As filed with the Securities and Exchange Commission on May __, 2016.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ALLIANCE MMA, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 7389 | 47-5412331 | ||
|
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
590 Madison Avenue, 21st Floor
New York, New York 10022
(212) 739-7825
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Paul K. Danner, III
Chief Executive Officer
590 Madison Avenue, 21st Floor
New York, New York 10022
(212) 739-7825
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
|
Robert L. Mazzeo, Esq. Mazzeo Song P.C. 444 Madison Avenue, 4th Floor New York, NY 10022 (212) 599-0700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ¨ | Accelerated filer ☐ | |
| Non-Accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price (1) | Amount of Registration Fee | ||||||
| Common Stock, par value $0.001 per share | $ | 8,000,000 | $ | 805.60 | ||||
| Underwriter Warrants (2)(3) | - | - | ||||||
| Common Stock issuable upon exercise of Underwriters Warrants | $ | 1,000,000 | $ | 100.70 | ||||
| Total | $ | 906.30 | ||||||
| (1) | Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
| (2) | Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions. |
| (3) | No separate fee is required pursuant to Rule 457(g) under the Securities Act of 1933. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
| The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
SUBJECT TO COMPLETION, DATED MAY , 2016
Up to 1,777,778 Shares
Common Stock
This is an initial public offering of shares of common stock of Alliance MMA, Inc., a Delaware corporation.
We are offering a minimum of 1,111,111 up to a maximum of 1,777,778 shares of our common stock.
Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be $4.50. We have applied to list the common stock on the Nasdaq Capital Market under the symbol “AMMA”. If the application is approved, trading of our common stock on the Nasdaq Capital Market is expected to begin within five days after the initial issuance of the common stock. If the application is not approved, we will not complete this offering.
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and we have elected to comply with certain reduced public company reporting requirements.
An investment in our common stock involves significant risks. You should carefully consider the risk factors beginning on page __ of this prospectus before you make your decision to invest in shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| Public Offering Price | Underwriting Commissions (1) | Proceeds to Us, Before Expenses (2) | ||||||||||
| Per share | $ | $ | $ | |||||||||
| Total minimum offering | $ | $ | $ | |||||||||
| Total maximum offering. | $ | $ | $ | |||||||||
(1) For the purpose of estimating the underwriting commissions, we have assumed that the underwriters will receive their maximum commission on all sales made in this offering, plus an advisory fee of 1.5% of the gross proceeds raised in this offering or $75,000 if the minimum amount is raised and $120,000 if the maximum amount is raised. The underwriters will also be entitled to reimbursement of out-of-pocket expenses incurred in connection with this offering, including fees and expenses of their counsel, in an aggregate amount not to exceed $75,000.
(2) We estimate the total expenses of this offering, excluding the underwriting commissions, will be approximately $400,000 if all 1,777,778 shares are sold in this offering. Because this is a best efforts offering, the actual public offering amount, underwriting commissions and proceeds to us are not presently determinable and may be substantially less than the total maximum offering set forth above. See “Underwriting” beginning on page __ of this prospectus for more information on this offering and the underwriter arrangements.
Network 1 Financial Securities, Inc. is acting as the sole underwriter in this offering. The underwriter is selling shares of our common stock in this offering on a best efforts basis and is not required to sell any specific number or dollar amount of shares. We do not intend to close this offering unless we sell at least a minimum number of 1,111,111 shares of common stock, at the price per share set forth in the table above, and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. This offering will terminate on [*], 2016 (60 days after the date of this prospectus), unless we sell the maximum number of shares of common stock set forth above before that date or we decide to terminate this offering prior to that date. The gross proceeds of this offering will be deposited at Signature Bank in an escrow account established by us, until we have sold a minimum of 1,111,111 shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. Once we satisfy the minimum stock sale and Nasdaq listing conditions, the funds will be released to us. In the event we do not sell a minimum of 1,111,111 shares of common stock and raise minimum gross proceeds of $5,000,000 by [*], 2016, all funds received will be promptly returned to investors without interest or offset. See “Prospectus Summary - The Offering” on page __.
Prospectus dated [ ] , 2016
TABLE OF CONTENTS
Dealer Prospectus Delivery Obligation
Through and including [ ] , 2016 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.
We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
IMPORTANT INTRODUCTORY INFORMATION
In this prospectus, unless the context otherwise requires, we use the terms “Alliance,” “we,” “us,” “the company” and “our” to refer to Alliance MMA, Inc., a Delaware corporation that will acquire the businesses of the following companies, which we refer to as the “Target Companies,” upon the completion of this offering:
| • | CFFC Promotions, LLC (“CFFC”); | |
| • | Hoosier Fight Club Promotions, LLC (“Hoosier Fight Club” or “HFC”); | |
| • | Punch Drunk, Inc. d/b/a COmbat GAmes MMA (“COGA”); | |
| • | Bang Time Entertainment LLC d/b/a Shogun Fights (“Shogun”); | |
| • | V3, LLC (“V3 Fights”); | |
| • | Go Fight Net, Inc. (“GoFightLive” or “GFL”); and | |
| • | CageTix, LLC (“CageTix”). |
In addition, upon the completion of this offering, we will acquire all rights in the existing MMA and kickboxing video libraries of Louis Neglia’s Martial Arts Karate, Inc. (“Louis Neglia”) related to the Louis Neglia’s Ring of Combat and Louis Neglia’s Kickboxing events and shows, a right of first refusal to acquire the rights to all Future Louis Neglia MMA and kickboxing events, and the MMA and video library of Hoss Promotions, LLC (“Hoss”) related to certain CFFC events (collectively Louis Neglia and Hoss are referred to herein as “Target Assets”). The purchase price for the video libraries we are purchasing from Louis Neglia and Hoss, which we refer to as the “Target Assets,” totals $455,000, of which $255,000 is payable in cash and the balance in shares of our common stock valued at the initial public offering price per share for the shares sold in this offering.
