to $10 million. The Company believes, and inXile has reported to the Company that it believes, that the funds from the Fig crowdfunding campaign and internal investment by inXile will be sufficient to complete the development of Wasteland 3 to a commercially marketable level, consistent with the Wasteland 3 License Agreement.
inXile currently has three games in development: Wasteland 3, Torment: Tides of Numenera and The Bard's Tale IV. inXile employs approximately fifty employees. These personnel include development personnel specializing in design, animation, 3D art, audio engineering, production, writing, programming, concept art and quality assurance. From time to time, inXile works with external partners and hires part-time employees and contractors to expand its number of available developers, particularly in the areas of programing, animation, art and audio engineering.
For a discussion of the risks that apply to inXile as a developer, please see “Risk Factors – Risks Related to The Current Game and Developer”.
It is the Company’s view that, based on its knowledge of inXile and its operations, including the information discussed above, and the fact that the game being developed is a sequel to a prior game, and therefore much is already determined as to its design, characters, voice actors, music and sound, inXile is qualified to deliver Wasteland 3 on time and as agreed in the Wasteland 3 License Agreement.
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Wasteland 3 License Agreement
As of September 9, 2016, the Company entered into the Wasteland 3 License Agreement with inXile to co-publish Wasteland 3 on certain licensed platforms. As of the date of this offering circular, the Company and inXile have finalized the terms of an amended and restated Wasteland 3 License Agreement, a copy of which is an exhibit to the offering statement in which this offering circular has been filed with the SEC. The material terms of this license agreement are described below.
Wasteland 3 License Agreement Material Terms
| Term | Description | |
| Conditions | As a condition precedent to Fig entering into the license agreement: |
● |
Fig determined that the crowdfunding campaign for Wasteland 3 on Fig.co, conducted in September 2016 and October 2016, was a success. The campaign raised $830,000 in rewards crowdfunding for inXile. |
| Fig Funds | The amount of the Fig Funds to be provided by Fig pursuant to the Wasteland 3 License Agreement will be in the range of $1,200,000 to $2,500,000, to be finally determined at or prior to the closing of this offering.
The Fig Funds will be paid out of Fig’s general funds. $1,200,000 of the Fig Funds will be disbursed to inXile no later than 30 days after the successful completion of inXile’s crowdfunding campaign on Fig.co and the remaining Fig Funds, if any, will be disbursed prior to October 31, 2019. The Fig Funds may only be used to pay for the development of Wasteland 3. The Fig Funds will be non-recoupable (except in certain circumstances if the license agreement is terminated). We intend to publicly disclose the precise amount of the Fig Funds to be made in respect of Wasteland 3 once it is determined, by means of a supplement to this offering circular, or if determined after the closing of this offering, by filing a Current Report on Form 1-U with the SEC. |
| Developer Obligations | Among other obligations, inXile must: |
| ● | provide interim versions of Wasteland 3 for inspection upon reasonable notice;
| ||
| ● | notify Fig after engaging any co-publisher or distributor;
| ||
| ● | not grant liens over its intellectual property in Wasteland 3 to third parties for a period of one year after the commercial release of Wasteland 3; | ||
| ● | maintain records of its use of the Fig Funds, which records Fig may examine upon notice; and | ||
| ● | consult meaningfully with Fig on all material business matters pertaining to the development of the game. |
| License | Fig has a non-exclusive, irrevocable, non-transferrable, worldwide, fully paid up, non-sublicensable (except for sublicenses to pre-approved distributors, if any) right and license to use, license, sell, advertise, promote, publicly perform, distribute, display, and otherwise utilize Wasteland 3 on the PC Licensed Platforms (as described below) for and in connection with publishing, distributing, selling, licensing, advertising, marketing and promoting the game on Fig.co solely via digital download on a “buy-and download” basis to consumers and to approved distributors, including updates, enhancements and downloadable additional content or expansions for the game, subject to and as may be limited by any licenses inXile has granted or will grant to any third-party co-publisher. | |
| It is possible that inXile may accept additional development funds for Wasteland 3 from a third party. Both inXile and Fig are of the view that additional spending on the development of the game could result in a more commercially appealing game and thereby raise sales receipts once the game is published. |
| Collateral | inXile will deliver to Fig 10,000 valid Steam game keys for Wasteland 3 (the “Fig Keys”) on the PC Licensed Platforms (or such other keys format as mutually agreed) no later than 14 days from the commercial launch of Wasteland 3. The Fig Keys will be solely owned by Fig and will be used solely for the sale of Wasteland 3 by Fig on Fig.co, or by any distributors that Fig has engaged to distribute Wasteland 3 and that inXile has pre-approved. In the event that inXile underpays the amounts owed to Fig under the Wasteland 3 License Agreement, Fig shall have full rights and license to sell, at Fig’s sole discretion, an amount of Fig Keys through any distributor, and retain 100% of the sales receipts of those sales sufficient to offset any underpaid amount. |
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| Licensed Game | Wasteland 3, a sequel to inXile’s earlier games Wasteland 2 and Wasteland 2: Director’s Cut.
| |
| Licensed Platforms | The Microsoft Windows, Apple Macintosh and Linux personal computing operating systems (the “PC Licensed Platforms”), and PlayStation 4 and Xbox One (the “Console Licensed Platforms”), and all future versions thereof. | |
| Committed Platforms | The PC Licensed Platforms | |
| Game Delivery Date | inXile currently estimates that the expected delivery date of will be no later than October 31, 2019, as may be extended by inXile for up to six months, and as may thereafter be extended only by mutual agreement of inXile and Fig, with Fig’s approval not to be unreasonably withheld or delayed. | |
Derivative Works Holdback |
inXile will be required to wait a period of one (1) year from the date that Fig makes Wasteland 3 generally available to the public on the Licensed Platforms to publish any derivative works of Wasteland 3 for the Licensed Platforms (such as prequels, sequels or spinoffs), without Fig’s prior written consent. | |
| Fig Share | Fig’s revenue share will be equal to the “Calculated Rate” multiplied by the “Gross Receipts”:
The “Calculated Rate” will be: |
a. |
Until the Fig Share cumulatively reaches an amount equal to 1.36 times the Fig Funds, the “Calculated Rate” shall equal thirty-one percent (31%).
| ||
b. |
Thereafter, the “Calculated Rate” shall equal ten percent (10%).
| ||
c. |
If at any time the monthly amount of the Fig Share falls to less than $1,000 for three (3) consecutive months, then at the end of such 3-month period the accrual of the Fig Share shall be suspended. Thereafter, if at any time the monthly amount of the Fig Share that would have accrued, had accrual not been suspended, equals or exceeds $1,000 for three (3) consecutive months, then at the end of such 3-month period the Fig Share shall again accrue. No Fig Share shall be due to Fig in respect of any period during which accrual is suspended.
| ||
“Gross Receipts” will be:
| |||
| i. | the Wasteland 3 sales receipts actually received by inXile (or by Fig from Fig.co or any pre-approved distributors used by Fig) from the distribution of Wasteland 3 on the Licensed Platforms; | ||
ii. |
the amounts earned by inXile from third party co-publishers from the sale and distribution of Wasteland 3 on the Licensed Platforms (i.e., amounts earned by inXile from actual unit sales that are applied to recouping advances from the third party co-publisher as opposed to cash receipts); and | ||
iii. |
the rewards proceeds from the Wasteland 3 campaign on Fig.co; provided that such rewards proceeds will not be considered Gross Receipts for purposes of calculating the Fig Share until ninety (90) days following the commercial release of Wasteland 3. | ||
| As a matter of clarity, (a) Gross Receipts shall not include advances or upfront license fees paid to inXile from third party co-publishers and (b) the Console Licensed Platforms will be included for purposes of calculating Gross Receipts but Fig is not obtaining a license to the Console Licensed Platform versions of Wasteland 3. | ||
| Termination for Cause | inXile and Fig shall each have the right to terminate Wasteland 3 License Agreement upon a material default or breach by the other party, which the breaching party is not able to remedy within thirty (30) days, or upon a party seeking protection under any bankruptcy, receivership, trust, deed, creditor's arrangement, or comparable proceeding, or if any such proceeding is instituted against such other party and not dismissed within ninety (90) days.
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| Quarterly Meetings | inXile shall provide a report no later than the last business day of each calendar quarter prior to the Game Delivery Date regarding the status of the development of Wasteland 3. Fig and inXile will also schedule meeting each calendar quarter prior to the Game Delivery Date to discuss such reports and any other matters of concern. | |
| Indemnification; Limitation of Liability | The parties agree to mutual indemnification for claims arising out of: (i) breach of the license agreement; and (ii) any claims by the indemnifying party’s creditors to the effect that the indemnified party is responsible or liable for the indemnifying party’s obligations.
Neither party shall be liable to the other party for indirect, special, incidental, punitive or consequential damages, or any amount in excess of the amount Fig pays to inXile under the license agreement 12 months prior to the date on which a claim giving rise to liability is made. |
The foregoing description of the Wasteland 3 License Agreement terms is a summary only and is qualified in its entirety by reference to the full Wasteland 3 License Agreement, a copy of which is an exhibit to the offering statement in which this offering circular has been filed with the SEC.
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Fig Service Fee
Fig has determined not to charge a Fig Service Fee in connection with Wasteland 3, because of its belief in the potential success of Wasteland 3, because Fig is still developing its business and because inXile was one of the first developers to permit Fig to use Fig.co to conduct a Regulation A Offering in respect of a game.
Fig Game Shares – Wasteland 3
Fig Game Shares – Wasteland 3 are designed to reflect the economic performance of the Wasteland 3 License Agreement. The Fig Game Shares – Wasteland 3 have the specific terms set forth in this offering circular in the section entitled “Summary – The Offering” and in this section, “The Current Game, Developer and Shares”, and the general terms common to all our Fig Game Shares that are set forth in this offering circular in the section entitled “Description of Company Securities – Preferred Stock”. All proceeds from the Shares will go into our general account, and will be used to support Fig’s operations and business activities generally.
As part of the crowdfunding campaign for Wasteland 3 on Fig.co, conducted in September 2015 and October 2015, reservations were received for the purchase of $1,144,000 of Fig Game Shares – Wasteland 3. Upon qualification of this offering with the SEC, we will be able to complete sales of Fig Game Shares – Wasteland 3. When we complete all the sales of Fig Game Shares – Wasteland 3 in this offering, we will publicly disclose the final amount of Fig Game Shares – Wasteland 3 sold, including by means of forms filed with the SEC that will be posted on the SEC’s website, in the EDGAR database.
Anticipated Sharing of Sales Receipts from Wasteland 3
Elsewhere in this offering circular, in the section entitled “Our Business – Key Aspects of Our Business – Crowdfunding Campaigns –Investment Portion of a Crowdfunding Campaign”, we provide illustrations and tables showing how the sales receipts from a typical game that we publish will be allocated and how dividends to holders of the related Fig securities will be determined. The sharing of Wasteland 3 sales receipts will be determined using the specific revenue sharing and dividend formula illustrated in the table below. The starting amount, in the first column of the table, is the price we expect a consumer will pay for one copy of the game at the time the game is launched, in a typical sales transaction in which, pursuant to the Wasteland 3 License Agreement, all of that price, minus the distributor’s fee, is collected by inXile or Fig. The ending amount, at the bottom of the last column of the table, is the amount available for dividends that will have been generated by that one sale. Investors should note that, because this dividend scenario is presented on a per-game basis, rather than a per-share basis, the ending amount would be divided evenly among all Fig Game Shares – Wasteland 3 outstanding at the time of the dividend, up to 1,250 shares if all the shares in this offering are sold. The table below embodies a number of assumptions, and is presented for illustrative purposes only. Although we believe the assumptions represent fair estimates of how the sharing of Wasteland 3 sales receipts will work, there can be no assurance that any one or more of these assumptions will in fact apply, and in particular there can be no assurance that Wasteland 3 will be successfully developed, published and sold and will generate sales receipts that are sufficient to pay inXile, Fig and the holders of Fig Game Shares – Wasteland 3 as contemplated below.
Anticipated Allocation of Receipts from the Sale of One Wasteland 3 Game
| Game sales price (1) | $ | 49.99 | ||||
| Minus distributor's fee (2) | -15.00 | |||||
| Equals gross receipts | $ | 34.99 | ||||
| Minus developer’s revenue share (3) | -24.14 | |||||
| Equals Fig’s revenue share (3) | $ | 10.85 | ||||
| Multiplied by the Fig Game Shares Allotment Percentage (4) | x 48.88 | % | ||||
| Multiplied by a specified dividend rate | x 70 | % | ||||
| Equals aggregate dividends to Fig Game Shares – Wasteland 3 holders (5) | $ | 3.71 | ||||
| (to be divided evenly among all such shares outstanding, up to 1,250 if all shares in this offering are sold) |
| (1) | We expect the retail price of Wasteland 3 will be $49.99. However, the retail price of a game is subject to discounting by the publisher and by distributors (typically with the acquiescence of the publisher). A game that sells well may maintain its retail price for a year or more, although games that sell less well are typically discounted faster, in order to spur sales volumes. Were the game sales price in the table above to be discounted to $25, the resulting dollar amounts in the table above would all be halved, and the aggregate dividends to Fig Game Shares holders would be $1.86. |
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| (2) | 30% of the retail price is a typical amount for a distributor currently to charge for selling a game such as Wasteland 3. |
| (3) | inXile and Fig will divide the gross receipts, with Fig’s revenue share being equal to the “Calculated Rate” multiplied by the “Gross Receipts”, each as defined below:
The “Calculated Rate” will be, until the Fig Share cumulatively reaches an amount equal to 1.36 times the Fig Funds, thirty-one percent (31%), and thereafter ten percent (10%), provided that if at any time the monthly amount of the Fig Share falls to less than $1,000 for three (3) consecutive months, then at the end of such 3-month period the accrual of the Fig Share shall be suspended. Thereafter, if at any time the monthly amount of the Fig Share that would have accrued, had accrual not been suspended, equals or exceeds $1,000 for three (3) consecutive months, then at the end of such 3-month period the Fig Share shall again accrue. No Fig Share shall be due to Fig in respect of any period during which accrual is suspended.
The “Gross Receipts” will be (i) the Wasteland 3 sales receipts actually received by inXile (or by Fig from Fig.co or any pre-approved distributors used by Fig) from the distribution of Wasteland 3 on the Licensed Platforms; (ii) the amounts earned by inXile from third party co-publishers from the sale and distribution of Wasteland 3 on the Licensed Platforms (i.e., amounts earned by inXile from actual unit sales that are applied to recouping advances from the third party co-publisher as opposed to cash receipts); and (iii) the rewards proceeds from the Wasteland 3 campaign on Fig.co; provided that such rewards proceeds will not be considered Gross Receipts for purposes of calculating the Fig Share until ninety (90) days following the commercial release of Wasteland 3. As a matter of clarity, (a) Gross Receipts shall not include advances or upfront license fees paid to inXile from third party co-publishers and (b) the Console Licensed Platforms will be included for purposes of calculating Gross Receipts but Fig is not obtaining a license to the Console Licensed Platform versions of Wasteland 3. |
| (4) | By applying the Fig Game Shares Allotment Percentage, Fig will allot part of its revenue share to Fig Game Shares – Wasteland 3 and another part to the Fig WL3 Units offered in a separate offering under Rule 506(c) of Regulation D by Fig WL3, LLC, a limited liability company of which Fig is the managing member. These securities are also designed to reflect the economic performance of Wasteland 3. The allotments will be made in the same proportion that the proceeds from the separate securities offerings bear to the total Fig Funds to be provided to inXile in support of the development of Wasteland 3. The size of the allotments will not be finally determined until both offerings are closed and we know the amount of the proceeds from each offering. However, as part of the crowdfunding campaign for Wasteland 3 conducted on Fig.co in September and October 2016, we received investment reservations of $1,144,000 in this offering and investment commitments of $1,046,000 in the offering of Fig WL3 Units. We are currently in the process of closing the offering of the Fig WL3 Units. Assuming that, when both offerings are closed, this offering generates $1,000,000 of proceeds and the offering of Fig WL3 Units generates $1,046,000 of proceeds, Fig would allot 48.88% of its revenue share to Fig Game Shares – Wasteland 3 and 51.12% of its revenue share to the Fig WL3 Units. The final allotments will depend on the final amounts closed upon in the two offerings. |
| (5) | The end result will be the aggregate dividends to be paid to the holders of Fig Game Shares – Wasteland 3, to be divided evenly among all such Fig Game Shares outstanding. In all events, Fig’s Board may in its discretion from time to time pay more than this end result to the holders of Fig Game Shares – Wasteland 3, if in its view business conditions permit it. In addition, our Board may decide not to pay a dividend, or to reduce the size of a dividend, if it believes it would be necessary or prudent to retain earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. |
Amounts will only become available for such sharing and payment of dividends if and when Wasteland 3 generates sales receipts, and the total amount available for Fig’s revenue share – and consequently for dividends – will depend on the amount of such sales receipts. Aggregate dividend amounts will be distributed equally among all holders of Fig Game Shares – Wasteland 3, in proportion to the number of shares held.
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Under Fig’s dividend policy, if Wasteland 3 is successfully developed and published, then, during such time as Wasteland 3 is generating sales receipts, an investor in Fig Game Shares – Wasteland 3 may expect to receive dividends for each share of Fig Game Shares – Wasteland 3 held by the investor as follows:
The table above embodies assumptions, and is presented for illustrative purposes only. Although we believe the assumptions represent fair estimates, there can be no assurance that any one or more of these assumptions will in fact apply. In particular:
| ● | there can be no assurance as to when Wasteland 3 may begin to generate sales; or when it may reach any particular number of unit sales, or when its sales may be begin to drop or cease. The table above does not in any way illustrate anticipated sales performance over time; and |
| ● | We expect the retail price of Wasteland 3 will be $49.99. The retail price of a game is subject to discounting by the publisher and by distributors (typically with the acquiescence of the publisher). A game that sells well may maintain its retail price for a year or more, although games that sell less well are typically discounted faster, in order to spur sales volumes. Were the game sales price in the table above to be discounted to $25 after unit sales reached 200,000 full priced units, then the Investor Breakeven point based on 70% dividend payments would not be reached until 393,164 units were sold. |
Dividends on Fig Game Shares – Wasteland 3 will be declared every six months, as of every May 15 and November 15, and paid thereafter, in all events after such time (if ever) as Wasteland 3 is successfully developed and published and Wasteland 3 sales receipts begin to be received.
For a step-by-step textual explanation of our dividend policy, see “Our Dividend Policy”.
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Transfer Restrictions Imposed on Fig Game Shares – Wasteland 3
No holder of Fig Game Shares – Wasteland 3 shall, directly or indirectly, sell, give, assign, hypothecate, pledge, encumber, grant a security interest in or otherwise dispose of such shares, in whole or in part, except under circumstances that would constitute compliance with the restrictions imposed by Rule 144 under the Securities Act of 1933 on the transfer of securities of issuers that are not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934. Such circumstances must be demonstrated to the Company prior to such disposition, by means of a certification as to the facts of the proposed disposition and any other document or documents, including without limitation an opinion of counsel, as the Company may require in its discretion, each such document being in form and substance satisfactory to the Company in its discretion.
Our Ability to Void a Sale of Fig Game Shares – Wasteland 3
Fig has the right to void a sale of Fig Game Shares – Wasteland 3 made by it, and cancel the shares or compel the shareholder to return them to us, if Fig has reason to believe that such shareholder acquired such Fig Game Shares as a result of a misrepresentation, including with respect to such shareholder’s representation that it is a “qualified purchaser” or an “accredited investor” as defined pursuant to Regulation A or Regulation D promulgated under the Securities Act, respectively, or if the shareholder or the sale to the shareholder is otherwise in breach of the requirements set forth in Fig’s certificate of incorporation, certificates of designations or bylaws, copies of which are exhibits to the offering statement in which this offering circular has been filed with the SEC.
Cancellation by the Company of Fig Game Shares – Wasteland 3
Our Board may, in its discretion, cancel the series of Fig Game Shares – Wasteland 3. Such cancellation would mean that all rights of a holder of Fig Game Shares – Wasteland 3 would cease and such holder would no longer be entitled to dividends or any other economic or other benefit. In general, we would expect to cancel a series of Fig Game Shares if the associated game has failed to meet a minimum earnings floor following a sufficiently extensive period of time. Under the Wasteland 3 License Agreement, Fig’s revenue share will decrease to 0% after Fig receives less than $1,000 under the Wasteland 3 License Agreement for three consecutive months, subject to reinstatement at the prior rate if Fig thereafter receives $1,000 or more under the Wasteland 3 License Agreement for three consecutive months. Although the purpose of our cancellation rights is to help us avoid incurring unnecessary administrative costs, and thereby benefit our Company and shareholders as a whole, there can be no assurance that we will not cancel a series of Fig Game Shares before the earnings potential of the associated game has been completely and irreversibly exhausted, and thereby deny the holders of such Fig Game Shares some additional amount of dividends.
Our Board, in its discretion, may also cancel the series of Fig Game Shares – Wasteland 3 in connection with paying a dividend in respect of or redeeming the Fig Game Shares – Wasteland 3 in the event of a Disposition Event in which all or substantially all of the Game Shares Asset corresponding to the Fig Game Shares – Wasteland 3 is disposed of. See “—Dividend or Redemption upon Disposition of Wasteland 3 Game Shares Asset”, below.
Dividend or Redemption upon Disposition of Wasteland 3 Game Shares Asset
In the event of a Disposition Event (as defined below), on or prior to the 120th day following the consummation of such Disposition Event, our Board, in its discretion, may, but is not required to:
| (i) | declare and pay a dividend in cash, securities (other than shares of Fig Game Shares – Wasteland 3) or other assets of the Company, or any combination thereof, to the holders of Fig Game Shares – Wasteland 3, with an aggregate Fair Value (as defined in our certificate of incorporation) equal to the Allocable Net Proceeds (as defined in our certificate of incorporation) of such Disposition Event as of the Determination Date (as defined in our certificate of incorporation), such dividend to be paid on all shares of Fig Game Shares – Wasteland 3 outstanding as of the Determination Date on an equal per share basis; and thereafter, in its discretion, cancel the series of Fig Game Shares – Wasteland 3 if permitted under the terms described above under “ – Cancellation by the Company of Fig Game Shares – Wasteland 3”; or |
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| (ii) | if such Disposition Event involves all (and not merely substantially all) of the Game Shares Asset corresponding to the Fig Game Shares – Wasteland 3, redeem all outstanding shares of Fig Game Shares – Wasteland 3 for cash, securities (other than shares of Fig Game Shares – Wasteland 3) or other assets of the Company, or any combination thereof, with an aggregate Fair Value equal to the Allocable Net Proceeds of such Disposition Event as of the Determination Date, such aggregate amount to be allocated among all shares of Fig Game Shares – Wasteland 3 outstanding as of the Determination Date on an equal per share basis; or |
| (iii) | combine all or any portions of (i) or (ii) above on a pro rata basis among all holders of Fig Game Shares – Wasteland 3. |
For purposes of the foregoing, “Disposition Event” means the sale, transfer, exchange, assignment or other disposition (whether by merger, consolidation, sale or contribution of assets or stock or otherwise) by the Company or any of its affiliates, in one transaction or a series of related transactions, of a Game Shares Asset, or substantially all of a Game Shares Asset, or any of the Company’s or any such affiliate's interests therein, to one or more persons or entities.
For purposes of the foregoing, “Game Shares Asset corresponding to the Fig Game Shares – Wasteland 3” means, as of any date, with respect to the Fig Game Shares – Wasteland 3, an undivided percentage interest in the following: (i) all assets, liabilities and businesses of the Company to the extent attributed to the publishing rights held by the Company under the Wasteland 3 License Agreement; (ii) all assets, liabilities and businesses acquired or assumed by the Company for the account of such publishing rights, or contributed, allocated or transferred to the Company in connection with such publishing rights (including the net proceeds of any issuances, sales or incurrences in connection with such publishing rights, or indebtedness of the Company incurred in connection with such publishing rights), in each case, after the date of the Fig Game Shares – Wasteland 3 preferred stock designation; and (iii) the proceeds of any disposition of any of the foregoing. The “undivided percentage interest” referred to in the preceding sentence will be equal to the Fig Games Shares Allotment Percentage applicable to Fig Game Shares – Wasteland 3. See “Description of Company Securities – Preferred Stock.”
Liquidation, Dissolution, etc.
In the event of a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Company, after payment or provision for payment of the debts and other liabilities of the Company, the holders of Fig Game Shares – Wasteland 3 shall be entitled to receive (x) all dividends and other distributions declared on such series of Fig Game Shares by our Board but not yet paid, plus (y) an amount equal to the value of the total assets of the Game Shares Asset corresponding to the Fig Game Shares – Wasteland 3 less the total liabilities of such Game Shares Asset, in each case ratably in proportion to the number of shares of Fig Game Shares – Wasteland 3 held by them; but in such event such holders shall not be entitled to any additional amounts.
Other Matters Specific to the Current Game, Developer and Shares
Conflicts of Interest
Please see “Interests of Management and Others in Certain Transactions” and “Risk Factors” for a description of significant actual, potential and perceived conflicts of interest among the Company, our Parent, and other relevant persons.
In addition, in regard to the developer and game to which this offering relates, inXile, the developer of Wasteland 3, owns shares of our Parent and warrants to acquire additional shares. Brian Fargo, the Chief Executive Officer and founder of inXile, is a member of the Advisory Board of our Parent. Mr. Fargo’s biography can be found in “Directors, Executive Officers and Other Significant Individuals – Advisory Board of Our Parent”.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis contains forward-looking statements. You should not place undue reliance on forward-looking statements, and you should consider carefully the statements made in “Risk Factors” and elsewhere in this offering circular that identify important factors that could cause actual outcomes to differ from those expressed or implied in our forward-looking statements, and that could materially and adversely affect our business, operating results and financial condition.
This Management’s Discussion and Analysis should be read together with the financial statements and notes thereto, included elsewhere in this offering circular.
Overview
Our company was incorporated on October 8, 2015 in Delaware as a wholly owned subsidiary of Loose Tooth Industries, Inc., our Parent. We have only recently begun operations and has to date relied substantially on our Parent for support in the conduct of our business. We have not yet earned a significant amount of revenues and we have little operating history, which may make it difficult for potential investors to evaluate our business and assess our future viability and prospects. We have, at this time, limited assets and resources and receive substantial ongoing support from our Parent under the Cost Sharing Agreement, which is described in more detail in “Our Business— Cost Sharing Agreement with Our Parent”. Pursuant to the Cost Sharing Agreement, our Parent provides the Company with management and administrative services, as well as services relating to information technology support, distribution rights management and other support operations, facilities, human resources, tax planning and administration, accounting, treasury and insurance. The services of our executive management and other personnel are currently performed by employees and principals of our Parent, and the costs of such services are allocated between the Company and our Parent pursuant to the Cost Sharing Agreement.
Results of Operations of the Company
Prior to formation on October 8, 2015, the Company did not operate as a separate legal entity. Accordingly, the Company’s financial statements prior to formation have been prepared on a “carve-out” basis from the Parent’s accounts and reflect the historical accounts directly attributable to the Company together with allocations of costs and expenses incurred by the Parent. These allocations may not be reflective of the actual level of assets, liabilities, income or costs that would have been incurred had the Company operated as a separate legal entity. All transactions between the Parent and us, prior to the Company’s formation, were classified as net transfers from the Parent in the condensed consolidated balance sheets. The Parent was formed in October 2014 but operations did not commence until April 2015.
The Company's condensed consolidated statements of financial condition at March 31, 2016 and the Company's condensed consolidated statement of operations for the six months ended March 31, 2016 are presented based on the Company’s actual results as a stand-alone company. We did not have any operation activities during the six months ended March 31, 2015.
During the six months ended March 31, 2016 approximately $734,000 in expenses were allocated to us from our Parent, which were comprised of approximately $333,000 in salaries and benefits, $21,000 in occupancy costs, $171,000 in professional fees, $51,000 in stock based compensation costs, $113,000 in marketing and promotion costs, $13,000 in travel expense and $32,000 in other general and administrative expenses.
For the period from October 27, 2014 (inception) to September 30, 2015, the Company incurred approximately $389,000 in expenses, comprised of approximately $83,000 in salaries and benefits to the employees, $2,400 in occupancy costs, $216,000 in professional fees, $1,800 in stock based compensation costs, $57,000 in marketing and promotion, $16,000 in travel expense, and $13,000 in other general and administrative expenses.
Since September 30, 2015, we have entered into seven principal video game co-publishing license agreements, for the games Psychonauts 2, Jay and Silent Bob: Chronic Blunt Punch, Consortium: The Tower, Make Sail, Wasteland 3, Trackless and Kingdoms and Castles. The development of each of Psychonauts 2, Jay and Silent Bob: Chronic Blunt Punch, Consortium: The Tower, Make Sail, Wasteland 3, Trackless and Kingdoms and Castles is underway. In addition, an affiliate of Fig is publishing Outer Wilds, which was the first game to be promoted on Fig.co and whose development is underway. Fig also entered into a license agreement for the game Jazon and the Dead, but the Jazon and the Dead campaign failed and Fig will not be publishing the game. We have near-term prospects for entering into additional game publishing license agreements that we believe represent substantial commercial opportunities.
Subsequent to March 31, 2016, the Company has begun providing marketing services to third parties with whom it has not entered into co-publishing license agreements. The Company has generated approximately $8,000 in revenue from the provision of such services. The Company expects to expand its provision of such services in the future, although currently it can provide no assurance as to the size of any additional revenues it may earn from providing such services.
If we are able to complete our contemplated offering under Regulation A, we expect to incur increased expenses as a result of being a public reporting company under the rules applicable to companies that have conducted Regulation A offerings (for legal, financial reporting, accounting and auditing compliance), as well as for business operations, business development and other general corporate expenses. We expect that our legal fees per offering will decrease after our first offering or first few offerings.
Our employees are also employees of our Parent, and the allocation of expenses to pay the salaries of such employees is set forth in the Cost Sharing Agreement. We share operating space with our Parent, in San Francisco, California.
Liquidity and Capital Resources of the Company
To date, we have relied substantially on our Parent for liquidity and capital resources. As indicated in the financial statements included elsewhere in this offering circular, as of March 31, 2016, we had approximately $8,000 in cash and no working capital. In July 2016, our Parent contributed $1 million to us for working capital needs. As of September 30, 2016, we had approximately $787,000 in cash and approximately $484,000 of working capital. On September 30, 2016, we entered into a loan and security agreement with our Parent and Silicon Valley Bank, under which up to an aggregate of $1,000,000 can be borrowed from the bank, all or substantially all of which is intended to be used in support of Fig’s business. See a further description of this agreement below. As of the date hereof, the full $1,000,000 available under such agreement has been borrowed.
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Loan and Security Agreement with Silicon Valley Bank
On September 30, 2016, we entered into a loan and security agreement with our Parent and Silicon Valley Bank (“SVB”), under which we and our Parent, individually and collectively, may, subject to the terms and conditions of the loan and security agreement, borrow up to an aggregate of $1 million from SVB for use as working capital and for general business purposes. It is our intention, as well as our Parent’s intention, that all or substantially all of the borrowed amounts be used in support of our business. Pursuant to the agreement, SVB shall make up to two advances available by December 31, 2016 in the aggregate principal amount of $750,000, and one advance, in the principal amount of $250,000, between the date upon which SVB confirms that we or our Parent have received a fully executed term sheet evidencing an investment commitment to purchase at least $5 million of equity securities, and March 31, 2017. Repayments are due to SVB in thirty (30) equal monthly installments commencing April 1, 2017, plus monthly payments of accrued interest at a rate of 2% above the prime rate. Outstanding advances are repayable in full on September 1, 2019. Repayment of is secured by a first priority security interest in favor of SVB in substantially all our and our Parent’s assets, excluding intellectual property. SVB will be due a fee on September 1, 2019 of 1% of the principal amount of all advances made. The agreement imposes certain restrictions on us and our Parent, including on the ability to (i) transfer, assign or dispose of business or property, (ii) permit a Change in Control (as defined in the agreement), merger or consolidation, (iii) incur any Indebtedness or Liens (as defined in the agreement), (iv) maintain any Collateral Account (as defined in the agreement), (v) issue or distribute capital stock or membership interests, make distributions or pay dividends (other than dividends paid by Fig on its preferred stock), (vi) enter into transactions with affiliates except in the ordinary course of business and upon fair and reasonable terms that are no less favorable than would be obtained in an arm-length’s basis with a non-affiliate, (vii) permit any subordinated debt or make certain amendments to any document relating to such debt and (viii) fail to comply with certain governmental regulations. Each of these restrictions is subject to certain exceptions, as specified in the agreement. In connection with the agreement, our Parent issued to SVB a ten-year warrant to purchase 104,529 shares of our Parent’s common stock, at $0.32 per share, subject to certain additional terms and conditions.
The foregoing is only a summary of the loan and security agreement, and is qualified in its entirety by reference to the agreement itself, a copy of which was filed as Exhibit 6.1 to our Current Report on Form 1-U, filed with the SEC on October 7, 2016.
Going Concern
Our ability to continue as a going concern depends upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. To date, we have depended substantially on our Parent to fund our operations and there is a risk that we and our Parent may be unable to obtain the financing, on acceptable terms or at all, necessary to continue our operations. As such, there is substantial doubt regarding our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Contractual Commitments
Current agreements relating to our operations, such as rental commitments, are in the name of our Parent. Following the completion of this offering, we will continue to operate under the Cost Sharing Agreement, pursuant to which our Parent and us agree to share costs of the support and services provided by our Parent. See “Our Business – Cost Sharing Agreement with Our Parent”.
Under the video game co-publishing license agreements we have entered into, we have incurred the following material ongoing contractual commitments:
| Game Title | Fig Funds Committed | |
| Outer Wilds (1) | $34,000 to $75,000. | |
| Psychonauts 2 | $600,000 to $3 million (to be finally determined at or prior to the closing of the offering of Fig Game Shares – PSY2). | |
| Jay and Silent Bob: Chronic Blunt Punch | Up to $400,000. | |
| Consortium: The Tower | Up to $300,000. | |
| Wasteland 3 | $1,200,000 to $2,500,000 (to be finally determined at or prior to the closing of this offering). | |
| Make Sail | $15,000 to $100,000. | |
| Trackless | $20,000 to $600,000. | |
| Kingdoms and Castles | $15,000 to $100,000. (2) |
| (1) | Being published by an affiliate of Fig. |
| (2) | Fig’s commitment in respect of this game is contingent upon the successful completion of the associated crowdfunding campaign on Fig.co. That campaign does not end until January 5, 2017. However, the minimum goal for a successful campaign has already been met. |
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We are not otherwise committed to make any material capital expenditures, and other agreements relating to our operations, such as rental commitments, are in the name of our Parent. Following the completion of this offering, we will continue to operate under the Cost Sharing Agreement, pursuant to which we and our Parent have agreed to share costs of the support and services provided by our Parent. See “Our Business – Cost Sharing Agreement with Our Parent”.
Game-Specific Accounting
Accounting for a Particular Game’s Sales
Fig expects to receive sales receipts in respect of each particular game net of distributors’ fees. Fig will deposit the amounts it receives in respect of each particular game into a separate account or sub-account under Fig’s control (each, a “sub-account”). As described in more detail under “Our Dividend Policy”, as to each sub-account, Fig will then, on a regular basis: allocate receipts into a revenue share for the developer and a revenue share for Fig; depending on the particular campaign, deduct the Fig Service Fee; depending on the particular campaign apply the Fig Game Shares Allotment Percentage; and pay a specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, in the form of dividends, subject to our dividend policy. In addition, Fig’s Board may in its discretion from time to time pay more than the specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, if in its view business conditions permit it; and in all events our Board may decide not to pay a dividend or to reduce the size of a dividend if it believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. See “Our Dividend Policy”.
Fig intends to report, on a public, regular basis, on its allocation of sales receipts by game, by including the following table in its annual and semi-annual reports filed publicly with the SEC, updated to reflect the indicated information for the periods covered by such reports:
Sharing of Sales Receipts by Game
For the Six-Month Period Ended March 31, 2016 (Unaudited) (1)
| Fig Game (2) | Gross Receipts to Fig | Fig Service Fee | Adjusted Gross Receipts | Fig’s Revenue Share | Specified Related Fig Game Shares | Aggregate Dividends on Related Fig Game Shares | ||||||||||||||||||
| Outer Wilds | $ | 0 | NA | (3) | $ | 0 | $ | 0 | NA | (3) | $ | 0 | ||||||||||||
| Psychonauts 2 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | 70 | % | $ | 0 | ||||||||||||
| Jay and Silent Bob: Chronic | ||||||||||||||||||||||||
| Blunt Punch | $ | 0 | $ | 0 | $ | 0 | $ | 0 | NA | (4) | $ | 0 | ||||||||||||
| (1) | This table has not been prepared in accordance with generally accepted accounting principles, or GAAP. Non-GAAP disclosures have limitations as analytical tools, and should not be viewed as a substitute for or in isolation from measures of financial performance, financial position or cash flows determined in accordance with GAAP; nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. |
| (2) | After March 31, 2016, Fig entered into separate license agreements to publish the games Consortium: The Tower, Make Sail, Wasteland 3, Trackless, Kingdoms and Castles and Jazon and the Dead. The Jazon and the Dead campaign failed and Fig will not be publishing the game. |
| (3) | Outer Wilds is being published by Fig Productions 1 LLC, an affiliate of Fig. Outer Wilds was the first game to be promoted on Fig.co, and the structure relating to its associated license agreement and securities differs from the structure Fig is using in relation to Fig Game Shares. Fig Productions 1 LLC is a party to the Outer Wilds license agreement and may make distributions related to sales under that license agreement to the holders of Tranche 1 Units issued privately by Fig Productions 1 LLC. |
| (4) | Not yet determined, as the planned Regulation A Offering in respect of this game has not yet begun. |
Accounting for a Particular Game’s Assets and Liabilities
In the event Fig were to dispose of assets and liabilities related to a particular game, under the certificates of designations of Fig’s respective series of Fig Game Shares, our Board may, in its discretion, but is not required to, declare and pay to the holders of the related series of Fig Game Shares a dividend in cash or other assets with a value equal to the allocable net proceeds of that disposition, or redeem the outstanding shares of that series of Fig Game Shares for cash or other assets with a value equal to the allocable net proceeds of that disposition. In addition, in the event of a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of Fig, under the certificates of designations of Fig’s respective series of Fig Game Shares, holders of a particular series of Fig Game Shares shall be entitled to receive, in addition to declared or accrued dividends that have not been paid, an amount equal to the value of the total assets attributed to the related game less the total liabilities attributed to the related game. For a more complete description of these rights of Fig Game Share holders, see “Description of Company Securities — Preferred Stock”, and the certificates of designations of Fig’s respective series of Fig Game Shares filed with the SEC.