Pursuant to agreements between Alliance and each of the Target Companies and the owners of the Target Assets, upon the completion of this offering, we will acquire the operating assets and certain liabilities of each Target Company, other than GFL, which will be merged into Alliance, and we will acquire the Target Assets. The aggregate consideration we will pay to acquire these businesses and assets will amount to approximately $7.8 million, consisting of cash in the amount of approximately $1.6 million, and shares of our common stock with a market value of approximately $6.2 million based on an estimated initial public offering price of $4.50 per share for the shares sold in this offering. The purchase price for each business we are acquiring will be subject to upward adjustment in the event that such business exceeds certain gross profit thresholds agreed upon by us and the related Target Company for the 12-month period following the completion of the offering. The upward adjustment to the purchase price will be equal to seven (7) times the amount by which actual gross profit exceeds the agreed-upon gross profit threshold. We will pay any additional purchase price amounts promptly following the filing of the Company’s quarterly report on Form 10-Q for the quarter immediately following such twelve-month period, such payment to be made in shares of our common stock valued at the average of the last sale price for our common stock over the twenty (20) trading days occurring immediately prior to the filing of such Form 10-Q.
We valued the business of each Target Company using a number of factors including historical and 2016 projected gross profit, the number of professional fighters under contract, event venue arrangements, the Target Company’s MMA media library and other intellectual property rights, prominence in the MMA industry, nature and extent of sponsorships, television and pay-per-view arrangements, and other relevant characteristics. The purchase price being paid for each business consists, on average, of 21% cash and 79% shares of our common stock valued at the initial public offering price for the shares sold in this offering.
Unless we close the acquisition of all of the Target Companies, we will not close any of those acquisitions and we will not complete this offering. See “Business — Acquisitions” for further information on our acquisition of the Target Companies.
Unless otherwise indicated, all share, per share and financial data set forth in this prospectus have been adjusted to give effect to the closing of the acquisition of the Target Companies.
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The following summary highlights selected information contained in this prospectus. This summary does not contain all the information that may be important to you. You should read the more detailed information contained in this prospectus including, but not limited to, the risk factors beginning on page [*].
Our Company
Alliance MMA, Inc. was formed to acquire the businesses of the Target Companies and the media libraries of two prominent mixed martial arts, or MMA, promotions. By combining the Target Companies, Alliance has created a developmental league for professional MMA fighters and a feeder organization to the Ultimate Fighting Championship, or the UFC, the sport’s largest mixed martial arts promotion company featuring most of the top-ranked fighters in world. We also intend to serve as a developmental organization for other premier MMA promotions such as Bellator MMA. College athletic programs and established minor league organizations serve as feeder programs to major league sports teams; however, the MMA industry lacks an organized developmental structure. Under the Alliance MMA umbrella, our regional MMA promotions identify and cultivate the next generation of UFC and other premier MMA promotion champions, while at the same time generating live original media content, attracting an international fan base, and generating sponsorship revenue for our live MMA events and professional fighters.
The Target Companies comprise many of the leading regional MMA promotions in the United States, with several ranked among the top 40 of all regional MMA promotions internationally. Combined, these promotions have sent over 50 professional MMA fighters to the UFC, have over 65 professional MMA fighters under multi-fight contracts, and have conducted more than 30 professional MMA events in 2015. We anticipate conducting over 65 events in 2016 and approximately 90 in 2017. Many of our events are televised or streamed live on cable and network stations reaching over 100 million homes. In 2015, the Target Companies on a combined basis generated $2.4 million in gross revenue and $0.127 million in net income.
Our operations are centered on the following three business components:
| · | Live MMA Event Promotion, which consists of generating revenue from ticket sales and providing a foundation for national sponsorship and national and international media distribution for our live MMA events. |
| · | MMA Content Distribution, which consists of paid distribution of original content on television, cable networks, pay-per-view broadcasts, and over the Internet, in the United States and through international distribution agreements. |
| · | Sponsorships and Promotions, which consists of sponsorships for live MMA events and televised productions and related advertising and promotional opportunities. |
In addition, we are evaluating the profitability of other revenue sources, such as merchandising, ticketing, and fighter agency and management services.
Our Strategy
Our growth strategy includes:
| · | Leveraging the existing media libraries of the Target Companies along with the production of new, original live MMA programming created at our ongoing professional MMA events and monetizing both through domestic and international distribution arrangements; |
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| · | Developing national sponsorship arrangements, or expanding existing regional sponsorship arrangements, in support of the Company’s network of live MMA events; |
| · | Aggregating control of the sales chain through ownership of CageTix and instituting the use of CageTix across all the Target Companies allowing for the capture of additional profit margin; |
| · | Migrating certain of the Target Companies from paid event venue arrangements to venues that will compensate the promotions for hosting events; and |
| · | Securing highly-regarded professional fighters to multi-fight agreements, which will enhance our reputation and the value of our live MMA programming content. |
In addition, upon the completion of this offering, we intend to selectively acquire additional profitable regional MMA promotions in markets in which we currently do not promote events and bring them into the Alliance family of promotions. We believe that the regional MMA industry is ripe for consolidation and that we can achieve significant growth through further acquisitions as well as by organically growing our existing MMA promotions. According to Tapology.com, a leading MMA industry online forum, as of May, 2016, there are currently 597 MMA promotions being operated domestically and 1,025 internationally. We estimate that no one regional promotion accounts for more than 1% of the market. We further believe that it is becoming increasingly difficult for regional MMA promotion companies to attract the best prospects given the increased level of competition among regional MMA promoters to secure fighters for multiple bouts. By conducting over 65 events annually and sending a number of fighters to elite promotions such as the UFC and Bellator, we are able to guarantee multiple fights to top prospects and attract high-quality fighters.
The MMA Industry
In less than a quarter century, modern day Mixed Martial Arts has gone from a pariah banned in most US states to an international sports phenomenon that many believe will be an Olympic event within the next two decades. MMA is a full contact sport that permits fighters to use techniques from both striking and grappling martial arts such as Boxing, Wrestling, Taekwondo, Karate, Brazilian jiu-jitsu, Muay Thai, and Judo. The “MMA Industry” generates revenues by promoting live MMA bouts, Pay-Per-View, video-on-demand and televised MMA event programming, merchandise, event and fighter sponsorships, and the monetization of MMA-related intellectual property royalties.
The number of MMA fans worldwide is approximately 300 million, more than that of Major League Baseball’s worldwide fan base. In 2010, it was reported that the UFC fan base has grown annually in excess of 30% per year. Led by the UFC in terms of prominence and market share, there are approximately 600 domestic regional MMA promotion companies promoting approximately 40,000 male and female professional and amateur fighters. On an international basis the number of MMA promotions exceeds 1,000 with in excess of 90,000 professional and amateur MMA fighters. In 2014, the UFC’s annual revenues were approximately $483 million and increased to $522 million in 2015. Scarborough Sports Marketing’s 2009 first-ever look at the sport found that MMA fans are 15% more likely than the average American adult to have a household income of at least $75,000 with 32% of MMA fans falling into the highly coveted 18-29 year-old demographic. In terms of social media following, MMA fan activity on Facebook, Twitter and Instagram exceeds the combined results for MLB, NHL and NASCAR. The UFC is currently televised live in 145 countries in over 880 million households in 28 languages. In terms of Social Media fans, the UFC’s total exceeds that of the NHL, NASCAR, and Major League Soccer combined. The UFC also holds the distinction as the largest live Pay-Per-View event provider in the world. We believe that the UFC’s recently launched Fight Pass subscription network has garnered close to 1 million subscribers in the first year of its launch. UFC annual pay-per-view totals exceed 3 million male viewers age 18-49 per year. UFC 194 whose main card featured MMA superstars Connor McGregor and Jose Aldo aired on December 12, 2015 and was, with the exception of the two NFL playoff games, the most-watched show on television among Males 18-34, Males 18-49 and Males 25-54 that Sunday. In 2015, it was reported that the UFC sold approximately 7.75 million pay-per-view subscriptions for its 13 UFC events with two events exceeding 1 million buys.
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Risk Affecting Us
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” beginning on page [ * ] of this prospectus before making a decision to invest in our common stock. These risks represent challenges to the successful implementation of our strategy and the growth of our business. If any of these risks actually occurs, our business financial condition and results of operations would likely be negatively affected. In such case, the trading price of our common stock would likely decline, and you may lose part, or all, of your investment. Below is a summary of some of the principal risks we believe we face:
| · | Our business represents a new business model for the MMA industry; |
| · | Many of the Target Companies who comprise our business have historically been competitors, and we may experience difficulties integrating these businesses; |
| · | We may be perceived as a competitive threat to the UFC and to other premier MMA promotions who may use their significantly greater resources to frustrate our business and growth strategy; |
| · | A decline in the popularity of mixed martial arts; |
| · | Our limited operating history makes forecasting our revenues and expenses difficult; |
| · | We may not be able to attract and retain key professional MMA fighters; |
| · | We may not be able to attract national promotional and advertising sponsorships; |
| · | Our failure to obtain and maintain key agreements and arrangements with television and other media outlets could adversely affect our ability to distribute our original MMA programming; |
| · | We may be unable to manage our growth effectively and our pro forma results may not be indicative of our future performance; |
| · | We may be unable to implement our strategy of acquiring additional companies and acquisitions may subject us to additional unknown risks; |
| · | Future acquisitions may result in potentially dilutive issuances of equity securities; and |
| · | An active trading market for our common stock may not develop, and you may not be able to resell your shares of our common stock at or above the initial public offering price. |
For further discussion of these and other risks you should consider before making an investment in our common stock, see “Risk Factors” beginning on page [*].
Corporate Information
We were incorporated in Delaware on February 12, 2015. Our principal executive offices are located at 590 Madison Avenue, 21st Floor, New York, New York 10022, and our telephone number is (212) 521-4268. Our website address is www.alliancemma.com. Information contained on, or that can be accessed through, our website or the website of any Target Company shall not be deemed incorporated into, or to constitute part of, this prospectus.
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Alliance MMA, AllianceMMA.com and other trademarks and service marks of Alliance appearing in this prospectus are the property of Alliance. Trade names, trademarks and service marks of other companies, including the marks of any Target Company, appearing in this prospectus are the property of their respective holders.
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of the last day of the fiscal year following the fifth anniversary of the completion of this offering, the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion (as indexed for inflation), the date on which we are deemed to be a large accelerated filer (this means the market value of our common stock that is held by non-affiliates is at least $700 million as of the last business day of the second quarter of a fiscal year), or the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:
| • | We will present only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations. |
| • | We will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002. |
| • | We will provide less extensive disclosure about our executive compensation arrangements. |
| • | We will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements. |
The Offering
| Common stock offered by us | 1,111,111 shares (minimum) to 1,777,778 shares (maximum) | |
| Common stock outstanding immediately before this offering | 5,289,136 shares | |
| Common stock to be issued to Target Companies and for Target Assets | 1,377,531 shares | |
| Total shares of common stock to be outstanding immediately after this offering | 8,444,445 shares, assuming the maximum amount is sold in the offering.* | |
| Use of proceeds | Based on an estimated initial offering price of $4.50 per share, we expect our net proceeds from this offering will be $7,080,805 assuming the maximum amount of shares is sold in the offering, after deducting underwriter commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering to fund the cash portion of the purchase price for the Target Companies in the amount of approximately $1.6 million, and for working capital and general corporate purposes. We may also use a portion of the net proceeds for future acquisitions of or investments in other regional MMA promotion companies. However, this is a best efforts offering, and there is no assurance that we will sell any shares or receive any proceeds. See “Use of Proceeds.” |
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| Escrow | The gross proceeds of this offering will be deposited at [Signature Bank], New York, New York, in an escrow account established by us. Purchasers are to make payment for the shares they purchase by (i) delivering to the escrow agent, [Signature Bank, at 261 Madison Avenue, New York, New York 10016], checks made payable to the order of [“Signature Bank, as Escrow Agent for Alliance MMA,”] or (ii) wire transfer to Signature Bank, ABA No. [*], 261 Madison Avenue, New York, New York 10016, for credit to Signature Bank, as Escrow Agent for Alliance MMA, Account No. [*]. All checks received by the underwriter will be delivered to Signature Bank for deposit into the escrow account not later than 12:00 p.m. on the business day immediately following receipt. The funds will be held in escrow until we sell a minimum of one million shares at an assumed offering price of $4.50 per share and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market, at which time the funds will be released to us. Any funds received upon a sale of shares in excess of the foregoing minimum amount and following the satisfaction of the Nasdaq listing requirements will immediately be available to us. If we do not sell the minimum number of shares, or if we do sell such minimum number but fail to satisfy the Nasdaq listing conditions, by [*], 2016 (60 days after the date of this prospectus), this offering will terminate and all funds will be returned to the purchasers in this offering on the next business day, without charge, deduction or interest. In no event will funds deposited with Signature Bank be returned to you prior to [*], 2016. | |
| Dividend policy | We do not anticipate paying cash dividends on our common stock in the foreseeable future. See “Dividend Policy.” | |
| Proposed Nasdaq listing symbol | “AMMA” | |
| Risk factors | Please read the section entitled “Risk Factors” beginning on page [ ] for a discussion of some of the factors you should carefully consider before deciding to invest in our common stock. |
* Unless the context indicates otherwise, the number of shares of our common stock deemed to be outstanding after this offering:
| • | excludes 825,000 shares of common stock reserved for issuance under the Company’s 2016 Equity Incentive Plan, or 2016 Plan; |
| • | excludes between 111,111 shares (assuming the minimum offering is completed) and 177,778 shares (assuming the maximum offering is completed) of common stock issuable upon the exercise of the warrants issued to the underwriter; and |
| • | assumes that the shares of our common stock to be sold in this offering are sold at $4.50 per share. |
Unless otherwise indicated, the information presented in this prospectus gives effect to the acquisition of the Target Assets and the respective businesses of the Target Companies.