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Fig intends to keep track of those of its assets and liabilities that should be attributed to particular games according to the terms of the certificates of designations of its respective series of Fig Game Shares, and to report, on a public, regular basis, on its attribution of assets and liabilities by game, by including the following table in its annual and semi-annual reports filed publicly with the SEC, updated to reflect the indicated information as of the dates covered by such reports:
Allocation
of Assets and Liabilities by Game
As of March 31, 2016 (Unaudited) (1)
| Fig Game (2) | License
Agreement Assets (3) |
Other
Assets (4) |
License
Agreement Liabilities (5) |
Other
Liabilities(6) |
Net
Equity (7) |
|||||||||||||||
| Outer Wilds (8) | $ | NA | $ | NA | $ | NA | $ | NA | $ | NA | ||||||||||
| Psychonauts 2 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
| Jay and Silent Bob: Chronic Blunt Punch | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
| (1) | This table has not been prepared in accordance with generally accepted accounting principles, or GAAP. Non-GAAP disclosures have limitations as analytical tools, and should not be viewed as a substitute for or in isolation from measures of financial performance, financial position or cash flows determined in accordance with GAAP; nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. |
| (2) | After March 31, 2016, Fig entered into separate license agreements to publish the games Consortium: The Tower, Make Sail, Wasteland 3, Trackless, Kingdoms and Castles and Jazon and the Dead. The Jazon and the Dead campaign failed and Fig will not be publishing the game. |
| (3) | Includes cash on hand, accounts receivable, prepaid expenses and other assets of Fig to the extent attributed to the publishing rights held by Fig under the related game license agreement. |
| (4) | Includes assets acquired or assumed by Fig for the account of the publishing rights held by Fig under the related game license agreement, or contributed, allocated or transferred to Fig in connection with such publishing rights (including the net proceeds of any issuances, sales or incurrences in connection with such publishing rights), in each case, after the date of the corresponding preferred stock designation, and the proceeds of any disposition of any License Agreement Assets or Other Assets. |
| (5) | Includes accrued liabilities, accounts payable and other liabilities of Fig to the extent attributed to the publishing rights held by Fig under the related game license agreement. |
| (6) | Includes liabilities acquired or assumed by Fig for the account of the publishing rights held by Fig under the related game license agreement, or contributed, allocated or transferred to Fig in connection with such publishing rights (including indebtedness of Fig incurred in connection with such publishing rights), in each case, after the date of the corresponding preferred stock designation. |
| (7) | Equals the sum of the amounts in the columns to the left. |
| (8) | Outer Wilds is being published by Fig Productions 1 LLC, an affiliate of Fig. Outer Wilds was the first game to be promoted on Fig.co, and the structure relating to its associated license agreement and securities differs from the structure Fig is using in relation to Fig Game Shares. Fig Productions 1 LLC is a party to the Outer Wilds license agreement and may make distributions related to sales under that license agreement to the holders of Tranche 1 Units issued privately by Fig Productions 1 LLC. |
No Stand-Alone Audits
The application of the relevant revenue sharing and dividend formulas to sales receipts received by Fig, and the allocation of relevant assets and liabilities to particular games, will be undertaken on a regular basis by Fig’s accounting staff; the records generated thereby will be part of Fig’s accounting records and subject to Fig’s internal accounting controls; and Fig will publicly disclose, in its annual and semi-annual reports filed with the SEC, tables containing the information set forth above for each of its licensed games during the relevant periods covered in those reports. These tables will not be prepared in accordance with generally accepted accounting principles, or GAAP. Non-GAAP disclosures have limitations as analytical tools; should not be viewed as a substitute for or in isolation from GAAP financial measures; and may not be comparable to other companies’ non-GAAP financial measures. In addition, Fig does not plan to have the calculations resulting from, or the methodologies underlying, the foregoing procedures subjected to stand-alone audits. As a result, our allocations of revenues and assets to each series of Fig Game Shares will not be audited on a periodic basis. There can be no assurance that there will not be errors or misstatements in those calculations, methodologies and applications, which could reduce Fig’s revenue share from a particular game, the dividends available to holders of the related series of Fig Game Shares or the assets attributed to a specific game, or increase the liabilities attributed to a specific game, or some combination of the foregoing.
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DIRECTORS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT INDIVIDUALS
The directors, executive officers and other significant individuals of the Company, and their positions, ages, terms of office and approximate hours of work per week are as follows:
| Name | Position (1) | Age | Term of Office | Approximate hours per week for part-time employees | ||||
| Director: Justin Bailey | Sole Director | 41 | Began October 8, 2015 | (1) | ||||
| Executive Officers: Justin Bailey | Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer | 41 | Began October 8, 2015 | (1) | ||||
| Jonathan Chan | Chief Operating Officer | 40 | Began October 8, 2015 | (1) |
| (1) | Our Chief Executive Officer and sole director, Justin Bailey, is also the CEO and a director of our Parent, and our Chief Operating Officer, Jonathan Chan, holds the same position at our Parent also. As part of their duties in their roles at our Parent, they each devote a substantial portion of their working time to the Company and its business. For a description of the Cost Sharing Agreement under which employee expenses in regard to them may be shared by us and our Parent, please see “Our Business — Cost Sharing Agreement with Our Parent”. |
There are no family relationships between any two or more directors, executive officers or significant employees of the Company. During the past five years, none of the persons identified above has been involved in any bankruptcy or insolvency proceeding or convicted in a criminal proceeding, excluding traffic violations and other minor offenses.
Director of the Company
Justin Bailey, Sole Director
Mr. Bailey has served as the Company’s sole director and Chief Executive Officer since inception. He has also served as Chief Executive Officer of our Parent since he founded our Parent in late 2014. Mr. Bailey's work in video games includes experience publishing a variety of premium, free-to-play, and mobile games, such as Broken Age (formerly known as Double Fine Adventures), Massive Chalice, and Middle Manager of Justice. Mr. Bailey previously served as the Chief Operating Officer of Double Fine Productions, Inc. a position he held from July 2012 to March 2015 where he established a new independent publishing label called “Double Fine Presents”. His responsibilities included running publishing, operations, and studio strategy. From August 2011 to June 2012, Mr. Bailey worked with various investors and investment groups interested in funding video games. From January 2010 to July 2011, Mr. Bailey served as Vice President, Business Planning and Development at Perfect World Entertainment where he lead all acquisitions, investments, licensing, strategic planning, and developer relations activities in North America, Korea, and Europe, and from 2008 to 2010 he served in business development at Namco Bandai Games America where he participated in mid-term M&A strategy, ran greenlight committees, and created title forecasts and P&Ls. Mr. Bailey holds a Bachelor of Business Administration degree from the M.J. Neeley School of Business, Texas Christian University.
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Executive Officers of the Company
Justin Bailey, Chief Executive Officer
Justin Bailey has served as Chief Executive Officer of the Company since its inception. Please see his biography above under “Directors, Executive Officers and Other Significant Individuals — Director of the Company”.
Jonathan Chan, Chief Operating Officer
Jonathan Chan has served as Chief Operating Officer of the Company and the Parent since October 2016, and as Vice President, Business Development and Strategy of the Company and the Parent from August 2015 to October 2016. From 2010 to 2015, Mr. Chan served as Senior Director, Business Development for Electronic Arts, where he led a business development team focused on digital publishing. At Electronic Arts, Inc., he worked with independent developers on deals with EA Partners, Electronic Arts’ third party publishing arm, and Origin, Electronic Arts’ PC game storefront and community. From 2006 to 2010, Mr. Chan was an investment banker with McNamee Lawrence & Co., a boutique investment bank, where he advised technology companies on mergers and venture capital transactions. From 2001 to 2006, Mr. Chan served as a corporate and securities lawyer at the law firm Wilson Sonsini Goodrich & Rosati, where he advised technology companies on mergers and venture capital transactions. Mr. Chan holds a B.A. in Economics and Political Science from Rice University and a J.D. from Harvard Law School.
Mr. Chan will devote a substantial portion of his work time to the Company, and the Company will pay of Mr. Chan’s compensation under the Cost Sharing Agreement.
Board of Directors of Our Parent
Justin Bailey
Mr. Bailey has served as a director of our Parent since its inception. Please see his biography under “Directors, Executive Officers and Other Significant Individuals — Director of the Company”.
Tim Schafer
Mr. Schafer has served as a director of our Parent since March 2015. Mr. Schafer is a games industry veteran, and has served as the Chief Executive Officer of Double Fine Productions, Inc. since its inception in July 2000. Mr. Schafer founded Double Fine Productions, Inc. after his departure that year from LucasArts, where he had helped design and develop many games, including Grim Fandango. Double Fine Productions, Inc. is the developer of many critically acclaimed video games, including the original Psychonauts and Brütal Legend. Double Fine Productions, Inc. is in the process of developing Psychonauts 2, a campaign for which was completed on Fig.co in January 2016. In February 2012, Mr. Schafer launched a record-breaking multi-million dollar crowdsourced funding campaign, Double Fine Adventures (ultimately named Broken Age), becoming the most funded and backed project ever on Kickstarter at that time, helping to establish Kickstarter and other crowdfunding mechanisms as a viable alternative to traditional venture capital and publisher funding for niche video game titles. In 2012, Mr. Schafer was listed among Fast Company’s Top 100 Most Creative People, and in 2006, he received a BAFTA Video Games Best Screenplay award for the original Psychonauts. Mr. Schafer received a bachelor’s degree from the University of California, Berkeley.
Nabeel Hyatt
Mr. Hyatt has served as a director of our Parent since March 2015. Mr. Hyatt is an early-stage investor and supporter of entrepreneurs building hardware, software and services startups that offer creative solutions to practical, everyday problems. Since February 2012, Mr. Hyatt has served as a partner at Spark Capital, a venture capital firm that invests in startup companies. Mr. Hyatt previously served as General Manager at Zynga Inc. from 2010 to 2012. Prior to that, Mr. Hyatt served as Chief Executive Officer of Conduit Labs, a social gaming startup company he co-founded in 2007, until August 2010 when it was acquired by Zynga, Inc. From August 2001 to November 2005, Mr. Hyatt helped start and then lead product development at Ambient Devices, an MIT Media Lab spin-out that worked with designers such as Yves Behar and Frank Gehry to bring a blend of IT and modern design to consumers. Mr. Hyatt received a B.A. in Design from the Maryland Institute College of Art, and studied Computer Science at Purdue University.
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Officers of Our Parent
Mr. Bailey has served as Chief Executive Officer of our Parent since its inception. Please see his biography under “Directors, Executive Officers and Other Significant Individuals — Director of the Company”.
Mr. Chan has served as Chief Operating Officer of the Company and the Parent since October 2016, and as Vice President, Business Development and Strategy of the Company and the Parent from August 2015 to October 2016. Please see his biography under “Directors, Executive Officers and Other Significant Individuals — Officers of the Company”.
Advisory Board of Our Parent
Our Parent has an Advisory Board consisting of the following persons:
Tim Schafer
Mr. Schafer has served as a director of our Parent since March 2015. Please see his biography under “Directors, Executive Officers and Other Significant Individuals — Board of Directors of Our Parent”.
Alex Rigopulos, Chief Creative Officer of Harmonix Music Systems, Inc.
Mr. Rigopulos co-founded Harmonix Music Systems, Inc., a video game development company, in 1995 with the mission of inventing new ways for non-musicians to experience the joy of making music, and served as Chief Executive Officer of Harmonix until May 2014 when he became the Chief Creative Officer. Prior to Harmonix, Alex studied computer music at the MIT Media Lab and music composition at MIT.
Feargus Urquhart, CEO of Obsidian Entertainment
Mr. Urquhart has been active in the video game industry since 1991, and rose to become the President of Black Isle Studios in the late 1990s. In June 2003, Mr. Urquhart co-founded Obsidian Entertainment, and he has served as its Chief Executive Officer since its founding. Obsidian Entertainment is one of the world's premiere role-playing game development studios. Focusing on role-playing games (RPGs), Mr. Urquhart has helped develop or publish the video games Baldur’s Gate ; Fallout 1 & 2 ; Fallout: New Vegas ; Planescape : Torment ; South Park: The Stick of Truth ; and Pillars of Eternity.
Aaron Isaksen, Co-President and CEO of AppAbove Games
Mr. Isaksen is an early investor in our Parent and has been working in the digital entertainment and games industry since 1999. In June 2003, Mr. Isaksen co-founded AppAbove Games, a mobile games developer and publisher, where he currently serves as Co-President and Chief Executive Officer. In 2010, he also co-founded Indie Fund, a funding source for independent game developers. Since July 2014, Mr. Isaksen has served as Chairman of IndieBox, and he served as festival chair for IndieCade East 2014, a conference and festival celebrating independent video games. Mr. Isaksen is a frequent speaker at game conferences and a well-respected authority in the interactive entertainment industry. Mr. Isaksen received a Master’s degree in Electrical Engineering and Computer Science (EECS) from the Massachusetts Institute of Technology (MIT) in 2001 and a Bachelor’s degree in EECS from UC Berkeley in 1998. Mr. Isaksen is also a Ph.D. Student at the NYU Polytechnic School of Engineering Game Innovation Lab.
Brian Fargo, Chief Executive Officer of inXile Entertainment
Mr. Fargo has been in the games business since its infancy having founded Interplay Entertainment in 1983, where he served as Chief Executive Officer until 2001. Interplay Entertainment became a top 5 PC games publisher in the mid-1990s, having produced some of the most well known video game franchises in the industry, including Bard’s Tale, Wasteland and Fallout. Interplay Entertainment also helped to launch the careers of the founders of some of the biggest video game developers in the world, such as Blizzard, Bioware and Treyarch. While at Interplay Entertainment, Mr. Fargo brought Universal/MCA in as an equity partner and later took Interplay Entertainment public in 1998. In addition, Mr. Fargo has served on our Board of the Interactive Digital Software Association, given key speeches at the industry's leading shows. Most recently, he was the keynote speaker at GDC China in November 2011. Mr. Fargo formed inXile in January 2002, where he serves as Chief Executive Officer, a position he has held since its inception. Mr. Fargo has helped raise millions of dollars of crowdsourced funding via Kickstarter for other inXile games, such as Wasteland 2 (just under $3 million), Torment: Tides of Numenera (just over $4 million) and The Bard's Tale IV (over $1.5 million).
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Studio Partner Agreements
The Company believes that its initial success will in part be dependent on its ability to attract established developers to engage the Company to publish their games, including follow-ons to games that already have existing fan bases. As one of its methods of seeking to attract established developers to Fig.co and to our Company, our Parent has entered into four agreements, which we refer to as “Studio Partner Agreements”. Pursuant to these Studio Partner Agreements, as amended, the developers have received warrants to purchase common stock of our Parent, which warrants vest and become exercisable upon the applicable developer launching a rewards crowdfunding campaign on Fig.co and engaging the Company to publish or co-publish one of its games. Pursuant to the Studio Partner Agreement with inXile, inXile’s warrants to purchase 276,186 shares of common stock of our Parent vest in connection with Fig’s co-publishing of Wasteland 3.
The developers and the number of shares of our Parent they may purchase pursuant to the warrants they received pursuant to their respective Studio Partner Agreements, when such warrants vest, are as follows:
| Developer | Number of Shares of Our Parent that May be Purchased Pursuant to Warrants Granted | |
| Double Fine Productions, Inc. | 276,186 shares | |
| Harmonix Music Systems, Inc. | 200,000 shares | |
| Obsidian Entertainment | 276,186 shares | |
| inXile Entertainment, Inc. | 276,186 shares |
Advisory Board Agreements
The Company believes that its initial success will in part be dependent on its ability to attract qualified video game industry professionals to provide the Company with ongoing industry- and market-related advice. As one of its methods of seeking to attract qualified advisors for the Company, our Parent has entered into agreements, which we refer to as “Advisory Board Agreements”, with the four members of its Advisory Board, who provide advice to the Company as well as our Parent. Three of these Advisory Board members are executives of video game developers that have entered into Studio Partner Agreements. Pursuant to these Advisory Board Agreements, as amended, the advisors or the developers that employ them have received options to purchase common stock of our Parent, which options vest and become exercisable upon the recipient joining the Advisory Board of our Parent. Pursuant to an Advisory Board Agreement with Brian Fargo (who is the CEO of developer inXile), our Parent granted inXile non-qualified stock options to purchase 200,000 shares of common stock of our Parent, which options vested and became exercisable upon Mr. Fargo joining our Parent’s Advisory Board.
The members of the Advisory Board of our Parent and the number of shares of our Parent they may purchase pursuant to the options they received pursuant to their respective Advisory Board Agreements are as follows:
| Advisory Board Member | Position at Game Developer | Number
of Shares of Our Parent |
|||
| Tim Schafer | CEO, Double Fine Productions, Inc. |
200,000 shares | |||
| Alex Rigopulos | Chief Creative Officer, Harmonix Music Systems, Inc. |
200,000 shares | |||
| Feargus Urquhart | CEO, Obsidian Entertainment |
200,000 shares | |||
| Aaron Isaksen | Co-President and CEO, AppAbove Games |
200,000 shares | |||
| Brian Fargo | CEO, inXile Entertainment, Inc. |
200,000 shares (1) |
| (1) | Options granted to inXile, not Mr. Fargo individually. |
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The table below includes the aggregate annual compensation for the last completed fiscal year of the Company’s sole director and executive officer. The Company has one other officer, who for the sake of completeness has also been included in the table below.
| Name | Capacities
in which Compensation was Received |
Salary (3) |
Other Compensation (4) |
Total Compensation (3) |
||||||||||
| Justin Bailey (1) | Chief Executive Officer and Sole Director | $ | 25,780 | $ | - | $ | 25,780 | |||||||
| Jonathan Chan (2) | Chief Operating Officer | $ | 19,308 | $ | 17,636 | $ | 36,944 | |||||||
| (1) | Although our Chief Executive Officer and sole director, Justin Bailey, receives no compensation from the Company for serving as a director and executive officer of the Company, he is also the CEO and a director of our Parent, and he receives compensation from our Parent for serving in those roles. As part of his duties in those roles, he devotes a substantial portion of his working time to the Company and its business. For a description of the Cost Sharing Agreement under which employee expenses in regard to him are shared by us and our Parent, see “Our Business — Cost Sharing Agreement with Our Parent”. See Note (3), below for a discussion of the salary and total compensation figures presented for Mr. Bailey. |
| (2) | Although our Chief Operating Officer, Jonathan Chan, receives no compensation from the Company for serving as an officer of the Company, he is also the Chief Operating Officer of our Parent, and he receives compensation from our Parent for serving in that role. As part of his duties in that role, he devotes a substantial portion of his working time to the Company and its business. For a description of the Cost Sharing Agreement under which employee expenses in regard to him are paid by the Company, see “Our Business — Cost Sharing Agreement with Our Parent”. See Note (3), below for a discussion of the salary and total compensation figures presented for Mr. Chan. |
| (3) | As reflected in the Company’s financial statements included elsewhere in this document, for the period from October 27, 2014 (inception) to September 30, 2015, the Company incurred, on a carve-out basis, approximately $83,000 in salaries and benefits paid to all employees. |
| (4) | Represents the aggregate grant date fair value of awards of options to purchase shares of common stock of our Parent, computed in accordance with FASB ASC Topic 718 on an allocated basis. |
Indemnification Agreements
Our amended and restated certificate of incorporation and our bylaws provide that we will indemnify and advance expenses to our directors and officers to the fullest extent permitted under the Delaware General Corporation Law. In addition, we have entered into separate indemnification agreements with our director and executive officer.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets forth the numbers and percentages of our outstanding voting securities beneficially owned both immediately before and immediately after the closing of this offering (as qualified in the footnotes thereto) by:
| ● | each person known to us to be the beneficial owner of more than 10% of any class of our outstanding voting securities; | |
| ● | each of our directors; | |
| ● | each of our executive officers; and | |
| ● | all of our directors and executive officers as a group. |
Our voting securities consist solely of our common stock. Neither the Fig Game Shares being offered hereby nor any other series of Fig Game Shares have or will have any voting rights. Therefore, the numbers and percentages below are the same both before and after the closing of this offering.