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If you purchase our securities, you will assume a high degree of risk. In deciding whether to invest, you should carefully consider the following risk factors, as well as the other information contained elsewhere in this prospectus. Any of the following risks could have a material adverse effect on our business, financial condition, results of operations or prospects and cause the value of our securities to decline, which could cause you to lose all or part of your investment.
Risks Related to Our Business
Our business represents a new business model for the MMA industry.
Our business model focuses on creating a developmental feeder organization for the UFC and other premier MMA promotions by combining many leading regional MMA promotions under one umbrella organization. Our business model is unique to the MMA industry and may not prove to be successful. We have a limited operating history upon which you can evaluate our business. Although each of the Target Companies have operated independently for many years, they will commence combined operations only upon the closing of the offering. The MMA industry is also rapidly growing and evolving and may develop in a way that is detrimental to our business model. You must consider the challenges, risks and difficulties frequently encountered by early stage companies using new and unproven business models in new and rapidly evolving markets. Some of these challenges relate to our ability to:
• establish or increase our brand name recognition;
• expand our popularity and fan base;
• successfully produce live events;
• manage existing relationships with broadcast television outlets and create new relationships to broadcast and distribute our televised content domestically and internationally;
• manage sponsorship, advertising, licensing and branding activities; and
• create new outlets for our content and new marketing opportunities.
Our business strategy may not successfully address these and the other challenges, risks and uncertainties that we face, which could adversely affect our overall success and delay or prevent us from achieving profitability.
We may be perceived as a competitive threat to the UFC and to other premier MMA promotions who may use their significantly greater resources to frustrate our business and growth strategy.
It is our intention to serve as a developmental organization for the UFC and other premier national MMA promotions in the same fashion as college athletic programs serve as feeders to professional sports leagues. While we do not intend to compete with these promotions, because we will promote live events, televise and distribute MMA media and related content, solicit sponsorship revenues and seek to secure professional MMA fighters to multi-fight contracts, we may be perceived as a competitor by these organizations. Should the UFC or another premier national MMA promotion view us as a threat they could use their significantly greater resources to frustrate our business and growth strategy and materially and adversely affect our business.
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Many of the Target Companies who comprise our business have historically been competitors, and we may experience difficulties integrating these businesses.
We intend to operate the business of each Target Company as a distinct regional MMA promotion, with daily operations overseen by a regional vice president who, prior to the acquisition, operated the Target Company. Although the MMA market is highly fragmented, many of the Target Companies have competed with one another in the past to sign top professional MMA fighter prospects, for television and broadcast opportunities, and for sponsors. As our strategy involves leveraging the relationships and skills of our regional vice presidents, it will be important for them to collaborate effectively in order to achieve profitability for our company as a whole rather than focusing solely on profits for the individual Target Company businesses. The continuation of past competitive behaviors, and the failure to integrate these businesses under a cohesive umbrella organization, will likely have a material adverse effect on our business.
A future decline in the popularity of mixed martial arts could adversely affect our business.
Our operations are affected by consumer tastes and sports and entertainment trends, which are unpredictable and subject to change, and may be affected by changes in the social and political climate. We believe that MMA is growing in popularity in the United States and around the world, but a change in our fans’ tastes or a material change in the perceptions of the MMA industry, whether due to social or political issues or otherwise, could adversely affect our operating results and have a material adverse effect on our business.
We may not be able to attract and retain key professional MMA fighters.
Our business is dependent upon identifying, recruiting and retaining highly regarded professional MMA fighters for our promotions. Fans and sponsors are attracted to events featuring top fighters, and the value placed on a promotion’s television and other media rights is dependent to a great extent on the quality of the promotion’s fighter roster. We may not be able to attract and retain key professional MMA fighters due to competition with other regional promoters for the same fighters. Failing to put on events featuring top professional fighters could adversely affect our operating results and have a material adverse effect on our business.
We may not be able to attract national promotional and advertising sponsorships or maintain such arrangements.
Our business strategy involves developing national sponsorship arrangements, or expanding existing regional sponsorship arrangements, in support of our network of live MMA events. We compete with larger more established sports and entertainment organizations and media outlets for sponsorship and advertising revenue. While many of our Target Companies have existing local and regional sponsorship arrangements with large advertisers who advertise on a national basis in our target markets and demographic, we currently have no national sponsorships. Should we be able to secure national promotional and advertising arrangements, there is no assurance that we will maintain these arrangements. Many factors, including the popularity and perception of MMA and the perceived quality of our promotions, will significantly impact our ability to secure and maintain important advertising and promotional arrangements. If we are unable to generate sponsorship and promotional revenue and increase that revenue over time, our operating results and business will be adversely affected.
The economic uncertainty impacts our business and financial results and a renewed recession could materially affect us in the future.
Any significant decrease in consumer confidence, or periods of economic slowdown or recession, could lead to a curtailing of discretionary spending, which in turn could reduce our revenues and results of operations and adversely affect our financial position. Our business is dependent upon consumer discretionary spending and therefore is affected by consumer confidence as well as the future performance of the United States and global economies. As a result, our results of operations are susceptible to economic slowdowns and recessions. Increases in job losses, home foreclosures, investment losses in the financial markets, personal bankruptcies, credit card debt and home mortgage and other borrowing costs, declines in housing values and reduced access to credit, among other factors, may result in lower levels of ticket sales, sponsorship and distribution revenue.
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We depend on the services of key executives, the loss of whom could materially harm our business and our strategic direction if we were unable to replace them with executives of equal experience and capabilities.
Our future success significantly depends on the continued service and performance of our key management personnel, including our Chairman and Chief Executive Officer, Paul Danner, our Chief Financial Officer Frank Gallagi, and our President, Robert Haydak. We have employment agreements with all members of senior management; however, we cannot prevent members of senior management from terminating their employment with us. Losing the services of members of senior management could materially harm our business until a suitable replacement is found, and such replacement may not have equal experience and capabilities. We have not purchased life insurance on any members of our senior management.
The markets in which we operate are highly competitive, rapidly changing and increasingly fragmented, and we may not be able to compete effectively, especially against competitors with greater financial resources or marketplace presence.
For our live and television audiences, we face competition from, in addition to other MMA promotions, professional and college sports, as well as from other forms of live and televised entertainment and other leisure activities that are offered in a rapidly changing and increasingly fragmented marketplace. Many of the companies with which we compete have greater financial resources than are currently available to us. Our failure to compete effectively could result in a significant loss of viewers, venues, distribution channels or athletes and fewer advertising dollars spent on our form of sporting events, any of which could adversely affect our operating results.
Our expansion into new markets may present increased risks due to our unfamiliarity with the area, different rules and regulations and challenging operating environments.
Some of our future acquisitions may be located in areas where we have little or no meaningful experience. Those markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our promotions to be less successful than promotions in our existing markets. Acquisitions in new markets may not generate the same level of revenues and may have higher operating expense ratios than our existing promotions.
Some of our future acquisitions may occur outside the United States. Beyond the risks posed by new markets generally, the operating conditions in overseas markets may vary significantly from those we experienced in the past, including in relation to consumer preferences, regulatory environment, currency risk, the presence and cooperation of suitable local partners and availability of vendors or commercial and physical infrastructure, among others. There is no guarantee that we will be successful in integrating these acquisitions into our operations, achieving market acceptance, operating these acquisitions profitably, and maintaining compliance with the rapidly changing business and regulatory requirements of new markets. If we are unable to do so, we could suffer a material adverse effect on our business, financial condition and results of operations.
Our failure to obtain and maintain key agreements and arrangements with television and other media outlets could adversely affect our ability to distribute our original MMA programming.
Our business strategy is dependent upon monetizing the media content we create at our live MMA events through live television and cable broadcasts and through distribution of live and historical video content through a variety of media outlets such as Internet pay-per-view and video on demand. We also anticipate that our growth will be dependent on securing international distribution arrangements for our content. There is significant competition for television and other distribution arrangements from within the MMA industry and from other sports and entertainment companies who offer these media outlets programming alternatives to our MMA content. Our failure to obtain and maintain key agreements and arrangements with television and other media outlets could adversely affect our ability to distribute our original MMA programming and will adversely affect our operating results and have a material adverse effect on our business.
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Our limited operating history makes forecasting our revenues and expenses difficult.
As a result of our limited operating history and the roll-up structure of our business, it is difficult to forecast accurately our future revenues. Current and future expense levels are based on our operating plans and estimates of future revenues after we achieve the anticipated synergies of combining the Target Company businesses into one company. Revenues and operating results are difficult to forecast because they generally depend on our ability to promote events, secure national sponsorships and advertising arrangements for our regional promotions, and enter into television and media distribution arrangements. As a result, we may be unable to adjust our spending appropriately to compensate for any unexpected revenue shortfall, which may result in substantial losses. We may also be unable to expand our operations adequately to meet demand to the extent it exceeds our expectations.
If we do not manage our growth effectively, our revenue, business and operating results may be harmed and our pro forma results may not be indicative of our future performance.
Our expansion strategy includes the acquisition of additional regional MMA promotion companies and organic growth. At the closing of the offering made by this prospectus we will have acquired five regional MMA promotions, and two related businesses, GFL and CageTix. These acquisitions may not be indicative of our ability to identify, secure and manage future acquisitions successfully. Our acquisition of the Target Companies and any future acquisitions may require a greater than anticipated investment of operational and financial resources as we seek to institute uniform standards and controls across promotions. Acquisitions may also result in the diversion of management and resources, increases in administrative costs, including those relating to the assimilation of new employees, and costs associated with any debt or equity financings undertaken in connection with such acquisitions. We cannot assure you that any acquisition we undertake will be successful. Future growth will also place additional demands on our management, sales, and marketing resources, and may require us to hire and train additional employees. We will need to expand and upgrade our systems and infrastructure to accommodate our growth, and we may not have the resources to do so in the time frames required. The failure to manage our growth effectively will materially and adversely affect our business.
We may be unable to implement our strategy of acquiring additional companies and acquisitions may subject us to additional unknown risks.
We anticipate making future acquisitions of regional MMA promotions in markets that the Target Companies do not serve. We may not be able to reach agreements with such promotions on favorable terms or at all. In completing the acquisition of the Target Companies or any future acquisition, we will rely upon the representations and warranties and indemnities made by the sellers with respect to each acquisition as well as our own due diligence investigation. We cannot assure you that such representations and warranties will be true and correct or that our due diligence will uncover all materially adverse facts relating to the operations and financial condition of the acquired companies or their business. To the extent that we are required to pay for obligations of an acquired company, or if material misrepresentations exist, we may not realize the expected economic benefit from such acquisition and, in such case, we will have overpaid in cash and/or stock for the value received in that acquisition.
Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of indebtedness and increased amortization expense.
Future acquisitions may result in issuances of equity securities, which may be dilutive to the equity interests of existing stockholders, the incurrence of debt, which will require us to maintain cash flows sufficient to make payments of principal and interest, the assumption of known and unknown liabilities, and the amortization of expenses related to intangible assets, all of which could have an adverse effect on our business, financial condition and results of operations.
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We may need additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on reasonable terms when required, or at all.
In order for us to grow and successfully execute our business plan, we may require additional financing which may not be available or may not be available on acceptable terms. If such financing is available, it may dilute your ownership of our stock. Failure to obtain financing may have a material adverse effect on our financial position. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the operation or growth of our business could be significantly impaired and our operating results may be harmed.
We may be prohibited from promoting and conducting our live events if we do not comply with applicable regulations.