Beneficial ownership is determined in accordance with SEC rules and generally includes sole or shared voting or investment power with respect to voting securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any voting securities that such person or any member of such group has the right to acquire within 60 days of the date of this offering circular. For purposes of computing the percentage of our outstanding voting securities held by each person or group of persons named above, any securities that such person or persons has the right to acquire within 60 days of the date of this offering circular are deemed to be outstanding for such person, but not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Beneficial ownership as determined under SEC rules is not necessarily indicative of beneficial or other ownership for any other purpose. The inclusion herein of any securities listed as beneficially owned does not constitute an admission of beneficial ownership by any person.
Unless otherwise indicated, the business address of each person listed is c/o Fig Publishing, Inc., 599 Third Street, Suite 211, San Francisco, California 94107.
| Common Stock (1) | ||||||||||||||||
| Before the Offering (2) | After the Offering | |||||||||||||||
| Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percentage Shares Beneficially Owned (3) | Number of Shares Beneficially Owned | Percentage Shares Beneficially Owned (2) | ||||||||||||
| Loose Tooth Industries, Inc. | 1,000,000 | 100.0 | % | 1,000,000 | 100.0 | % | ||||||||||
| Justin Bailey | 1,000,000 | (4) | 100.0 | % | 1,000,000 | (4) | 100.0 | % | ||||||||
| All directors and executive officers as a group (one individual, Justin Bailey) | 1,000,000 | (4) | 100.0 | % | 1,000,000 | (4) | 100.0 | % | ||||||||
| (1) | The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as being beneficially owned by them, subject to community property laws where applicable and any other information contained in the footnotes to this table. |
| (2) | As of July 31, 2016. |
| (3) | Based on 1,000,000 shares of common stock issued and outstanding as of July 31, 2016. |
| (4) | Justin Bailey is the Chief Executive Officer, a director and the largest shareholder of Loose Tooth Industries, Inc., and has voting and dispositive power with respect to the common stock of the Company held by Loose Tooth Industries, Inc. Loose Tooth Industries, Inc. is the holder of 100.0% of the outstanding common stock of the Company. By virtue of the foregoing, Mr. Bailey is deemed for the purposes hereof to beneficially own all of the outstanding voting securities of the Company. Mr. Bailey is also the sole director of the Company and its Chief Executive Officer. |
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The Company expects that Fig Game Shares offered in this offering may be purchased by certain of its directors, officers, employees and affiliates, as well as certain directors, officers, employees and affiliates of the developer of the game whose sales receipts may support the declaration of dividends to holder of the Fig Game Shares. The Company will not reserve any allocations of Fig Game Shares for any such persons, and will not allocate Fig Game Shares to any such persons on any preferential basis. Any Fig Game Shares purchased in this offering by any such persons will be offered and sold on the same terms and with the same qualifications, limitations and restrictions as the Fig Game Shares offered and sold to other investors in this offering. However, to the extent Fig Game Shares are purchased by any such persons, there will be fewer Fig Game Shares available for purchase by other investors to the extent the offering of the Fig Game Shares is oversubscribed. Any such person that purchases Fig Game Shares in this offering shall be subject to the same transfer restrictions imposed on all investors in this offering. In addition, any such person may also be subject to additional transfer restrictions imposed by operation of law or, in the case of the Company’s directors, officers, employees and affiliates, by operation of the Company’s internal policies against insider trading.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In addition to any matters discussed under the heading “The Current Game, Developer and Shares – Conflicts of Interest”, please see the below:
Justin Bailey, our Chief Executive Officer and sole director, is also the CEO, a director and the largest shareholder of our Parent. He receives a salary, benefits and equity compensation from our Parent. Jonathan Chan, our COO, holds the same position at our Parent, also. He receives a salary, benefits and equity compensation from our Parent. See “Directors, Executive Officers and Other Significant Individuals”. Pursuant to the Cost Sharing Agreement, our Parent provides us with management and administrative services. See “Our Business — Cost Sharing Agreement with Our Parent”.
In 2015, our Parent entered into four agreements with video game developers referred to as “Studio Partner Agreements”. Pursuant to these Studio Partner Agreements, as amended, the developers have received warrants to purchase common stock of our Parent, which warrants vest and become exercisable upon the applicable developer launching a rewards crowdfunding campaign on Fig.co and engaging the Company to publish or co-publish one of its games. Pursuant to the Studio Partner Agreement with inXile, inXile’s warrants to purchase 276,186 shares of common stock of our Parent vest in connection with Fig’s co-publishing of Wasteland 3. Pursuant to the Studio Partner Agreement with Double Fine Productions, Inc., the developer of Psychonauts 2, Double Fine’s warrants to purchase 276,186 shares of common stock of our Parent vest in connection with Fig’s co-publishing of Psychonauts 2. See “Directors, Executive Officers and Other Significant Individuals – Studio Partner Agreements”.
In May 2015, our Parent entered into agreements with the members of its Advisory Board, who provide advice to the Company as well as our Parent. These agreements are referred to as “Advisory Board Agreements”. Pursuant to these Advisory Board Agreements, as amended, the advisors or the developers that employ them have received options to purchase common stock of our Parent, which options vest and become exercisable upon the recipient joining the Advisory Board of our Parent. Pursuant to an Advisory Board Agreement with Brian Fargo (who is the CEO of developer inXile), our Parent granted inXile non-qualified stock options to purchase 200,000 shares of common stock of our Parent, which options vested and became exercisable upon Brian Fargo joining our Parent’s Advisory Board. Pursuant to an Advisory Board Agreement with Tim Schafer (who is the CEO of developer Double Fine Productions, Inc., a board member of our Parent, and a shareholder of our Parent), our Parent granted Mr. Schafer non-qualified stock options to purchase 200,000 shares of common stock of our Parent, which options vested and became exercisable upon Tim Schafer joining our Parent’s Advisory Board. See “Directors, Executive Officers and Other Significant Individuals – Advisory Board Agreements”.
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Fig Game Shares are shares of capital stock of Fig with no voting rights. We issue them in separate series, and each separate series reflects the economic performance of a different, particular video game co-publishing license agreement that we have entered into with a third-party video game developer.
Provided the game that is the subject of the license agreement is successfully developed and published, sales receipts will thereafter be received from the game and will generally be shared as follows: (i) receipts will be allocated into a revenue share for the developer and a revenue share for Fig, in the proportions specified in the license agreement for the game; (ii) depending on the particular campaign, Fig may be paid a service fee; (iii) depending on the particular campaign, Fig may allot part of its revenue share to the Fig Game Shares and another part to separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game, it may keep a third proportional allotment for itself; (iv) Fig will pay a specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, in the form of dividends, subject to our dividend policy; and (v) Fig’s board of directors may in its discretion from time to time pay more than the specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, if in its view business conditions permit it. In all events, our Board may decide not to pay a dividend or to reduce the size of a dividend if it believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law.
Aggregate dividend amounts will be distributed equally among all holders of the same series of Fig Game Shares, in proportion to the number of shares held, without regard to whether the shares were bought in this offering or otherwise, or under Regulation A, Regulation D or another exemption from registration under the Securities Act.
Fig will allocate the sales receipts from a particular game and determine the amount from which dividends will be declared on the Fig Game Shares associated with that game, in conformance with the policy set forth below:
Step 1: Sales Receipts
All sales receipts received by Fig in respect of sales of a particular game, pursuant to the license agreement between Fig and the developer of that game, will be deposited into a separate account or sub-account under Fig’s control (each, a “sub-account”).
In respect of most games, Fig expects that most or all sales will be made through digital distribution platforms, or “storefronts” (such as Steam), which will sell the game, take a share of the retail sales price (typically 30%) as their fee and remit the remainder to Fig. However, in the case of certain games, distribution arrangements may be more elaborate, may involve co-publishers or other parties and may result in additional charges being deducted from the sales receipts received by Fig. For example, if Fig or the particular developer can arrange for the game to be configured for and sold over Sony’s PlayStation Network, that would likely generate substantially increased games sales receipts for Fig and its investors. But it may also require the designation of Sony as a co-publisher of the game; it may involve paying Sony an additional portion or portions of the sales receipts; and it may involve sales receipts flowing among Fig, the developer and any co-publishers before being received by Fig and deposited in the appropriate sub-account. Any such distribution arrangements will be reflected in the associated license agreement and described in the associated offering circular. Any such arrangements applicable to the series of Fig Game Shares being offered in this offering are described in this offering circular in the section entitled “The Current Game, Developer and Shares”.
Step 2: Developer and Fig Revenue Shares
If Fig receives sales receipts first, it will periodically pay, from the sub-account, the developer’s revenue share to the developer. If the developer receives the sales receipts first, it will periodically pay Fig’s revenue share to Fig.
The developer’s revenue share and Fig’s revenue share in respect of a particular game (typically calculated pursuant to a formula) will be set forth in the license agreement relating to that game. Their respective revenue shares may change over time, if such a change is embodied in the revenue share formula. For example, the developer’s revenue share may increase after certain aggregate sales thresholds have been met. The revenue share provisions applicable to the series of Fig Game Shares being offered in this offering, including any provisions that change over time, are described in this offering circular in the section entitled “The Current Game, Developer and Shares”.
Step 3: Fig Service Fee
Depending on the particular campaign, if Fig is to be paid a Fig Service Fee, Fig will retain the fee for itself from the balance in the sub-account, after removal of the developer’s revenue share (unless otherwise specified).
Depending on the particular campaign, Fig may retain a percentage, generally expected to be 10%, of game sales receipts, which we refer to as the “Fig Service Fee”. The Fig Service Fee will serve as compensation toward the cost of platform and publishing services, in campaigns in which Fig imposes such a fee. The percentage amount will be set forth in the license agreement relating to that game. Fig may negotiate for a higher, or accept a lower, Fig Service Fee depending on the degree of services and corresponding expenses that Fig predicts will be necessary to successfully publish a game, as well as other factors. In certain cases, Fig may determine that, because it is still building its business, because it desires to attract high quality developers, because the desirability of publishing the particular game is especially high, or for other reasons relating to Fig’s assessment of the business advantages that may accrue to Fig and its security holders, the Fig Service Fee maybe lower than this range or nominal, or there may be no such fee. The particular Fig Service Fee being charged in respect of the license agreement associated with the series of Fig Game Shares being offered in this offering, if any, is described in this offering circular in the section entitled “The Current Game, Developer and Shares”.
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Step 4: Fig Game Shares Allotment Percentage
Next, the Fig Game Shares Allotment Percentage will be applied, in campaigns in which the total amount of Fig Funds is greater than the proceeds of the Fig Game Shares offering. This is expected to occur if, in addition to the Fig Game Shares offering, there has been an offering of separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game. The allotments will be made in the same proportions that the proceeds from these separate securities offerings and the additional funding from Fig, as applicable, bear to the total Fig Funds amount. In such circumstances, the allotment of revenue among the Fig Game Shares, the other securities and Fig, as applicable, will represent an equitable division of Fig’s revenue share among the different sources of funding that have made it possible to prudently provide the particular Fig Funds amount.
Step 4 is a mathematical application only, and should not be read to suggest that proceeds from the sale of any particular series of Fig Game Shares are being used to fund the development of the associated game, or of any other particular game.
Fig will have to wait until after a particular Fig Game Shares offering is completed to finally determine the Fig Game Shares Allotment Percentage that will apply to those Fig Game Shares. This is because it is only at that time that Fig will know the precise amount of proceeds raised from that offering. However, Fig expects to know the amount of proceeds raised from the offering of the other securities, and the amount of the additional funds that it will provide to support the development of the game, at an earlier time, and prior to the qualification of the Fig Game Shares offering. Consequently, Fig will use that information to provide prospective investors in the Fig Game Shares offering with an approximation of the Fig Game Shares Allotment Percentage, or a sensitivity analysis presenting the effect of applying one or more different Fig Game Share Allotment Percentages, or similar information with which prospective investors can consider the application of the Fig Game Shares Allotment Percentage before that percentage is finally known. After the offering is completed, Fig will publicly disclose the finally determined Fig Game Shares Allotment Percentage, by filing of a Current Report on Form 1-U containing that information.
The Fig Game Shares Allotment Percentage, if any, that will be applied in respect of the series of Fig Game Shares being offered in this offering, is described in this offering circular in the section entitled “The Current Game, Developer and Shares”.
Step 5: Dividend Rate
From the allotment to the holders of the Fig Game Shares, Fig will allocate the applicable specified portion for dividends to those holders.
The applicable specified portion for dividends will be set forth in the offering circular for that series of Fig Game Shares, and in the certificate of designations for that series of Fig Game Shares filed by Fig with the State of Delaware. The applicable specified portion for dividends in respect of the series of Fig Game Shares being offered in this offering is described in this offering circular in the section entitled “The Current Game, Developer and Shares”.
Step 6: Declaration of Dividends
No dividend will be payable unless (1) declared by our Board, or unless (2) it accrues because a date for the declaration of dividends on the relevant series of Fig Game Shares, as specified in the certificate of designations relating to such series of Fig Game Shares, has passed without a dividend being declared and the declaration and payment of such dividend is not prohibited under applicable law. In the event of a dividend accruing under the foregoing clause (2), the amount of the dividend shall be the applicable specified portion for dividends in respect of such series of Fig Game Shares, minus any partial amounts that Fig may pay toward the dividend.
We expect that, typically, our Board will declare each dividend in respect of a particular series of Fig Game Shares in an aggregate amount equal to the specified portion that has been allocated for dividends in respect of such series of Fig Game Shares. However, Fig’s board of directors may in its discretion from time to time pay more than the specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, if in its view business conditions permit it. In all events, our Board may decide not to pay a dividend or to reduce the size of a dividend if it believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. To the extent our Board determines not to pay a dividend or to reduce the size of a dividend, it will impose the underpayment in a manner equitable to all of its then-outstanding series of Fig Game Shares (which will be presumed to mean imposing the underpayment proportionally across all of Fig’s then-outstanding series of Fig Game Shares, by reducing the dividend amounts to all such series in proportion to the dividend amounts they would otherwise have received; but which may mean imposing the underpayment in some other manner if our Board concludes that such other manner would be clearly more equitable than such proportional imposition).
Fig expects that dividends on Fig Game Shares will typically be declared every six months and paid thereafter, in all events after such time (if ever) as the related game is successfully developed and published and Fig begins to receive sales receipts for the game. The dates for the declaration of dividends in respect of the series of Fig Game Shares being offered in this offering are specified in this offering circular in the section entitled “The Current Game, Developer and Shares”.
Any dividends ultimately declared on a series of Fig Game Shares will be distributed equally among all the holders of shares of such series of Fig Game Shares, in proportion to the number of shares each such investor holds, without regard to whether the investor bought such shares under Regulation A or in an Accredited Investor Offering or otherwise.
Fig will retain for itself the remaining funds in each sub-account that are not distributed as dividends to holders of the related Fig Game Shares.
Timing of Dividends
Each of these steps will generally be performed at or near the end of each fiscal six-month period, or more frequently as required by contract or business needs (e.g., revenue share payments to developers may be required by contract to be made more frequently). Our Board may also, in its discretion, determine to pay dividends on one or more series of Fig Game Shares more or less frequently than once every six-month period.
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Accounting for a Particular Game’s Sales
The application of the policy set forth above to sales receipts received by Fig will be undertaken on a regular basis by Fig’s accounting staff; the records generated in the application of that formula will be part of Fig’s accounting records and subject to Fig’s internal accounting controls; and Fig will publicly disclose, in its annual and semi-annual reports filed with the SEC, a table containing the information set forth above for each of its licensed games. See the table setting forth such information as of the date specified therein in this offering circular under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Game-Specific Accounting – Accounting for a Particular Game’s Sales”. This table has not been, and future updates of the table will not be, prepared in accordance with generally accepted accounting principles, or GAAP. Non-GAAP disclosures have limitations as analytical tools; should not be viewed as a substitute for or in isolation from GAAP financial measures; and may not be comparable to other companies’ non-GAAP financial measures. In addition, Fig does not plan to have the calculations resulting from, or the methodologies underlying, its revenue sharing and dividend formula subjected to stand-alone audits. As a result, our allocations of revenues to each series of Fig Game Shares will not be audited on a periodic basis. There can be no assurance that there will not be errors or misstatements in such calculations or methodologies, which could reduce Fig’s revenue share from a particular game, or the dividends available to holders of the related series of Fig Game Shares, or both.
DESCRIPTION OF COMPANY SECURITIES
Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.0001 per share, and 100,000,000 shares of preferred stock, par value $0.0001 per share. Shares of our capital stock may be issued from time to time in one or more classes or series. Our Board is authorized by our amended and restated certificate of incorporation to establish such classes or series, issue shares of each such class or series and fix the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions, applicable to each such class or series, without any vote or other action by any holders of any of our capital stock. Each such class or series will have the terms set forth in a certificate of designations relating to such class or series filed with the State of Delaware or otherwise made a part of our certificate of incorporation, as it may be amended and restated from time to time.
As of July 31, 2016, we had 1,000,000 shares of common stock outstanding. Our Parent holds all of these 1,000,000 shares, and thus holds all of the voting power of our outstanding common stock and has sole control of the Company.
The following is a summary of the rights and limitations of our capital stock provided for in our amended and restated certificate of incorporation and the certificates of designations relating to separate classes or series of our capital stock filed with the State of Delaware or otherwise made a part of our certificate of incorporation, as amended and restated from time to time. For more detailed information, please see our amended and restated certificate of incorporation and certificates of designations, copies of which are exhibits to the offering statement in which this offering circular has been filed with the SEC.
Voting Common Stock
Equal Rights per Share. All shares of our common stock shall have identical terms and each share shall entitle the holder thereof to the same powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions, applicable to each other share.
Voting. Holders of shares of our common stock shall have one vote per share of common stock held by them. Except as otherwise required by law, our certificate of incorporation or our certificates of designations, at any annual or special meeting of the shareholders of the Company, the holders of shares of our common stock shall have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the shareholders, and shall vote together as a single class on all such matters. Notwithstanding the foregoing, except as otherwise required by law, our certificate of incorporation or our certificates of designations, the holders of shares of our common stock shall not be entitled to vote on any amendment to our certificate of incorporation or any certificate of designations that relates solely to the terms of one or more outstanding series of preferred stock, if the holders of shares of such affected series of preferred stock are entitled, either separately or together with the holders of shares of one or more other class or series of our capital stock, to vote thereon pursuant to our certificate of incorporation or our certificates of designations.
Dividends. Our Board retains the discretion to pay dividends, or not, on our common stock. There is no minimum semi-annual, annual or other dividend requirement. Our Board will retain the discretion not to pay a dividend or to reduce its size: (i) in circumstances where our Board believes it is necessary or prudent to retain such earnings in order to avoid a material adverse effect on our financial condition or results of operations, or (ii) based on applicable legal or contractual requirements or restrictions or (iii) based on other factors that our Board deems relevant and significant to the Company.
Liquidation, Dissolution, etc. Subject to and qualified by the rights of the holders of shares of any other class or series of our capital stock, in the event of a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Company, after payment or provision for payment of the debts and other liabilities of the Company, and after the holders of shares of any other class or series of our capital stock have received the amounts owed and available for distribution to them on a preferential basis, if any, the holders of shares of our common stock shall be entitled to receive all the remaining assets of the Company available for distribution to shareholders, ratably in proportion to the number of shares of common stock held by them.
No Preemptive or Subscription Rights. No holder of shares of common stock shall be entitled to preemptive or subscription rights.
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Preferred Stock
Series Designations. Each series of our Fig Game Shares will be a separately designated series of non-voting preferred stock of the Company. In connection with the establishment of each such series of Fig Game Shares, our Board shall fix the number of shares comprising such series, and such voting powers, full or limited, or no voting powers, and such other powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions applicable thereto, including without limitation dividend rights, liquidation, dissolution, etc., rights and the Company’s powers of cancellation of the outstanding shares of such series, as shall be stated in the certificate of designations relating to such series filed with the State of Delaware or otherwise made a part of our certificate of incorporation, as amended and restated from time to time, all to the fullest extent permitted by Delaware law and not inconsistent with the other provisions of our certificate of incorporation, as it may have been amended and restated from time to time. The powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions applicable thereto, may be different from those of any other class or series of our capital stock at any time outstanding.
Characterization of Fig Game Shares as “Preferred”. We characterize our Fig Game Shares as “preferred” stock because, in the event of a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Company, after payment or provision for payment of the debts and other liabilities of the Company, the holders of each separate series of Fig Game Shares shall have a preference over holders of other securities of the Company in the receipt of (x) all dividends and other distributions declared or accrued on such series of Fig Game Shares by our Board but not yet paid, plus (y) an amount equal to the value of the total assets of the Game Shares Asset (as defined below) corresponding to such series of Fig Game Shares, less the total liabilities of such Game Shares Asset, in each case ratably in proportion to the number of shares of such series of Fig Game Shares held by them and, depending on the particular campaign, subject to the application of the Fig Game Shares Allotment Percentage (as described below in the definition of “Game Shares Asset”). However, in such event such holders shall not be entitled to any additional amounts. As a result, in the event of a Company liquidation or similar occurrence, the holders of a particular series of Fig Game Shares will have preferred rights over specific declared or accrued dividend amounts and related assets and liabilities, but no rights in respect of other assets of the Company, and no rights in respect of Company assets generally, and in some circumstances, holders of Fig’s common stock (including our Parent) could receive more assets than holders of preferred stock. See “– Liquidation, Dissolution, etc.”, below.
As used herein, “Game Shares Asset” means, as of any date, with respect to any series of preferred stock, unless otherwise specified in the corresponding preferred stock designation, an undivided percentage interest in the following: (i) all assets, liabilities and businesses of the Company to the extent attributed to the publishing rights held by the Company under the particular license agreement with a video game developer associated with such series of preferred stock as of such date; (ii) all assets, liabilities and businesses acquired or assumed by the Company for the account of such publishing rights, or contributed, allocated or transferred to the Company in connection with such publishing rights (including the net proceeds of any issuances, sales or incurrences in connection with such publishing rights, or indebtedness of the Company incurred in connection with such publishing rights), in each case, after the date of the corresponding preferred stock designation; and (iii) the proceeds of any disposition of any of the foregoing. The “undivided percentage interest” referred to in the preceding sentence will in the case of some series of Fig Game Shares be 100%. However, in the case of Fig Game Shares issued in connection with crowdfunding campaigns in which the total amount of Fig Funds is greater than the proceeds of the associated Fig Game Shares offering, the “undivided percentage interest” will be equal to the Fig Games Shares Allotment Percentage applicable to associated Fig Game Shares. This is expected to occur in instances where, in addition to the Fig Game Shares offering, there has been an offering of separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game. The allotments of will be made in the same proportions that the proceeds from these separate securities offerings and the additional funding from Fig, as applicable, bear to the total Fig Funds amount. In such circumstances, the allotment of the Fig Game Shares Asset among the Fig Game Shares, the other securities and Fig, as applicable, will represent an equitable division of the Fig Game Shares Asset among the different sources of funding that have made it possible to prudently provide the particular Fig Funds amount.
In keeping with Fig’s game publishing model, Game Shares Assets do not include intellectual property rights in the associated game. Investors should note that the Company does not plan to have its applications of the definition of “Game Shares Asset”, for the purpose of allocating assets and liabilities among different series of Fig Game Shares, subjected to stand-alone audits. As a result, allocations of assets to each series of Fig Game Shares will not be audited on a periodic basis. There can be no assurance that there will not be errors or misstatements in those applications, which could reduce the assets attributed to a specific game, or increase the liabilities attributed to a specific game, or both.
Equal Rights per Share within a Series. All shares within a series of Fig Game Shares shall have identical terms and each such share shall entitle the holder thereof to the same powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions, applicable to each other share. Fig Game Shares of a particular series purchased pursuant to a Regulation A Offering will have the same terms as Fig Game Shares of the same series purchased pursuant to an Accredited Investor Offering or otherwise, except to the extent applicable laws may require different treatment of such securities or holders.
No Voting Rights. Except as otherwise provided in our amended and restated certificate of incorporation or the certificate of designations relating to such series of Fig Game Shares, or as otherwise required by law, holders of shares of Fig Game Shares shall have no voting rights.
Dividends. Each series of Fig Game Shares is designed to reflect the economic performance of a particular video game co-publishing license agreement that we have entered into with a third-party video game developer in respect of a particular game. Provided the game is successfully developed and published, sales receipts will thereafter be received from the game and will generally be shared as follows: (i) receipts will be allocated into a revenue share for the developer and a revenue share for Fig, in the proportions specified in the license agreement for the game; (ii) depending on the particular campaign, Fig may be paid a service fee; (iii) depending on the particular campaign, Fig may allot part of its revenue share to the Fig Game Shares and another part to separate securities, issued by a Fig affiliate, that are also designed to reflect the economic performance of the same game, and to the extent Fig provides additional funds to support the development of the same game, it may keep a third proportional allotment for itself; (iv) Fig will pay a specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, in the form of dividends, subject to our dividend policy; and (v) Fig’s board of directors may in its discretion from time to time pay more than the specified portion of the Fig Game Shares allotment to the holders of the Fig Game Shares, if in its view business conditions permit it. In all events, our Board may decide not to pay a dividend or to reduce the size of a dividend if it believes it would be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law. See “Our Dividend Policy”.
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Cancellation by the Company. Our Board may, in its discretion, cancel the associated series of Fig Game Shares. We will maintain a cancellation right in respect of each series of Fig Game Shares in order to be able to withdraw the series from the market and avoid the costs of continuing to have the series outstanding after the associated game has lost most or all of its earning power. In general, we would expect to cancel a series of Fig Game Shares if the associated game has failed to meet a minimum earnings floor following a sufficiently extensive period of time. For a description of our cancellation right with respect to the Fig Game Shares being offered in this offering, see “The Current Game, Developer and Shares”. Although the purpose of our cancellation rights is to help us avoid incurring unnecessary administrative costs, and thereby benefit our Company and shareholders as a whole, there can be no assurance that we will not cancel a series of Fig Game Shares before the earning power of the associated game has been completely and irreversibly exhausted, and thereby deny the holders of such Fig Game Shares some additional amount of dividends.
Our Board, in its discretion, may also cancel a series of Fig Game Shares in connection with paying a dividend in respect of or redeeming such Fig Game Shares in the event of a Disposition Event in which all or substantially all of the Game Shares Asset corresponding to such series of Fig Game Shares is disposed of. See “—Dividend or Redemption upon Disposition of Corresponding Game Shares Asset”, below.
Dividend or Redemption upon Disposition of Corresponding Game Shares Asset. In respect of each series of Fig Game Shares, unless otherwise specified in the certificate of designations relating to such series filed with the State of Delaware or otherwise made a part of our certificate of incorporation, as amended and restated from time to time, in the event of a Disposition Event (as defined below), in which the Game Shares Asset (as defined above) corresponding to such series is disposed of, on or prior to the 120th day following the consummation of such Disposition Event, our Board may, in its discretion, but is not required to:
| (i) | declare and pay a dividend in cash, securities (other than shares of the series of Fig Game Shares) or other assets of the Company, or any combination thereof, to the holders of shares of the series of Fig Game Shares, with an aggregate Fair Value (as defined in our certificate of incorporation) equal to the Allocable Net Proceeds (as defined in our certificate of incorporation) of such Disposition Event as of the Determination Date (as defined in our certificate of incorporation), such dividend to be paid on all shares of such series of Fig Game Shares outstanding as of the Determination Date on an equal per share basis; and thereafter, in its discretion, cancel the series of Fig Game Shares if permitted under the terms described above under “ – Cancellation by the Company”; or |
| (ii) | if such Disposition Event involves all (and not merely substantially all) of the Game Shares Asset corresponding to the series of Fig Game Shares, redeem all outstanding shares of such series of Fig Game Shares for cash, securities (other than shares of the series of Fig Game Shares) or other assets of the Company, or any combination thereof, with an aggregate Fair Value equal to the Allocable Net Proceeds of such Disposition Event as of the Determination Date, such aggregate amount to be allocated among all shares of such series of Fig Game Shares outstanding as of the Determination Date on an equal per share basis; or |
| (iii) | combine all or any portions of (i) or (ii) above on a pro rata basis among all holders of such series of Fig Game Shares. |
As used herein, “Disposition Event” means the sale, transfer, exchange, assignment or other disposition (whether by merger, consolidation, sale or contribution of assets or stock or otherwise) by the Company or any of its affiliates, in one transaction or a series of related transactions, of a Game Shares Asset, or substantially all of a Game Shares Asset, or any of the Company’s or any such affiliate's interests therein, to one or more persons or entities.
Liquidation, Dissolution, etc. In the event of a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Company, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of each series of Fig Game Shares outstanding shall be entitled to receive (x) all dividends and other distributions declared or accrued on such series of Fig Game Shares by our Board but not yet paid, plus (y) an amount equal to the value of the total assets of the Game Shares Asset (as defined above) corresponding to such series of Fig Game Shares, less the total liabilities of such Game Shares Asset, in each case ratably in proportion to the number of shares of such series of Fig Game Shares held by them and, depending on the particular campaign, subject to the application of the Fig Game Shares Allotment Percentage (as described above in “– Preferred Stock”); but in such event such holders shall not be entitled to any additional amounts. As a result, in the event of a Company liquidation or similar occurrence, the holders of a particular series of Fig Game Shares will have preferred rights over specific declared dividend amounts and related assets and liabilities, but no rights in respect of other assets of the Company, and no rights in respect of Company assets generally, and in some circumstances, holders of Fig’s common stock (including our Parent) could receive more assets than holders of preferred stock.
In connection with the establishment of each series of Fig Game Shares, our Board shall specifically identify the corresponding Game Shares Asset in the certificate of designations relating to such series filed with the State of Delaware or otherwise made a part of our certificate of incorporation, as amended and restated from time to time.
Our Ability to Void a Sale of Fig Game Shares. Fig has the right to void a sale of Fig Game Shares made by it, and cancel the shares or compel the shareholder to return them to us, if Fig has reason to believe that such shareholder acquired Fig Game Shares as a result of a misrepresentation, including with respect to such shareholder’s representation that it is a “qualified purchaser” or an “accredited investor” as defined pursuant to Regulation A or Regulation D promulgated under the Securities Act, respectively, or if the shareholder or the sale to the shareholder is otherwise in breach of the requirements set forth in Fig’s certificate of incorporation, certificates of designations or bylaws, copies of which are exhibits to the offering statement in which this offering circular has been filed with the SEC.
No Preemptive or Subscription Rights. No holder of shares of preferred stock shall be entitled to preemptive or subscription rights.
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The Fig Game Shares being offered in this offering will be available for purchase exclusively on Fig.co. They will be issued in book-entry electronic form only. FundAmerica Stock Transfer, LLC is the transfer agent and registrant for these shares.
This is a Regulation A, Tier 2 offering, which we shall conduct through Fig.co. We do not intend to use commissioned sales agents or underwriters to help offer and sell the Fig Game Shares being offered in this offering. These shares will be offered only by us and by persons associated with us in reliance upon the exemption from registration contained in Rule 3a4-1 of the Securities Exchange Act of 1934.
There is no trading market for Fig Game Shares and we do not expect one to develop, in part because we may have imposed certain transfer restrictions on the particular series of Fig Game Shares being offered. As a result, investors should be prepared to retain their Fig Game Shares for as long as those shares remain outstanding and should not expect to benefit from any share price appreciation. Any such transfer restrictions applicable to the series of Fig Game Shares being offered in this offering are described in this offering circular in the section entitled “The Current Game, Developer and Shares”.
The offering will continue until the earlier of 120 days after qualification of the offering statement in which this offering circular has been filed with the SEC (which date may be extended one or more times by us, in our discretion) and the date when all Fig Game Shares being offered in this offering have been sold, at which time this offering shall close and shares will be delivered to investors. Notwithstanding the foregoing, the Company expects it will terminate the offering earlier if the goal of the related Fig crowdfunding campaign is not met, and may terminate the offering earlier in other adverse circumstances, such as, for example, a material breach of the related license agreement. In the event the offering is not completed, the Company will return funds to investors without deduction or interest. The offering is being conducted on a best efforts basis without any minimum target. The Company may undertake one or more closings on a rolling basis. After each closing, funds tendered by investors will be available to the Company. We will post a notice of each closing date in advance on Fig.co.
The Company retains the right to reject, in whole or in part, any orders for securities made in this offering, in its discretion.
This offering circular and the offering documents specific to this offering will be available to prospective investors for viewing 24 hours per day, 7 days per week through Fig.co, by clicking on links to such documents on the SEC website that will be maintained on Fig.co. Before committing to purchase Fig Game Shares, each potential investor must consent to receive the final offering circular and all other offering documents electronically. In order to purchase Fig Game Shares, a prospective investor must complete and electronically sign and deliver to us a subscription agreement, the form of which the offering statement in which this offering circular has been filed with the SEC, and send payment to us by check, wire transfer or ACH as further described in the subscription agreement. Prospective investors must also have agreed to the Terms of Use and Privacy Policy of Fig.co. Prospective investors must answer certain questions to determine compliance with the investment limitation set forth in Rule 251(d)(2)(i)(C) of Regulation A under the Securities Act, which is described more fully, below. This investment limitation does not apply to “accredited investors,” as that term is defined in Rule 501 of Regulation D under the Securities Act.
Prospective investors must read and rely on the information provided in this offering circular in connection with any decision to invest in Fig Game Shares.
Limitations on Your Investment Amount
Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or your net worth. Different rules apply to accredited investors and to non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A, which states:
“In a Tier 2 offering of securities that are not listed on a registered national securities exchange upon qualification, unless the purchaser is either an accredited investor (as defined in Rule 501 (§230.501)) or the aggregate purchase price to be paid by the purchaser for the securities (including the actual or maximum estimated conversion, exercise, or exchange price for any underlying securities that have been qualified) is no more than ten percent (10%) of the greater of such purchaser's:
(1) Annual income or net worth if a natural person (with annual income and net worth for such natural person purchasers determined as provided in Rule 501 (§230.501)); or
(2) Revenue or net assets for such purchaser's most recently completed fiscal year end if a non-natural person”.
For general information on investing, we encourage you to refer to www.investor.gov.
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State Blue Sky Information
We intend to offer and sell our securities in this offering to retail customers in every state in the United States plus the District of Columbia and Puerto Rico, except for the states of Alabama, Florida and Texas. In each of the foregoing jurisdictions in which we intend to make offers and sales, we have made notice filings where required in respect of our intentions to make offers and sales there. Investors in the state of Arizona must either be accredited investors within the meaning of Rule 501 under Regulation D under the Securities Act or meet the qualified purchaser definition in Arizona Administrative Code Rule 13.9.
The National Securities Markets Improvement Act of 1996 (“NSMIA”), which is a U.S. federal statute, preempts the states from regulating transactions in certain securities, which are referred to as “covered securities”. NSMIA nevertheless allows the states to investigate if there is a suspicion of fraud or deceit, or unlawful conduct by a broker or dealer, in connection with the sale of securities. If there is a finding of fraudulent activity, the states can bar the sale of covered securities in a particular case.
Following this offering, we intend to file periodic and current reports under the Exchange Act. Therefore, under NSMIA, the states and other jurisdictions of the United States are preempted from regulating the resale by security holders of the Shares. However, NSMIA does allow states and territories to require notice filings and collect fees with regard to resale transactions, and a state may suspend the offer and resale of our securities within such state if any such required filing is not made or fee is not paid. As of the date of this offering circular, the following states and territories do not require any resale notice filings or fee payments and security holders may resell our securities: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
As of the date of this offering circular, in the following states, district and territories, security holders may resell our securities if the proper notice filings have been made and fees paid: the District of Columbia, Illinois, Maryland, Montana, New Hampshire, North Dakota, Oregon, Puerto Rico, Tennessee, Texas and Vermont. As of the date of this offering circular, we have not determined in which of these states and other jurisdictions, if any, we will submit the required filings or pay the required fees. Additionally, if any additional states or other jurisdictions adopt a statute, rule or regulation requiring a filing or fee, or if any state amends its existing statutes, rules or regulations with respect to its requirements, we would likely need to comply with those new requirements in order for our securities to become eligible, or continue to be eligible, for resale by security holders in those states or other jurisdictions.
In addition, aside from the exemption from registration provided by NSMIA, we believe that our securities may be eligible for resale in various states without any notice filings or fee payments, based upon the availability of applicable exemptions from such states’ registration requirements, in certain instances subject to waiting periods, notice filings or fee payments.
The various states and other jurisdictions can impose fines on us or take other regulatory actions against us if we fail to comply with their securities laws. Although we are taking steps to help insure that we will conduct all offers and sales in this offering in compliance with all Blue Sky laws, there can be no assurance that we will be able to achieve such compliance in all instances, or avoid fines or other regulatory actions if we do not achieve compliance.
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Foreign Restrictions on Purchase of Shares
We have not taken any action to permit a public offering of the Fig Game Shares outside the United States or to permit the possession or distribution of this offering circular outside the United States. Our securities may not be offered or sold, directly or indirectly, nor may this offering circular or any other offering material or advertisements in connection with the offer and sale of our securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons outside the United States who come into possession of this offering circular must inform themselves about and observe any restrictions relating to this offering and the distribution of this offering circular in the jurisdictions outside the United States relevant to them.