In various states in the United States and some foreign jurisdictions, athletic commissions and other applicable regulatory agencies require us to obtain licenses for promoters, medical clearances and/or other permits or licenses for athletes and/or permits for events in order for us to promote and conduct our live events. If we fail to comply with the regulations of a particular jurisdiction, we may be prohibited from promoting and conducting live events in that jurisdiction. The inability to present live events over an extended period of time or in a number of jurisdictions could lead to a decline in the revenue streams generated from our live events, in which case our operating results would be adversely affected.
We may be unable to adequately establish, protect or enforce our intellectual property rights.
Our success depends in part upon our ability to establish, protect and enforce our intellectual property and other proprietary rights, particularly rights to our video fight libraries. We have an application pending with the United States Patent and Trademark Office (USPTO) to register “Alliance MMA” as a tradename and also maintain a catalog of copyrighted works, including copyrights covering television programming and photographs. Our inability to protect our portfolio of copyrighted material, trade names and other intellectual property rights from piracy, counterfeiting or other unauthorized use could negatively affect our business. We have received an initial office action from the USPTO contesting our application to register the Alliance MMA name due to the fact that the name appears descriptive. We are contesting this initial office action and believe we will ultimately prevail in securing a registration but there can be no assurance we will. If we fail to establish, protect or enforce our intellectual property rights, we may lose an important advantage in the market in which we compete. Our intellectual property rights may not be sufficient to help us maintain our position in the market and our competitive advantages. Monitoring unauthorized uses of and enforcing our intellectual property rights can be difficult and costly. Legal intellectual property actions are inherently uncertain and may not be successful, and may require a substantial amount of resources and divert our management’s attention.
Changes in laws, regulations and other requirements could adversely affect our business, results of operations or financial condition.
We are subject to the laws, regulations and other requirements of the jurisdictions in which we operate. Changes to these laws could have a material adverse impact on the revenue, profit or the operation of our business.
In addition, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), as well as other healthcare reform legislation being considered by Congress and state legislatures, may have an adverse effect on our business. The Affordable Care Act assesses penalties on employers who do not offer health insurance meeting certain affordability or benefit coverage requirements. While we believe our plans will meet these requirements, however, changes to the law or the payment of penalties if the specified level of coverage is not provided at an affordable cost to employees, could have a significant, negative impact on our business.
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Failure to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business and operating results.
Maintaining effective internal control over financial reporting is necessary for us to produce accurate and complete financial reports and to help prevent financial fraud. In addition, such control is required in order to list our common stock on the Nasdaq Capital Market. If we are unable to maintain adequate internal controls or fail to correct deficiencies in our controls noted by our management or our independent registered public accounting firm, our business and operating results could be adversely affected, we could fail to meet our obligations to report our operating results accurately and completely, and our continued listing on the Nasdaq Capital Market could be jeopardized.
Disruptions in our information technology systems or security breaches of confidential customer information or personal employee information could have an adverse impact on our operations.
Our operations are dependent upon the integrity, security and consistent operation of various information technology systems and data centers, including our ticketing system, data centers that process transactions, communication systems and various other software applications used throughout our operations. Disruptions in these systems could have an adverse impact on our operations. We could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to losses due to disruption in our business operations.
In addition, our information technology systems are subject to the risk of infiltration or data theft. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage information technology systems change frequently and may be difficult to detect or prevent over long periods of time. Moreover, the hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud or deception aimed at our employees, contractors and temporary staff. In the event that the security of our information systems is compromised, confidential information could be misappropriated and system disruptions could occur. Any such misappropriation or disruption could cause significant harm to our reputation, lead to a loss of sales or profits or cause us to incur significant costs to reimburse third parties for damages.
Our current insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by our insurance.
We believe we maintain insurance coverage that is customary for businesses of our size and type. However, we may be unable to insure against certain types of losses or claims, or the cost of such insurance may be prohibitive. For example, although we carry insurance for breaches of our computer network security, there can be no assurance that such insurance will cover all potential losses or claims or that the dollar limits of such insurance will be sufficient to provide full coverage against all losses or claims. Uninsured losses or claims, if they occur, could have a material adverse effect on our financial condition, business and results of operations.
Risks Related to this Offering and Ownership of Shares of Our Common Stock
There is no existing market for our common stock and a trading market that will provide you with adequate liquidity may not develop for our common stock.
No public market for buying or selling our common stock currently exists. Although we intend to list the common stock on the Nasdaq Capital Market in connection with this offering, a liquid trading market for our common stock may not develop or be sustained after this offering. The initial public offering price of the shares of our common stock sold in this offering will be determined by negotiations between the underwriter and our Board of Directors and may not be representative of the market price at which shares of our common stock will trade after this offering. In particular, we cannot provide assurances that you will be able to resell your shares at or above the initial public offering price or at all.
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The best efforts structure of this offering may yield insufficient gross proceeds to fully execute on our business plan.
Our underwriter is offering shares of our common stock in this offering on a best efforts basis. This means that the underwriter is not required to sell any specific number or dollar amount of common stock, but will use its best efforts to sell the shares offered by us. It is a condition to this offering that, upon the completion of the offering, our common stock will qualify for listing on the Nasdaq Capital Market. In order to list our common stock, the Nasdaq Capital Market requires that, among other criteria, at least 1,000,000 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $4.0 million, the bid price per share of our common stock be $4.00 or more, and there be at least three registered and active market makers for our common stock. There can be no assurance that we will successfully raise this minimum amount, that this offering will satisfy the listing conditions required to trade our common stock on the Nasdaq Capital Market or that this offering will be completed.
The amount of proceeds available to us upon the completion of this offering will significantly affect our ability to finance our growth over the next 12 to 24 months. If we sell only the minimum number of shares contemplated by this offering, we may be unable to fully execute on our business plan, which could materially and adversely affect our business, prospects, financial condition and results of operations.
Our revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our common stock to decline.
Variations in our quarterly and year-end operating results are difficult to predict and may fluctuate significantly from period to period. If our revenues or operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Specific factors that may cause fluctuations in our operating results include:
| • | attendance at our live events and demand for our original programming content; | |
| • | emergence, growth and popularity of competing MMA promotions; | |
| • | fluctuations in our operating expenses due to the growth of our business; | |
| • | timing and size of any new acquisitions we may complete; and | |
| • | changes in sponsorship or advertising revenues. |
Once our common stock begins trading, the market price of our shares may fluctuate widely, and you could lose all or part of your investment.