Canada
Each purchaser of Fig Game Shares that is resident in Canada or otherwise subject to the requirements of Canadian securities laws in connection with its purchase will be deemed to have represented and warranted to the issuer and the underwriters that it is: (i) an “accredited investor” as defined in National Instrument 45-106 Prospectus and Registration Exemptions of the Canadian Securities Administrators (other than an “accredited investor” relying on subsection (j), (k) or (l) of the definition of that term) and, if relying on subsection (m) of the definition of that term, is not a person created or being used solely to purchase or hold securities as an accredited investor, (ii) a “permitted client” as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and (iii) either purchasing the securities as principal for its own account or is deemed to be purchasing the securities as principal by applicable law. Each such purchaser further acknowledges that the securities have not been and will not be qualified for sale to the public under applicable Canadian securities laws and that any resale of the securities must be made in accordance with, or pursuant to an exemption from, or in a transaction not subject to, the prospectus requirements of those laws.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a ‘‘Relevant Member State’’), from and including the date on which the European Union Prospectus Directive (the ‘‘EU Prospectus Directive’’) was implemented in that Relevant Member State (the ‘‘Relevant Implementation Date’’) an offer of securities described in this offering circular may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the securities which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities described in this offering circular may be made to the public in that Relevant Member State at any time:
| ● | to any legal entity which is a qualified investor as defined under the EU Prospectus Directive; |
| ● | to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive); or |
| ● | in any other circumstances falling within Article 3(2) of the EU Prospectus Directive, provided that no such offer of securities described in this offering circular shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the EU Prospectus Directive. |
For the purposes of this provision, the expression an ‘‘offer of securities to the public’’ in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression “EU Prospectus Directive” means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
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Germany
The offering of Fig Game Shares is not a public offering in the Federal Republic of Germany. The securities may only be acquired in accordance with the provisions of the Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz), as amended, and any other applicable German law. No application has been made under German law to publicly market the securities in or out of the Federal Republic of Germany. The securities are not registered or authorized for distribution under the Securities Sales Prospectus Act and accordingly may not be, and are not being, offered or advertised publicly or by public promotion. Therefore, this offering circular is strictly for private use and the offering is only being made to recipients to whom the document is personally addressed and does not constitute an offer or advertisement to the public. The securities will only be available to persons who, by profession, trade or business, buy or sell Fig Game Shares for their own or a third-party’s account.
United Kingdom
No offer of securities has been made or will be made to the public in the United Kingdom within the meaning of Section 102B of the Financial Services and Markets Act 2000, as amended, or FSMA, except to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by us of a prospectus pursuant to the Prospectus Rules of the Financial Conduct Authority. Each underwriter: (i) has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which Section 21 of FSMA does not apply to us; and (ii) has complied with, and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to Fig Game Shares in, from or otherwise involving the United Kingdom.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission in relation to the offering. This offering circular does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of our securities may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer our securities without disclosure to investors under Chapter 6D of the Corporations Act.
The securities applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring our securities must observe such Australian on-sale restrictions.
This offering circular contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this offering circular is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Kuwait
Unless all necessary approvals from the Kuwait Capital Markets Authority (“CMA”) pursuant to Law No. 7/2010, its Executive Regulations and the various Resolutions and Announcements issued pursuant thereto or in connection therewith have been given in relation to the marketing of, and sale of, the securities, these may not be offered for sale, nor sold in the State of Kuwait (“Kuwait”). Neither this offering circular nor any of the information contained herein is intended to lead to the conclusion of any contract of whatsoever nature within Kuwait.
With regard to the contents of this document, we recommend that you consult a party licensed by the CMA to conduct securities activities in Kuwait and specialized in giving advice about the purchase of securities before making the subscription decision.
Saudi Arabia
This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulation issued by the Capital Market Authority.
The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective purchasers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this document you should consult an authorized financial adviser.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
U.S. Federal Income Tax Treatment of the Shares
The Fig Game Shares being offered in this offering (the “Shares”) should be treated as stock of the Company for U.S. federal income tax purposes. There are, however, no court decisions or other authorities directly bearing on the tax effects of the issuance and classification of stock with the features of the Shares, so the matter is not free from doubt. In addition, the Internal Revenue Service has announced that it will not issue advance rulings on the classification of an instrument with characteristics similar to those of the Shares. Accordingly, no assurance can be given that the views expressed in this paragraph, if contested, would be sustained by a court.
If the Shares are considered property other than a series of preferred stock of the Company, the Company would generally be taxed on a portion of the appreciation of the assets, if any, attributable to the Shares upon the issuance of such stock. In addition, income, gain, losses and deductions of one Game Shares would not be offset against the income, gain, losses and deductions of another Game Shares. Prospective investors are urged to consult their tax advisors regarding the tax consequences of an investment in Shares. The remainder of this discussion assumes the Shares will be treated as preferred stock of the Company.
Taxation of Non-U.S. Holders
The following discussion sets forth the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the purchase, ownership and disposition of Shares are issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or foreign tax laws are not discussed. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS in effect as of the date of this offering circular. These authorities may change or be subject to differing interpretations. Any such change may be applied retroactively in a manner that could adversely affect a non-U.S. holder of Shares. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position regarding the tax consequences of the purchase, ownership and disposition of Shares.
This discussion is limited to non-U.S. holders that hold Shares as a “capital asset” within the meaning of Section 1221 of the Code (property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a non-U.S. holder’s particular circumstances, including the impact of the unearned income Medicare contribution tax. In addition, it does not address consequences relevant to non-U.S. holders subject to particular rules, including, without limitation:
| ● | U.S. expatriates and certain former citizens or long-term residents of the United States; |
| ● | persons subject to the alternative minimum tax; |
| ● | persons holding Shares as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment; | |
| ● | banks, insurance companies, and other financial institutions; |
| ● | real estate investment trusts or regulated investment companies; |
| ● | brokers, dealers or traders in securities; |
| ● | “controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax; |
| ● | S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes; | |
| ● | tax-exempt organizations or governmental organizations; |
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| ● | persons deemed to sell Shares under the constructive sale provisions of the Code; |
| ● | persons who hold or receive Shares pursuant to the exercise of any employee stock option or otherwise as compensation; and |
| ● | tax-qualified retirement plans. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds Shares, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding Shares and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF GAME SHARES ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a “non-U.S. holder” is any beneficial owner of Shares that is neither a “U.S. person” nor a partnership for United States federal income tax purposes. A U.S. person is any of the following:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more United States persons (within the meaning of Section 7701(a)(30) of the Code), or (2) has made a valid election under applicable Treasury Regulations to continue to be treated as a United States person. |
Dividends and Distributions
If we make distributions of cash or property on the Shares, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a non-U.S. holder’s adjusted tax basis in its Shares, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “—Sale or Other Taxable Disposition”.
Subject to the discussion below on backup withholding and foreign accounts, dividends paid to a non-U.S. holder of Shares that are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty).
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Non-U.S. holders will be entitled to a reduction in or an exemption from withholding on dividends as a result of either (a) an applicable income tax treaty or (b) the non-U.S. holder holding Shares in connection with the conduct of a trade or business within the United States and dividends being paid in connection with that trade or business. To claim such a reduction in or exemption from withholding, the non-U.S. holder must provide the applicable withholding agent with a properly executed (a) IRS Form W-8BEN claiming an exemption from or reduction of the withholding tax under the benefit of an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established, or (b) IRS Form W-8ECI stating that the dividends are not subject to withholding tax because they are effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, as may be applicable. These certifications must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Subject to the discussion below on backup withholding and foreign accounts, if dividends paid to a non-U.S. holder are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), then, although exempt from U.S. federal withholding tax (provided the non-U.S. holder provides appropriate certification, as described above), the non-U.S. holder will be subject to U.S. federal income tax on such dividends on a net income basis at the regular graduated U.S. federal income tax rates. In addition, a non-U.S. holder that is a corporation may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits for the taxable year that are attributable to such dividends, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
Sale or Other Taxable Disposition
Subject to the discussions below on backup withholding and foreign accounts, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of Shares unless:
| ● | the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable); |
| ● | the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or |
| ● | the Shares constitute a U.S. real property interest (“USRPI”) by reason of our status as a U.S. real property holding corporation (a “USRPHC”) for U.S. federal income tax purposes. |
Gain described in the first bullet point above will generally be subject to U.S. federal income tax on a net income basis at the regular graduated U.S. federal income tax rates. A non-U.S. holder that is a foreign corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) of a portion of its effectively connected earnings and profits for the taxable year, as adjusted for certain items.
A non-U.S. holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any gain derived from the disposition, which may be offset by certain U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States) provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we are not currently and do not anticipate becoming a USRPHC. Because the determination of whether we are a USRPHC depends on the fair market value of our USRPIs relative to the fair market value of our other business assets and our non-U.S. real property interests, however, there can be no assurance we are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a non-U.S. holder of Shares will not be subject to U.S. federal income tax if such class of stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and such non-U.S. holder owned, actually or constructively, 5% or less of such class of our stock throughout the shorter of the five-year period ending on the date of the sale or other disposition or the non-U.S. holder’s holding period for such stock.
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Non-U.S. holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Subject to the discussion below on foreign accounts, a non-U.S. holder will not be subject to backup withholding with respect to payments of dividends on the Shares we make to the non-U.S. holder, provided the applicable withholding agent does not have actual knowledge or reason to know such holder is a United States person and the holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN or W-8ECI, or other applicable certification. However, information returns will be filed with the IRS in connection with any dividends on the Shares paid to the non-U.S. holder, regardless of whether any tax was actually withheld. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides or is established.
Information reporting and backup withholding may apply to the proceeds of a sale of Shares within the United States, and information reporting may (although backup withholding generally will not) apply to the proceeds of a sale of Shares outside the United States conducted through certain U.S.-related financial intermediaries, in each case, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder on IRS Form W-8BEN or other applicable form (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person) or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under the Sections 1471 through 1474 of the Code (commonly referred to as FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or gross proceeds from the sale or other disposition of, Shares paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations, withholding under FATCA generally will apply to payments of dividends on the Shares made on or after July 1, 2014 and to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2017.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in Shares.
Certain legal matters with respect to the Fig Game Shares offered will be passed upon by the law firm of Ellenoff Grossman & Schole LLP, New York, New York (“EGS”). In respect of a portion (approximately $50,000) of the aggregate legal fees owed by Fig to EGS, EGS has agreed to be paid in shares of Series A preferred stock of Fig’s parent company, Loose Tooth Industries, Inc. Such shares will represent less than 1% of all such shares expected to be issued by Loose Tooth.
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| F-1 |
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2016 | September 30, 2015 | |||||||
| (Unaudited) | (See Note 1) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 7,980 | $ | - | ||||
| Prepaid expenses | - | 2,079 | ||||||
| Total current assets | 7,980 | 2,079 | ||||||
| Deferred offering costs | 447,236 | 104,540 | ||||||
| Property and equipment, net | - | 9,780 | ||||||
| Security deposit | - | 4,561 | ||||||
| Total assets | $ | 455,216 | $ | 120,960 | ||||
| LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | - | $ | 266,565 | ||||
| Other current liabilities | 8,000 | 1,164 | ||||||
| Total current liabilities | 8,000 | 267,729 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholder's equity (deficit) (See Note 7): | ||||||||
| Preferred stock, $0.0001 par value; 100,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2016 and September 30, 2015 | - | - | ||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized; 1,000,000 and -0- shares issued and outstanding as of March 31, 2016 and September 30, 2015, respectively | 100 | - | ||||||
| Additional paid-in capital | 1,569,636 | - | ||||||
| Net transfers from Parent | - | 242,161 | ||||||
| Accumulated deficit | (1,122,520 | ) | (388,930 | ) | ||||
| Total stockholder's equity (deficit) | 447,216 | (146,769 | ) | |||||
| Total liabilities and stockholder's equity (deficit) | $ | 455,216 | $ | 120,960 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-2 |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| For the six months ended March 31, 2016 | ||||
| (Unaudited) | ||||
| Operating expenses: | ||||
| General and administrative | $ | 733,590 | ||
| Loss from operations | (733,590 | ) | ||
| Net loss | $ | (733,590 | ) | |
| Weighted average shares outstanding, basic and diluted | 1,000,000 | |||
| Basic and diluted net loss per share | $ | (0.73 | ) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| For the six months ended March 31, 2016 | ||||
| (Unaudited) | ||||
| Cash Flows From Operating Activities: | ||||
| Net loss | $ | (733,590 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Stock based compensation | 50,580 | |||
| Expenses allocated by Parent | 682,990 | |||
| Net cash used in operating activities | (20 | ) | ||
| Cash Flows From Financing Activities: | ||||
| Investors' advances | 8,000 | |||
| Net cash provided by financing activities | 8,000 | |||
| Net change in cash | 7,980 | |||
| Cash: | ||||
| Beginning | - | |||
| Ending | $ | 7,980 | ||
| Non-cash financing activities: | ||||
| Issuance of common stock to Parent | $ | 100 | ||
| Reclassification of Net transfer from Parent to Additional paid-in capital | $ | 242,161 | ||
| Contribution from Parent | $ | 251,309 | ||
| Deferred offering costs contributed by Parent | $ | 342,696 | ||
| Cash paid for interest | $ | - | ||
| Cash paid for income taxes | $ | - | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. ORGANIZATION AND BUSINESS
Nature of Operations
Fig Publishing, Inc. and subsidiaries (the "Company", or “Fig”) was incorporated in the State of Delaware on October 8, 2015 and is a wholly-owned subsidiary of Loose Tooth Industries, Inc. (the "Parent"). The Company is an early-stage entity and has relied on the Parent to conduct its operations since inception. The Parent was formed in October 2014 but operations did not commence until April 2015.
Fig is a community powered publisher of video games. Fig’s business is to identify, license, contribute funds to the development of, market, arrange distribution for, and earn cash receipts from sales of video games developed by third-party video game developers with whom we enter into license agreements to publish those games. The Company hosts the crowdfunding campaigns on the Parent’s website, Fig.co, an online technology platform created by the Parent to facilitate fundraising for video game development. The Company has only recently begun operations and has to date relied substantially on its Parent for support in the conduct of our business. In June 2016, the Company entered into an agreement with its Parent (the “Cost Sharing Agreement”), pursuant to which the Company and its Parent have each agreed to share costs pursuant to an allocation policy. (See Note 5)
Prior to its formation on October 8, 2015, the Company did not operate as a separate legal entity within the Parent. Accordingly, the Company’s condensed consolidated financial statements, prior to formation, had been prepared on a “carve-out” basis from the Parent’s accounts and reflect the historical accounts directly attributable to the Company together with allocations of costs and expenses incurred by the Parent. These allocations may not be reflective of the actual level of assets, liabilities, income or costs which would have been incurred had the Company operated as a separate legal entity. All transactions between the Parent and the Company, prior to the Company’s formation, were classified as net transfers from Parent in the condensed consolidated balance sheets.
Upon the Company’s formation, the Parent did not contribute any assets to the Company and the Company did not assume any liabilities from the Parent. As such, the assets and liabilities allocated to the Company in the carve-out financial statements, other than for $104,540 of deferred offering costs, which directly benefit the Company, were considered to be returned to the Parent. On the inception date of October 8, 2015, the allocated assets and liabilities, other than the deferred offering costs, were a net liability of $251,309, and was recognized as a contribution from the Parent.
The Company's condensed consolidated balance sheets at March 31, 2016 and the Company's condensed consolidated statement of operations for the six months ended March 31, 2016 are presented based on the Company’s actual results as a stand-alone entity. The Company did not have any operation activities during the six months ended March 31, 2015 and as a result, a statement of operations for the six months ended March 31, 2015 has not been presented.
On October 23, 2015, January 8, 2016, January 28, 2016, February 8, 2016 and March 4, 2016, the Company formed its publishing subsidiaries, Fig Grasslands, LLC; Fig ARGH, LLC, which was later renamed Fig WL3, LLC (“Fig WL3”); Fig RBPC, LLC; Fig JASB, LLC (“Fig JASB”); and Fig CTT, LLC (“Fig CTT”), respectively. Subsequent to March 31, 2016, the Company formed an additional subsidiary, Fig Small Batch, LLC.
Certain Significant Risks and Uncertainties
The Company can be affected by a variety of factors. For example, management of the Company believes that changes in any of the following areas could have a significant negative effect on the Company in terms of its future financial position, results of operations or cash flows: the ability to identify games with sufficient potential for commercial success; secure license agreements on favorable terms with talented and reliable developers; successfully market and distribute licensed games; and keep up with customer preferences and trends.
| F-5 |
2. GOING CONCERN CONSIDERATION
The Company’s condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments through the normal course of business and use of cash in its operations.
To date, the Company has relied substantially on its Parent for liquidity and capital resources. As of March 31, 2016, the Company had approximately $8,000 in cash and had no working capital. In July 2016, the Company’s Parent contributed $1 million to the Company for working capital needs. On September 30, 2016, the Company entered into the Loan and Security Agreement (Note 8) with its Parent and a financial institution, under which up to an aggregate of $1 million can be borrowed from the financial institution, all or substantially all of which is intended to be used in support of the Company’s business. As of the date hereof, the full $1,000,000 available under such agreement has been borrowed.
Management believes that the Company will continue to incur losses for the foreseeable future and will need equity or debt financing or will need to generate revenue from the distribution of products to be able to sustain its operations until it can achieve profitability and positive cash flows, if ever. The Parent and/or the Company intend to raise funds through various potential sources, such as equity or debt financings, or redistributing products, however, the Parent and/or the Company can provide no assurance that such financing will be available on acceptable terms, or at all. If adequate financing is not available, the Company may be required to terminate or significantly curtail or cease its operations. If the Company is unable to achieve these goals, its business would be jeopardized and it may not be able to continue operations.
These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim condensed consolidated balance sheet as of March 31, 2016, and the condensed consolidated statements of operations and cash flows for the six months ended March 31, 2016 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position as of March 31, 2016 and its results of operations and cash flows for the six months ended March 31, 2016. The financial data and the other financial information contained in these notes to the financial statements related to the six month periods are also unaudited.
The results of operations for the six months ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending September 30, 2016 or for any other future annual or interim period. These financial statements should be read in conjunction with the Company's audited financial statements included elsewhere in this Form 1-A.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Fig Publishing, Inc. and its wholly owned subsidiaries. All intercompany transactions, if any, have been eliminated.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with the accounting principles generally accepted in the United States of America (“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 date of the financial statements. The Company’s significant estimates included in the preparation of the condensed consolidated financial statements are related to share-based compensation, expense allocations, and the valuation allowance associated with its deferred tax assets. Actual results could differ from those estimates.
| F-6 |
Recently Issued Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09 “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting”. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The Amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. Management is currently assessing the impact the adoption of ASU No. 2016-09 will have on its condensed consolidated financial statements.
4. ASSUMPTIONS AND ALLOCATIONS
The Company’s expenses for the six months ended March 31, 2016, including executive compensation, have been allocated by management between the Company and the Parent based either on agreed pre-determined formulas, or, where necessary and appropriate, based on management’s best estimate of an appropriate proportional allocation. The expenses have been allocated from the Parent and included as the Company’s operations. Certain corporate expenditures of the Parent have not been allocated to the Company since they did not provide a direct or material benefit to the Company.
The following expenses included in the accounting records of the Parent have been attributed by management to the operations of the Company:
| For the six months ended | ||||
| March 31, 2016 | ||||
| General and Administrative Expenses: | ||||
| Salaries and benefits | $ | 332,961 | ||
| Occupancy | 20,935 | |||
| Professional fees | 171,311 | |||
| Stock based compensation | 50,580 | |||
| Marketing and promotion | 112,673 | |||
| Travel expense | 12,647 | |||
| Other general and administrative expenses | 32,483 | |||
| Total General and Administrative Expenses | $ | 733,590 | ||
5. RELATED PARTY TRANSACTIONS
Cost Sharing Agreement
On December 3, 2015, the Company, on behalf of itself and the subsidiaries, entered into a master services agreement with the Parent. In June 2016, this agreement was superseded and replaced with the Cost Sharing Agreement with its Parent. All expenses incurred by the Company to date were paid by the Parent and allocated to the Company according to, in most instances, pre-determined formulas pursuant to the Cost Sharing Agreement. The Parent allocates (i) 50% of the salary of each of the Chief Executive Officer, Mr. Justin Bailey, and one other employee, to Fig, and the remaining 50% of each such salary to the Parent; and (ii) 100% of the salaries of the Vice President, Business Development and Strategy, Mr. Jonathan Chan, to Fig. As the Parent provides Fig with management and administrative services, as well as services relating to information technology provision and support, distribution rights management and other support operations, facilities, human resources, tax planning and administration, accounting, treasury and insurance, the costs of these activities are allocated 50% to the Parent and 50% to the Company.
The Cost Sharing Agreement has an initial term through December 31, 2016, and will automatically renew for successive one-year terms each December 31, unless either party provides the other party with written notice of its intent not to renew at least three months prior to such date.
| F-7 |
6. LICENSE AGREEMENTS
According to the Company’s business model, the Company will enter into co-publishing license agreements with game developers prior to conducting crowdfunding campaigns to determine the campaigns’ goals and both parties’ obligations (“License Agreements”). The goals can be met through a combination of rewards pledges and Fig Advance (as discussed below). Prior to the end of the crowdfunding campaigns, Fig will determine, based on a number of factors (many of which will relate to Fig’s assessment of the success of the crowdfunding campaign), the precise amount of the Fig Advance within the range previously agreed. If the crowdfunding campaigns meet their goals, the developer will receive the proceeds of all the rewards pledges made directly. Fig will not be involved in this payment process. The license agreement will then continue, the Company will pay to the developer various amounts over time to fund the development of the game until it is ready for commercial marketing and sale (“Fig Advance”), and the developer will proceed with developing the game and delivering it pursuant to the terms of the license agreement. If the crowdfunding campaigns are not successful, the rewards pledges made will not be collected and the license agreements will terminate. As of March 31, 2016, the Company has entered into three video game co-publishing license agreements, for the games Psychonauts 2, Jay and Silent Bob Chronic Blunt Punch and Consortium: The Tower.
Psychonauts 2 License Agreement
On December 3, 2015, the Company entered into a video game co-publishing license agreement (as amended and restated, the “Psychonauts 2 License Agreement”) with Double Fine Productions, Inc (“Double Fine”), a California corporation, to co-publish the game Psychonauts 2 on any and all current and future operating systems on which video games are played, excluding virtual reality platforms. Tim Schafer, the Chief Executive Officer and founder of Double Fine, serves as a member of the Parent’s Board of Directors and Advisory Board. Each of Mr. Schafer and Double Fine own equity interests in the Parent. Under the Psychonauts 2 License Agreement, Fig was granted a non-exclusive, irrevocable, perpetual, worldwide, fully paid up, sublicensable (across multiple tiers) right and license throughout the world to use, license, sublicense, sell, advertise, promote, publicly perform, distribute, display, and otherwise utilize Psychonauts 2 for and in connection with publishing, distributing, selling, licensing, advertising, marketing and promoting the game to distributors and consumers, including updates of and enhancements to the game.
The Company determined that the goal of the crowdfunding campaign for Psychonauts 2 conducted on Fig.co in December 2015 and January 2016 was met. Pursuant to the agreement, Fig will provide the Fig Advance in the range of $300,000 to $3 million, to be determined upon the closing of the Regulation A Offering (Note 8). The developer has agreed to deliver the finished game, ready for commercial sale on certain of the licensed platforms, no later than July 31, 2018. No assurance can be provided that the Company will be successful in completing the Regulation A Offering or that the game Psychonauts 2 will be successfully developed by such date or successfully published by the Company.
All sales receipts received by Fig in respect of Psychonauts 2 sales pursuant to the Psychonauts 2 License Agreement will be deposited into a separate account or sub-account for Psychonauts 2 under Fig’s control. From then, Fig will deduct 0.1% of the sales receipts it receives in respect of Psychonauts 2, which shall be used to compensate Fig for publishing services and in support of Fig’s general operations and working capital needs (“Fig Service Fee”). The Company will then allocate the remaining amount into a revenue share for Double Fine and a revenue share for itself, and will pay 30% of its revenue share to the holders of Fig Game Shares – PSY2, in the form of dividends. Fig’s Board of Directors may in its discretion from time to time pay more than 30% of Fig’s revenue share from Psychonauts 2 to Fig Game Shares – PSY2 holders, if in its view business conditions permit it. In all events, Fig’s Board of Directors may decide not to pay a dividend or to reduce its size if the Board believes it will be necessary or prudent to retain such earnings in order to avoid a material adverse effect on Fig’s financial condition or results of operations (in which case the unpaid dividend amount will accrue for future payment), and dividends will not be declared or paid if prohibited under applicable law.
Jay and Silent Bob Chronic Blunt Punch License Agreement
On February 8, 2016, Fig JASB, one of the Company’s subsidiaries, entered into a video game co-publishing license agreement with a developer (“JASB Developer”). Under the license agreement, the JASB Developer granted to the Fig JASB the right to co-publish the game Jay and Silent Bob Chronic Blunt Punch on particular platforms and the right to receive revenue from game sales on these licensed platforms. In exchange, upon meeting the crowdfunding campaign’s goal of at least $400,000 on March 31, 2016, Fig JABS will provide the JABS Developer with an agreed upfront development funding amount (“Game Funding Payment”). Both parties also agreed to pay the Fig Service Fee of 5% of the sales receipts that Fig JASB receives to Fig. The JASB Developer has agreed to deliver the finished game, ready for commercial sale on certain of the licensed platforms, no later than February 18, 2018. In addition, Fig JABS will also pay the JASB Developer a certain percentage of the adjusted gross revenue (“Developer Rev Share”).
Consortium: The Tower License Agreement
On March 7, 2016, Fig CTT, one of the Company’s subsidiary, entered into a video game co-publishing license agreement with a developer (“CTT Developer”). Under the license agreement, the CTT Developer granted to the Fig JASB the right to co-publish the game Consortium: The Tower on particular platforms and the right to receive revenue from game sales on these licensed platforms. In exchange, upon meeting the crowdfunding campaign’s goal of at least $300,000 on May 11, 2016, Fig CTT agreed to provide the CTT Developer with the Game Funding Payment. Both parties also agreed to pay the Fig Service Fee of 5% of the sales receipts that Fig CTT receives to Fig. The CTT Developer has agreed to deliver the finished game, ready for commercial sale on certain of the licensed platforms, no later than December 1, 2017. In addition, Fig CTT will also pay the CTT Developer the Developer Rev Share.
7. STOCKHOLDER’S EQUITY (DEFICIT)
Capital Stock
Pursuant to the Company’s amended and restated certificate of incorporation effective December 17, 2015, the Company is authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share, and 100,000,000 shares of blank check preferred stock, par value $0.0001 per share.
| F-8 |
Upon the Company’s formation in October 2015, the Company reclassified the net transfers from Parent of approximately $242,000 into additional paid-in capital. In addition, during the six months ended March 31, 2016, the Parent contributed approximately $1.3 million, resulting from various allocations pursuant to the Cost Sharing Agreement, to the Company.
As of March 31, 2016, the Parent held 1,000,000 shares of the Company’s common stock, representing 100% of the then issued and outstanding shares of common stock. As a result, the Parent holds all of the voting power and has sole control of the Company.
Stock Based Compensation - Stock Option Activity
The Parent allocated approximately $51,000 of stock based compensation expense to the Company for the six months ended March 31, 2016.
8. COMMITMENTS AND CONTINGENCIES
Lease
The Company is not a party to any leases. Rent expense for the six months ended March 31, 2016 of approximately $21,000 resulted from an allocation of the Parent’s rent expense.
Litigation
The Company recognizes a liability for a contingency when it is probable that liability has been incurred and when the amount of loss can be reasonably estimated. When a range of probable loss can be estimated, the Company accrues the most likely amount of such loss, and if such amount is not determinable, then the Company accrues the minimum of the range of probable loss. As of March 31, 2016 and through the date of this filing, there were no such matters.
9. SUBSEQUENT EVENTS
Offerings
The Company offers non-voting preferred stock in Fig Publishing, Inc. (“Fig Game Shares”) through various offerings pursuant to the Regulation A and Regulation D exemptions from registration under the Securities Act of 1933. In addition, limited liability companies of which the Company is the managing member offer units representing membership interests through various offerings pursuant to the Regulation D exemption. Each Fig Game Share, and each such unit, is designed to reflect the economic performance of a specific video game license agreement that the Company has entered into with a third-party video game developer. The Parent has agreed to pay for certain offering expenses incurred pursuant to the Cost Sharing Agreement. To date, the Company has not closed any Regulation A offering and has closed certain Regulation D offerings. There can be no assurance that the Company will be successful in raising funds through any of its ongoing Regulation A and Regulation D offerings.
In November 2016, the Company closed a Regulation D, Rule 506(c) offering associated with the game Psychonauts 2 and sold 327 Fig Game Shares – PSY2 to accredited investors for an aggregate purchase price of $159,500.
Also in November 2016, Fig Small Batch, LLC, a limited liability company of which the issuer is the managing member, issued 29 Series Make Sail Units, such units being associated with the game Make Sail, to accredited investors and Fig Publishing, Inc., for an aggregate consideration of $29,000. Fig Publishing, Inc. purchased 8 Series Make Sail Units, for $8,000.
Additional License Agreements
Subsequent to March 31, 2016, the Company entered into various additional license agreements with other game developers. To date, the Company has determined that the goals of the crowdfunding campaigns for certain games conducted on Fig.co have been met. Pursuant to the license agreements, Fig will provide Fig Advances of at least $1.8 million and up to $6.9 million to game developers.
Financing Activity
In July 2016, the Parent contributed $1 million to the Company for working capital needs.
Effective September 30, 2016, the Company and its Parent jointly entered into a loan and security agreement (the “Loan and Security Agreement”) with a financial institution to borrow up to $1 million to be used in support of Fig’s business. The loan is due and payable on September 1, 2019 and bears a floating per annum interest rate equal to 2% above the published prime rate.
The Company and its Parent are jointly and severally liable under the Loan and Security Agreement. The Company and its Parent have agreed that all advances, draws or other borrowings as well as repayments made under the Loan and Security Agreement will be made for the direct benefit of Fig, in such amounts, at such times and under such terms as determined by Fig. If the borrowings are made or used other than as specified, the Company will seek recoveries from its Parent. The Parent will bear all of the costs incurred in connection with the Loan and Security Agreement, unless otherwise agreed in writing by both parties. In October 2016, $750,000 was borrowed under the Loan and Security Agreement, and in December 2016, $250,000 was borrowed under the Loan and Security Agreement.
The Company recognizes obligations resulting from the Loan and Security Agreement as the sum of (a) the amount the Company agreed to pay on the basis of its arrangement with its co-obligor (its Parent) and (b) any additional amount the Company expects to pay on behalf of its co-obligor (its Parent).
| F-9 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder of Fig Publishing, Inc.
(a unit of Loose Tooth Industries, Inc.)
We have audited the accompanying balance sheet of Fig Publishing, Inc. (a unit of Loose Tooth Industries, Inc.) (the “Company”) as of September 30, 2015, and the related statements of operations, changes in stockholder’s deficit and cash flows for the period from October 27, 2014 (inception) to September 30, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fig Publishing, Inc. (a unit of Loose Tooth Industries, Inc.) as of September 30, 2015, and the results of its operations and its cash flows for the period from October 27, 2014 (inception) to September 30, 2015 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As more fully described in Note 2, the Company has not generated any revenue, incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Marcum LLP
Marcum LLP
New York, NY
December 18, 2015
| F-10 |
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
BALANCE SHEET
As of September 30, 2015
| September
30, 2015 | ||||
| ASSETS | ||||
| Current assets: | ||||
| Prepaid expenses | $ | 2,079 | ||
| Total current assets | 2,079 | |||
| Deferred offering costs | 104,540 | |||
| Property and equipment, net | 9,780 | |||
| Security deposit | 4,561 | |||
| Total assets | $ | 120,960 | ||
| LIABILITIES AND STOCKHOLDER'S DEFICIT | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 266,565 | ||
| Other current liabilities | 1,164 | |||
| Total current liabilities | 267,729 | |||
| Commitments and Contingencies | ||||
| Stockholder's deficit (See Note 7): | ||||
| Preferred stock, $0.0001 par value; 100,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2015 | - | |||
| Common stock, $0.0001 par value; 100,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2015 | - | |||
| Net transfers from Parent | 242,161 | |||
| Accumulated deficit | (388,930 | ) | ||
| Total stockholder's deficit | (146,769 | ) | ||
| Total liabilities and stockholder's deficit | $ | 120,960 | ||
The accompanying notes are an integral part of these financial statements.
| F-11 |
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
STATEMENT OF OPERATIONS
For the Period from October 27, 2014 (Inception) to September 30, 2015
| Operating expenses: | ||||
| General and administrative | $ | 388,930 | ||
| Loss from operations | (388,930 | ) | ||
| Net loss | $ | (388,930 | ) | |
The accompanying notes are an integral part of these financial statements.
| F-12 |
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
STATEMENT OF CHANGES IN STOCKHOLDER’S DEFICIT
For the Period from October 27, 2014 (Inception) to September 30, 2015
| Net | Total | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Transfers | Accumulated | Stockholder's | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | From Parent | Deficit | Deficit | ||||||||||||||||||||||
| Balance - October 27, 2014 (inception) | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
| Stock based compensation | - | - | - | - | 1,766 | - | 1,766 | |||||||||||||||||||||
| Net transfer from parent | - | - | - | - | 240,395 | - | 240,395 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (388,930 | ) | (388,930 | ) | |||||||||||||||||||
| Balance - September 30, 2015 | - | $ | - | - | $ | - | $ | 242,161 | $ | (388,930 | ) | $ | (146,769 | ) | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-13 |
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
STATEMENT OF CASH FLOWS
For the Period from October 27, 2014 (Inception) to September 30, 2015
| Cash Flows From Operating Activities: | ||||
| Net loss | $ | (388,930 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Stock based compensation | 1,766 | |||
| Depreciation expense | 543 | |||
| Changes in operating assets and liabilities : | ||||
| Prepaid expenses | (2,079 | ) | ||
| Accounts payable | 162,025 | |||
| Other current liabilities | 1,164 | |||
| Net cash used in operating activities | (225,511 | ) | ||
| Cash Flows From Investing Activities: | ||||
| Security deposit | (4,561 | ) | ||
| Property and equipment | (10,323 | ) | ||
| Net cash used in investing activities | (14,884 | ) | ||
| Cash Flows From Financing Activities: | ||||
| Net transfers from Parent | 240,395 | |||
| Net cash provided by financing activities | 240,395 | |||
| Net change in cash | - | |||
| Cash: | ||||
| Beginning | - | |||
| Ending | $ | - | ||
| Non-cash financing activities: | ||||
| Deferred offering costs included in accounts payable | $ | 104,540 | ||
| Cash paid for interest | $ | - | ||
| Cash paid for income taxes | $ | - | ||
The accompanying notes are an integral part of these financial statements.
| F-14 |
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
1. ORGANIZATION AND BUSINESS
Nature of Operations
Fig Publishing, Inc. (the "Company") was incorporated in the state of Delaware on October 8, 2015 and is a wholly-owned subsidiary of Loose Tooth Industries, Inc. (the "Parent"). The Company is an early-stage entity and has relied on the Parent to conduct its operations since inception. The Company has selected September 30 as its fiscal year-end.
The Company has not been operating as a separate legal entity within the Parent and its subsidiaries for the periods presented. Accordingly, the Company’s financial statements have been prepared on a “carve-out” basis from the Parent’s accounts and reflect the historical accounts directly attributable to the Company together with allocations of costs and expenses incurred by the Parent. The financial statements have been prepared in accordance with Regulation S-X, Article 3, “General Instructions as to Financial Statements” and Staff Bulletin (“SAB”) Topic 1-B, “Allocations of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity”.
The Company’s financial statements may not be indicative of future performance and may not reflect what its results of operations, financial position, and cash flows would have been had the Company operated as a separate entity. Certain estimates, including allocations from the Parent, have been made to provide financial statements for stand-alone reporting purposes. All transactions between the Parent and the Company are classified as net transfers from the Parent in the financial statements. The Company believes that the assumptions underlying the financial statements are reasonable; however, the resulting financial information does not necessarily reflect what the Company’s results of operations, financial position and cash flows would have been on a stand-alone basis. The cost allocation methods applied to certain common costs include the following:
| ● | Specific identification. Where the amounts were specifically identified within the Company, they were classified accordingly. | |
| ● | Reasonable allocation. Where the amounts were not clearly or specifically identified, management determined if a reasonable allocation method could be applied. |
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) (see Note 4).
The Company is a video game publishing company that seeks to identify, license, fund, market, distribute and earn revenues from particular new video games being developed by third-party developers. The Company intends to use Fig.co for its investment crowdfunding campaigns, as provided for under the Master Services Agreement (“MSA”) with the Parent as discussed below. Fig.co is an online technology platform created by the Parent to facilitate fundraising for video game development.
The Company is currently managed by the Parent while the Company is commencing operations. According to the MSA, the Parent provides the Company with comprehensive management and administrative services, as well as services relating to information technology support (including use of Fig.co for the Company’s investment crowdfunding campaigns), co-publishing rights management and other support operations, facilities, human resources, tax planning and administration, accounting, treasury, insurance, securities law-related compliance and reporting, and any other services reasonably related to the foregoing or reasonably requested from time to time.
In 2015, the Company formed its first publishing subsidiary, Fig Grasslands, LLC (“Grasslands Pub Sub”). The Grasslands Pub Sub was formed specifically to serve as the entity to enter into a license agreement with the Grasslands Developer in respect of the game that both parties had code-named as “Grasslands.”
Certain Significant Risks and Uncertainties
The Company can be affected by a variety of factors. For example, management of the Company believes that changes in any of the following areas could have a significant negative effect on the Company in terms of its future financial position, results of operations or cash flows: the ability to identify games with sufficient potential for commercial success; secure license agreements on favorable terms with talented and reliable developers; successfully market and distribute licensed games; and keep up with customer preferences and trends.
| F-15 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
2. GOING CONCERN CONSIDERATION
The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments through the normal course of business and use of cash in its operations. For the period from October 27, 2014 (Inception) through September 30, 2015, the Company incurred net losses of approximately $389,000 and is dependent on the Parent to sustain all of its operations. Management believes that the Company will continue to incur losses for the foreseeable future and will need equity or debt financing or will need to generate revenue from the distribution of products to be able to sustain its operations until it can achieve profitability and positive cash flows, if ever. The Parent and/or the Company intend to raise funds through various potential sources, such as equity or debt financings, or redistributing products, however, the Parent and/or the Company can provide no assurance that such financing will be available on acceptable terms, or at all. If adequate financing is not available, the Company may be required to terminate or significantly curtail or cease its operations. If the Company is unable to achieve these goals, its business would be jeopardized and it may not be able to continue operations.
These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Fig Publishing, Inc. and its wholly owned subsidiary, as named in Note 1 above. All intercompany transactions, if any, have been eliminated.
Use of Estimates
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 date of the financial statements. The Company’s significant estimates included in the preparation of the financial statements are related to share-based compensation, expense allocations, deferred tax assets, and depreciation expenses. Actual results could differ from those estimates.
Stockholder’s Deficit
Stockholder’s deficit in the Balance Sheet represents which consists of accumulated net loss and the net effect of transactions with and allocations to/from the Parent. The main components of the net transfers to/from Parent are various allocations from the Parent.