We cannot predict the prices at which our common stock may trade after this offering. The market price of our common stock may fluctuate widely, depending upon many factors. These fluctuations could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the market price of our common stock include the following:
| • | a shift in our investor base; | |
| • | quarterly or annual results of operations that fail to meet investor or analyst expectations; | |
| • | actual or anticipated fluctuations in our operating results due to factors related to our business; | |
| • | changes in accounting standards, policies, guidance, interpretations or principles; | |
| • | changes in earnings estimates by securities analysts or our inability to meet those estimates; | |
| • | the operating and stock price performance of other comparable companies; |
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| • | overall market fluctuations; and | |
| • | general economic conditions. |
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.
Future sales of shares of our common stock could depress the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline significantly.
Upon completion of this offering (assuming the maximum amount is sold), 8,444,445 shares of our common stock will be outstanding. Of these shares, the 1,777,778 shares sold in this offering (except for shares purchased by affiliates) will be freely tradable immediately. The remaining 6,666,667 shares of common stock, including approximately 1,377,531 shares to be issued to the Target Companies (based on an assumed initial public offering price of $4.50 per share) are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the section of this prospectus entitled “Shares Eligible For Future Sale.”
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price could decline materially.
You will experience immediate and substantial dilution.
The initial public offering price is substantially higher than the net tangible book value of each outstanding share of our common stock. Purchasers of common stock in this offering will experience immediate and substantial dilution on a book value basis. The dilution per share in the net tangible book value per share of common stock will be $4.18 per share if the minimum number of shares are sold and $3.87 per share if the maximum number of shares are sold, based on an estimated initial public offering price of $4.50. See the section in the prospectus entitled “Dilution.”
Your percentage ownership will be further diluted in the future.
Your percentage ownership will be diluted in the future as a result of equity awards that we expect to grant to our directors, officers and employees. Prior to the completion of this offering, it is expected that our Board of Directors and stockholders will approve our 2016 Equity Incentive Plan, which provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards to our directors, officers and other employees, advisors and consultants. Although no awards will have been granted at the completion of this offering, we anticipate granting equity awards in the future. We anticipate that there will be 825,000 shares of common stock that may be awarded under the 2016 Equity Incentive Plan.
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We will have broad discretion in using the proceeds of this offering, and we may not effectively expend the proceeds.
We intend to use approximately $1.6 million of the net proceeds of this offering to fund the cash portion of the purchase price for the Target Companies. We expect to use the balance for working capital and general corporate purposes, which may include financing our growth, developing new services, and funding capital expenditures, acquisitions and investments. We will have significant flexibility and broad discretion in applying the net proceeds of this offering after paying the cash purchase price for the acquisition of the Target Companies, and we may not apply these proceeds effectively. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds, and you will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.
Provisions of Delaware law, of our amended and restated charter and bylaws may make a takeover more difficult, which could cause our stock price to decline.
Provisions in our certificate of incorporation and bylaws and in the Delaware corporate law may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by management and the Board of Directors. As a result, public stockholders who might wish to participate in such a transaction may not have an opportunity to do so. Further, our bylaws provide for the removal of a director only for cause and by the affirmative vote of the holders of at least 66 2/3% of the outstanding shares entitled to cast their vote for the election of directors, which may discourage a third party from making a tender offer or otherwise attempting to obtain control of us. These and other anti-takeover provisions could substantially impede the ability of public stockholders to change our management and Board of Directors. Such provisions may also limit the price that investors might be willing to pay for shares of our common stock in the future.
Any issuance of preferred stock in the future may dilute the rights of our common stockholders.
Under our Certificate of Incorporation, our Board of Directors have the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, liquidation preference, priority, dividend and voting rights, conversion features (if any) and other terms of these shares. Our Board of Directors may approve the issuance of preferred stock without any further approval of our stockholders. If preferred stock is issued, the rights of holders of our common stock may be adversely affected.
We do not intend to pay cash dividends on our common stock.
Currently, we do not anticipate paying cash dividends to holders of our common stock. If we do not declare or pay dividends on shares of our common stock, the market value of our common stock may be adversely affected.
Complying with the laws and regulations affecting public companies will increase our costs and the demands on management and could harm our operating results.
As a public company, and particularly after we cease to be an “emerging growth company,” we will incur significant legal, accounting and other expenses that the businesses we acquired from the Target Companies, which were all privately-held, did not incur prior to the acquisition. The Sarbanes-Oxley Act and the rules subsequently adopted by the SEC and FINRA to implement the Act impose a number of requirements on public companies, including changes in corporate governance practices. As a result, our management team and other personnel will need to devote a substantial amount of time and resources to adopting, implementing and auditing procedures designed to satisfy these requirements. The rules adopted under the Act will increase our legal, accounting and financial compliance costs, making some activities more time-consuming and costly. For example, we expect that, as a result of these rules, director and officer liability insurance will be difficult and expensive for us to obtain, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors or our board committees or as executive officers.
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Among its other provisions, the Sarbanes-Oxley Act requires that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, we will need to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. As an “emerging growth company” we will avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. However, this exemption will no longer be available to us when we cease to be an “emerging growth company”, at which time the cost of our compliance with Section 404 will correspondingly increase.
If we are unable to comply with the requirements of the Sarbanes-Oxley Act and the rules adopted under the Act, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, investor perceptions of our company may suffer, leading to a potential decline in the market price of our common stock. In such event, we could be subject to sanctions (including monetary fines or penalties) or investigations by the SEC or other regulatory authorities, our operations, financial reporting, or financial results could be harmed, and we might receive an adverse opinion from our independent registered public accounting firm.
The JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations and to reduce the amount of information provided in reports filed with the SEC. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are and we will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenues equal or exceed $1 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a “large accelerated filer” under the Securities and Exchange Act of 1934, as amended, or the Exchange Act. For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, will be subject to the same new or revised accounting standards at the same time as other public companies that are not emerging growth companies.