Deferred Offering Costs
Deferred offering costs, which primarily consist of direct legal fees relating to a contemplated offering of shares of the Company’s securities, are capitalized within long term assets. The deferred offering costs will be reclassified to additional paid-in capital upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of each asset, generally seven years for furniture and fixtures and three years for office equipment. Property and equipment was allocated to the consolidated balance sheet in accordance with the assumptions and allocations.
| F-16 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
Impairment of Long-Lived Assets
The Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate that it is more likely than not that their carrying values may exceed their realizable values, and records impairment charges when considered necessary. Specific potential indicators of impairment include, but are not necessarily limited to:
| ● | a significant decrease in the fair value of an asset; | |
| ● | a significant change in the extent or manner in which an asset is used or a significant physical change in an asset; | |
| ● | a significant adverse change in legal factors or in the business climate that affects the value of an asset; | |
| ● | an adverse action or assessment by the U.S. regulator; | |
| ● | an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; and operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an income-producing asset. |
When circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts. In estimating these future cash flows, assets and liabilities are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, will be recognized. The cash flow estimates used in such calculations are based on estimates and assumptions, using all available information that management believes is reasonable.
Income Taxes
For purposes of the financial statements, the Company’s income tax expense and deferred tax balances have been recorded as if it filed tax returns on a stand-alone basis separate from the Parent.
Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities measured at the enacted tax rates in effect for the year in which these items are expected to reverse. Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.
The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the period from October 27, 2014 (Inception) through September 30, 2015. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
Stock-Based Compensation
The Company expenses stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates and involve inherent uncertainties and the application of its judgment.
Fair Value Measurement
The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis. Under the accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
| F-17 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification (“ASC”) 820, Fair Value Measurement and Disclosures, requires all entities to disclose the fair value of financial instruments, both assets and liabilities for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2015 the recorded values of accounts payable and other liabilities approximated their fair value due to the short-term nature of the instruments.
Recently Issued Accounting Pronouncements
In August 2014, FASB issued Accounting Standards Codification (“ASU”) No. 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, which provides guidance regarding management’s responsibility to assess whether substantial doubt exists regarding the ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing financial statements for each annual and interim reporting period, management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company does not expect the adoption of this ASU to have a material effect on the Company’s financial position, results of operations, or cash flows.
In January 2015, the FASB issued ASU 2015-01, which eliminates from GAAP the concept of extraordinary items. If an event or transaction meets the criteria for extraordinary classification, it is segregated from the results of ordinary operations and is shown as a separate item in the income statement, net of tax. ASU 2015-01 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company is currently assessing the adoption and impact of this ASU, however, the Company does not anticipate that adoption of this ASU will impact financial position and results of operations.
4. ASSUMPTIONS AND ALLOCATIONS
The Company’s expenses for the period from October 27, 2014 (Inception) through September 30, 2015, including executive compensation, have been allocated by management between the Company and the Parent based either on specific attribution of those expenses or, where necessary and appropriate, based on management’s best estimate of an appropriate proportional allocation. The expenses have been carved-out of the Parent and included as the Company’s operations as if the Company was in existence for all periods presented. Certain corporate expenditures of the Parent have not been allocated to the Company since they did not provide a direct or material benefit to the Company.
| F-18 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
The following expenses included in the accounting records of the Parent have been attributed by management to the operations of the Company:
| Period from October 27, 2014 (Inception) to | ||||
| September 30, | ||||
| 2015 | ||||
| General and Administrative Expenses: | ||||
| Salaries and benefits | 82,622 | |||
| Occupancy | 2,385 | |||
| Professional fees | 215,591 | |||
| Stock based compensation | 1,766 | |||
| Depreciation expense | 543 | |||
| Marketing and promotion | 57,343 | |||
| Travel expense | 16,148 | |||
| Other general and administrative expenses | 12,532 | |||
| Total General and Administrative Expenses | $ | 388,930 | ||
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
| As of September 30, | ||||||
| Estimated Life | 2015 | |||||
| Computers & Office Equipment | 3 years | $ | 9,222 | |||
| Furniture and fixtures | 7 years | 1,101 | ||||
| Total property and equipment | 10,323 | |||||
| Accumulated depreciation | (543 | ) | ||||
| Total property and equipment, net of accumulated depreciation | $ | 9,780 | ||||
Depreciation expense of approximately $500 was recognized in general and administrative expense for the period from October 27, 2014 (inception) to September 30, 2015 in the accompanying Statements of Operations.
6. RELATED PARTY TRANSACTIONS
All expenses incurred for the period from October 27, 2014 (Inception) through September 30, 2015 were paid by the Parent and allocated to the Company based on the expenses incurred by the Company in its operations. The allocations were based on the time spent by employees of the Parent on activities of the Company, the number of full time equivalent employees performing the Company’s activities and direct expenses incurred for the operations of the Company. The expense allocations have been determined on the basis that the Company and the Parent considered to be reasonable reflections of the utilization of services provided or the benefit received by the Company. Management believes that the expenses allocated to the Company are representative of the operating expenses it would have incurred had the Company been operated on a stand-alone basis.
On September 23, 2015, the Company entered into a license agreement (“Grasslands License Agreement”) with a game developing firm (“Grasslands Developer”), whose Chief Executive Officer is also a stockholder and a member of our Board of Directors of the Parent. This agreement was later superseded in its entirety on December 3, 2015 as discussed in Note 10.
| F-19 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
As of December 3, 2015, the Company entered into the MSA with the Parent (as discussed in Note 10) to provide the Company with comprehensive management and administrative services, as well as services relating to information technology support (including use of Fig.co for the Company’s investment crowdfunding campaigns), co-publishing rights management and other support operations, facilities, human resources, tax planning and administration, accounting, treasury, insurance, securities law-related compliance and reporting, and any other services reasonably related to the foregoing or reasonably requested from time to time.
7. STOCKHOLDER’S DEFICIT
Capital Stock
Pursuant to the Company’s amended and restated certificate of incorporation effective December 17, 2015, the Company is authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share, and 100,000,000 shares of blank check preferred stock, par value $0.0001 per share.
As of September 30, 2015, the Company has no shares issued and outstanding.
Stock Based Compensation - Stock Option Activity
The Parent’s Board of Directors adopted and stockholders approved a stock-based compensation plan (the “Plan”) authorizing the Parent to grant common stock to eligible employees, directors and consultants in the form of stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards.
The Plan allows the Parent to use shares, options or other awards to purchase the Parent’s common stock as part of an overall compensation package to provide performance-based rewards to attract and retain qualified personnel. Such awards include, without limitation, options, stock appreciation rights, sales or bonuses of restricted stock, restricted stock units or dividend equivalent rights, and an award may consist of one such security or benefit, or two or more of them in any combination or alternative. Vesting of awards may be based upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions.
Incentive and non-statutory stock options are granted pursuant to option agreements adopted by the Plan administrator.
The Parent estimates the fair value of stock option grants using a Black-Scholes option pricing model. In applying this model, the Parent uses the following assumptions:
| ● | Risk-Free Interest Rate: The risk-free interest rate is based on the yields of United States Treasury securities with maturities similar to the expected term of the options for each option group. | |
| ● | Volatility: As The Parent has no trading history for its common stock, the expected stock price volatility for its common stock was estimated by incorporating the average historical price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. The Company intends to continue to consistently apply this process using the same or similar public companies until it has sufficient historical information regarding the volatility of its common stock that is consistent with the expected life of the options. Should circumstances change such that the identified companies are no longer similar to the Company, more suitable companies whose share prices are publicly available would be utilized in the calculation. | |
| ● | Expected Term: The expected term represents the period that the stock-based awards are expected to be outstanding. The Parent’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, the Parent estimates the expected term by using the simplified method provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. | |
| ● | Expected Dividend Rate: The Parent has not paid and does not anticipate paying any cash dividends in the near future. |
| F-20 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
Due to the absence of an active market for the Parent’s common stock, the fair value of the Parent’s common stock for purpose of determining the exercise price for stock option grants was determined by the Parent’s Board of Directors, with the assistance and upon the recommendation of management, in good faith, based on a number of objective and subjective factors consistent with the methodologies outline in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the uncertainty associated with both the timing and type of any future exit scenario, management determined that the Option-Pricing Method (OPM) was the most appropriate methodology for valuing the Parent’s common stock. A discount of 45% was applied for lack of marketability for the common stock. The calculation resulted in a fair value for the Parent’s common stock of $0.21 per share as of the valuation or grant date.
The Parent has allocated stock based compensation expenses based either on specific attribution of those expenses or, where necessary and appropriate, based on management’s best estimate of an appropriate proportional allocation. The weighted-average grant date fair value per share relating to stock options granted during the period from October 27, 2014 (Inception) through September 30, 2015 was $0.21. The following assumptions were used by the Parent:
| For The Period from October 27, 2014 (Inception) to September 30, 2015 | ||
| Risk free rate of interest | 1.65% - 2.02% | |
| Expected stock price volatility | 58.48% - 58.93% | |
| Stock price | $0.21 | |
| Expected life of options | 6.49 |
From October 27, 2014 (inception) to September 30, 2015, the Parent has granted an aggregate of 245,346 options to an employee and an officer who had significant contributions to the Company. Each option has a ten-year term, exercisable at $0.21 per share and vest 25% on the first anniversary date and vest ratably over the next 48 months. If the holder of the option is a ten-percent (10%) stockholder of the Parent, the option will expire five years after the grant date. As of September 30, 2015, neither of the two holders is a 10% stockholder of the Parent.
On August 6, 2015, the Company’s Chief Operating Officer exercised 75,000 stock options into common shares of the Parent. Although these stock options were unvested at the time of exercise, the early exercise of 75,000 stock options is not considered to be a substantive exercise under ASC 718, Stock Based Compensation, and the contingent call option held by the Parent creates a substantive requisite service period for the share option award.
The Parent allocated $1,766 of stock based compensation expense to the Company for the period from October 27, 2014 (Inception) through September 30, 2015.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company is not a party to any leases for office space or equipment. The costs related to such leases for the period from October 27, 2014 (Inception) to September 30, 2015 have been allocated to the Company from the Parent.
Litigation
The Company recognizes a liability for a contingency when it is probable that liability has been incurred and when the amount of loss can be reasonably estimated. When a range of probable loss can be estimated, the Company accrues the most likely amount of such loss, and if such amount is not determinable, then the Company accrues the minimum of the range of probable loss. As of September 30, 2015 and through the date of this filing, there were no such matters.
| F-21 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
9. INCOME TAXES
The operations of the Company are included in the tax filings of the Parent. For financial reporting purposes, the Company calculated an income tax provision and deferred income tax balances as if the Company was a separate entity and had filed its own separate tax return under Sub-chapter C of the Internal Revenue Code.
A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:
| As of September 30, | ||||
| 2015 | ||||
| Statutory U.S. federal rate | 34.0 | % | ||
| State income tax, net of federal benefit | 5.8 | % | ||
| Meals and entertainment | (0.1 | )% | ||
| Valuation allowance | (39.7 | )% | ||
| Provision for income taxes | 0.0 | % | ||
The following summarizes the income tax provision (benefit):
| As of September 30, | ||||
| 2015 | ||||
| Current: | ||||
| Federal | $ | - | ||
| State | - | |||
| Total current tax expense | $ | - | ||
| Deferred: | ||||
| Federal | $ | 131,987 | ||
| State | 22,649 | |||
| Net deferred tax assets | 154,636 | |||
| Change in valuation allowance | (154,636 | ) | ||
| Total tax provision | $ | - | ||
| F-22 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
The components of the net deferred tax asset as of September 30, 2015 are the following:
| As of September 30, | ||||
| 2015 | ||||
| Deferred tax assets: | ||||
| Net operating loss carry forwards | $ | 153,933 | ||
| Stock based compensation | 703 | |||
| Other | - | |||
| Gross deferred tax assets | 154,636 | |||
| Valuation allowance | (154,636 | ) | ||
| Net deferred tax assets | $ | - | ||
The Company has determined, based upon available evidence, that it is more likely than not that the net deferred tax asset will not be realized and, accordingly, has provided a full valuation allowance. The Company recognized a valuation allowance of approximately $155,000 for the period from October 27, 2014 (Inception) through September 30, 2015.
The Company’s operations are included in the US federal and state tax returns of its Parent. These tax returns when filed are subject to examination by tax authorities for periods beginning with the Parent’s fiscal year ended December 31, 2014, however, this footnote has been presented as if the Company is filing its tax returns on a separate, stand-alone basis. The net operating loss carry forwards of the Parent will expire 20 years from the date of filing the initial return.
The Parent's major tax jurisdictions are the United States and California. The Company’s evaluation of uncertain tax matters was performed for the tax period from October 27, 2014 (inception) to September 30, 2015. The Company has elected to reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of its income tax provision or benefit, as well as its outstanding income tax assets and liabilities.
The Company only recognizes tax benefits from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. To date, the Company has not recognized such tax benefits in its financial statements.
10. SUBSEQUENT EVENTS
As of December 17, 2015, the Parent held 1,000,000 shares of the Company’s common stock, representing 100% of the then issued and outstanding shares of common stock. As a result, the Parent holds all of the voting power and has sole control of the Company.
License Agreement between Grasslands Pub Sub and Grasslands Developer - Related Party
As of December 3, 2015, the Grasslands Pub Sub and the Grasslands Developer entered into a License Agreement which superseded in its entirety the license agreement dated September 23, 2015 as described in Note 6. Under the license agreement, the Grasslands Developer granted to the Grasslands Pub Sub the right to co-publish Grasslands on particular platforms and the right to receive revenue from game sales on these licensed platforms. In exchange, if the target of at least $3.3 million is raised from rewards and investment crowdfunding campaigns within 180 days after execution of the license agreement, the Grasslands Pub Sub will provide the Grasslands Developer with an upfront development funding amount equal to the amount raised in the investment crowdfunding campaign, not to exceed $15 million (“Game Funding Payment”) unless mutually agreed in writing. The Grasslands Developer has agreed to deliver the finished game, ready for commercial sale on certain of the licensed platforms, no later than July 31, 2018. There can be no assurance that the Company will be successful in raising any funds in connection with its contemplated offering.
| F-23 |
FIG PUBLISHING, INC.
(A UNIT OF LOOSE TOOTH INDUSTRIES, INC. AND SUBSIDIARIES)
Notes to Financial Statements
In addition, the Grasslands Pub Sub will also pay the Grasslands Developer a certain percentage of the adjusted gross revenue (“Developer Rev Share”), which equals gross revenue received by Grasslands Pub Sub from the licensed platforms, less sales expenses and a service fee payable to the Parent for its services under the Master Services Agreement described below. The remaining amount is then to be distributed to the Company (“Residual Pub Sub Earnings”).
Subject to the Company’s dividend policy, investors in the Grasslands Game Shares will receive 97.5% of the Residual Pub Sub Earnings, after they are distributed to the Company, in the form of dividends paid by the Company on their Grasslands Game Shares, and the remaining 2.5% will be retained by the Company. If the minimum crowdfunding capital raise target of $3.3 million is not reached within the applicable time frame, the License Agreement will automatically terminate and the offering of Grasslands Game Shares will be cancelled and any and all funds that may have already been raised thereby will be returned to investors without deduction or interest earned.
The Company intends to offer a maximum of 30,000 shares of its preferred tracking stock, par value $0.001 per share, which will track the economic performance of the Grasslands Pub Sub (“Grasslands Game Shares”), through an offering under the Regulation A exemption of the Securities Act of 1933. There can be no assurance that the Company will be successful in raising any funds in connection with its contemplated offering. In addition, the Board of Directors of the Grasslands Pub Sub may, at any time following the seven-year anniversary of the game delivery date, redeem some or all of the Grasslands Game Shares, if at such time the average quarterly Residual Pub Sub Earnings for the four immediately preceding and completed fiscal quarters is less than $25,000 per quarter.
Services Agreements with Parent
As of December 3, 2015, the Company, on behalf of itself and the Grasslands Pub Sub, and the Parent entered into a master services agreement (the “Master Services Agreement” or “MSA”) pursuant to which the Parent provides the Company with comprehensive management and administrative services, as well as services relating to information technology support (including use of Fig.co for the Company’s investment crowdfunding campaigns), co-publishing rights management and other support operations, facilities, human resources, tax planning and administration, accounting, treasury, insurance, securities law-related compliance and reporting, and any other services reasonably related to the foregoing or reasonably requested from time to time. Pursuant to the Master Services Agreement, the Company has agreed to pay an agreed percentage (the “Service Fee”), as defined in the license agreement associated with each publishing subsidiary (each, a “Pub Sub”), of the amount of revenue received by each Pub Sub, including the Grasslands Pub Sub, less certain sales expenses, during any quarterly period as remuneration for the services provided under the Master Services Agreement. The Master Services Agreement has an initial term through December 31, 2016, and will automatically renew for successive one-year terms each December 31 unless either party provides the other party with written notice of its intent not to renew at least three months prior to such date.
Also as of December 3, 2015, the Company and the Parent entered into an agreement whereby the Parent would fund the expenses arising in relation to Grasslands, including (i) the expenses of the offering of the Grasslands Game Shares, (ii) taxes, and (iii) marketing expenses of Grasslands prior to its sale, pursuant to an agreement that the Company and the Parent entered into as of December 3, 2015.
| F-24 |
PART III – EXHIBITS
Index to Exhibits
| Exhibit No. | Description of Exhibit | Manner of Filing | ||
| 2.1 | Second Amended and Restated Certificate of Incorporation of Fig Publishing, Inc., filed September 29, 2016 | ** | ||
| 2.2 | Bylaws of Fig Publishing, Inc. | * | ||
| 3.1 | Amended and Restated Certificate of Designations for Fig Game Shares – PSY2, filed September 29, 2016 | ** | ||
| 3.2 | Form of Certificate of Designations for Fig Game Shares – Wasteland 3 | Filed herewith | ||
| 4.1 | Form of Subscription Agreement between Fig Publishing, Inc. and Investors in Fig Game Shares – Wasteland 3 | Filed herewith | ||
| 6.1 | Amended and Restated License Agreement between Double Fine Productions, Inc. and Fig Publishing, Inc., executed October 3, 2016 | ** | ||
| 6.2 | Form of Amended and Restated License Agreement between inXile Entertainment, Inc. and Fig Publishing, Inc. | Filed herewith | ||
| 6.3 | Cost Sharing Agreement by and between Fig Publishing, Inc. and Loose Tooth Industries, Inc., dated as of June 30, 2016 | * | ||
| 6.4 | Loan and Security Agreement among Silicon Valley Bank, Loose Tooth Industries, Inc. and Fig Publishing, Inc., dated as of September 30, 2016 | ** | ||
| 6.5 | Fig WL3, LLC Limited Liability Company Operating Agreement, dated as of November 22, 2016 | Filed herewith | ||
| 11.1 | Consent of Marcum LLP | Filed herewith | ||
| 12.1 | Opinion of Ellenoff Grossman & Schole LLP for Fig Game Shares – Wasteland 3 | Filed herewith | ||
| 13.1 | Testing-the-waters Materials for Fig Game Shares – Wasteland 3 | Filed herewith | ||
| 15.1 | Form of Developer Questionnaire | * |
* Previously filed as an exhibit to this offering statement.
** Previously filed as an exhibit to our Current Report on Form 1-U filed as of October 7, 2016.
| III-1 |
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on December 16, 2016.
| FIG PUBLISHING, INC. | ||
| By: | /s/ Justin Bailey | |
| Justin Bailey | ||
| Chief Executive Officer | ||
This offering statement has been signed below by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Justin Bailey | Sole Director, Chief Executive Officer | December 16, 2016 | ||
| Justin Bailey | (Principal Executive Officer), Principal | |||
| Financial Officer and Principal | ||||
| Accounting Officer |
III-2