We cannot predict whether investors will find our common stock less attractive because we rely on some of the exemptions available to us under the JOBS Act. If investors find our common stock less attractive as a result, the trading market for our common stock may be less active and our stock price may be more volatile. If we avail ourselves of certain exemptions from various reporting requirements, our reduced disclosure may make it more difficult for investors and securities analysts to evaluate us and may result in less investor confidence.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled “Important Introductory Information,” “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” contains forward-looking statements within the meaning of the federal securities laws. These statements relate to anticipated future events, future results of operations or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to:
| • | Our ability to manage our growth; | |
| • | Our ability effectively to manage the businesses of the Target Companies, to create synergies among the businesses, and to leverage these synergies to achieve our business objective of creating a developmental league for the MMA industry; | |
| • | Our ability to compete with other regional MMA promotions for top ranked professional MMA fighters and for television and other content distribution arrangements; | |
| • | Sustained growth in the popularity of MMA among fans; | |
| • | Our ability to protect or enforce our intellectual property rights; and | |
| • | Other factors discussed elsewhere in this prospectus. |
These forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. The “Risk Factors” section of this prospectus sets forth detailed risks, uncertainties and cautionary statements regarding our business and these forward-looking statements. Moreover, we operate in a changing regulatory environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus.
We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the U.S., we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events. Other than with respect to the acquisition of the Target Companies, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or other investments or strategic transactions we may engage in.
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Based on an estimated initial public offering price of $4.50 per share, we estimate that the net proceeds from this offering, after deducting underwriting commissions and expenses payable by us and other offering expenses payable by us, will be approximately $4,275,503 million if we sell a minimum of 1,111,111 shares and approximately $7,080,805 million if we sell all 1,777,778 shares of our common stock in this offering. However, this is a best efforts offering and there is no assurance that we will sell any shares or receive any proceeds.
We intend to use the net proceeds of this offering to fund the cash portion of the purchase price for the Target Companies in the amount of approximately $1.6 million, and to repay indebtedness in the aggregate amount of approximately $353,450 due to Ivy Equity Investors, LLC, an affiliate of our founder and a member of our Board of Directors, Joseph Gamberale, bearing interest at a rate of 6% per annum and maturing in September 2016, which was used to finance expenses of this offering as well working capital. We will use the remaining proceeds for working capital and other general corporate purposes, including the expansion of our sales and marketing team, and the enhancement of technology and equipment at GFL. In addition, we may also use a portion of the net proceeds for the acquisition of or investment in the businesses or assets of other regional MMA promotion companies that we believe are complementary to our present business. Other than with respect to the Target Companies, we have not entered into any agreement or commitment with respect to any acquisitions or investments.
Except as described above, we have not allocated any specific portion of the net proceeds to any particular purpose, and our management will have the discretion to allocate the proceeds as it determines. Furthermore, the amount and timing of our actual expenditures will depend on numerous factors, including the cash used in or generated by our operations, the pace of the integration of the Target Companies’ businesses, the level of our sales and marketing activities and the attractiveness of any additional acquisitions or investments. Until we use the proceeds from this offering as described above, we plan to invest such proceeds in highly liquid short-term interest-bearing obligations, investment grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will be dependent on a number of factors, including our earnings, capital requirements, our overall financial condition and other factors that our Board of Directors considers relevant.
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The following table sets forth our cash and our capitalization as of December 31, 2015:
| · | On an actual basis; and |
| · | On a pro forma as adjusted basis after giving effect to: |
| - | the sale of a minimum of 1,111,111 shares of our common stock in this offering at an estimated initial public offering price of $4.50 per share and our receipt of the estimated $4,275,503 million in net proceeds from this offering, after deducting underwriting commissions and estimated offering expenses payable by us; |
| - | the sale of all 1,777,778 shares of our common stock in this offering at an estimated initial public offering price of $4.50 per share and our receipt of the estimated $7,080,805 million in net proceeds from this offering, after deducting underwriting commissions and estimated offering expenses payable by us; and |
| - | the planned acquisitions of the Target Companies. |
| As of December 31, 2015 | ||||||||||||
| Actual | Pro Forma As Adjusted Minimum | Pro Forma As Adjusted Maximum | ||||||||||
| (In thousands, except share information) | ||||||||||||
| Cash and cash equivalents | $ | - | 2,701 | 5,506 | ||||||||
| Notes payable, affiliates | 353 | - | - | |||||||||
| Contingent liability | ||||||||||||
| Earn-out provisions of respective Target Companies at closing. | - | 716 | 716 | |||||||||
| Stockholders' Equity | ||||||||||||
| Preferred Stock, $0.001 par value; 5,000,000 shares authorized and no shares issued and outstanding actual or as adjusted Common stock, $0.001 par value, authorized 45,000,000 shares, 5,289,136 shares issued and outstanding, actual; authorized 45,000,000 shares, 7,777,778 and 8,444,445 shares issued and outstanding, pro forma as adjusted - minimum and pro forma as adjusted - maximum, respectively (1) | 5 | 8 | 8 | |||||||||
| Accumulated (deficit) | (386 | ) | (662 | ) | (662 | ) | ||||||
| Additional paid-in-capital | - | 9,809 | 12,613 | |||||||||
| Total Stockholders' (deficit) equity | (381 | ) | 9,155 | 11,959 | ||||||||
| Total Capitalization | $ | (28 | ) | 9,871 | 12,675 | |||||||
(1) The number of shares of common stock to be outstanding after this offering includes 1,333,086 shares of common stock to be issued to the equity holders of the respective Target Companies and 44,444 shares of common stock to be issued to equity holders of Hoss which is not a considered Business Combination for pro forma purposes (per provisions of Rule 3-05 of Regulation S-X) upon the closing of the offering.
The number of shares does not give effect to:
| · | 825,000 shares of common stock available for issuance under the 2016 Equity Incentive Plan; and |
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| · | between 111,111 shares (assuming the minimum offering is completed) and 177,778 shares (assuming the maximum offering is completed) of common stock issuable upon the exercise of the warrants issued to the underwriter. |
Purchasers of our common stock in this offering will experience an immediate dilution of net tangible book value per share from the initial public offering price. Dilution in net tangible book value per share represents the difference between the amount per share paid by the purchasers of shares of common stock and the net tangible book value per share immediately after this offering.
As of December 31, 2015, our pro forma combined net tangible book value before the offering was $(381,167), or $(0.0721) per share of common stock. Net tangible book value per share represents our total tangible assets, less our total liabilities, divided by the number of outstanding shares of our common stock.
Dilution represents the difference between the amount per share paid by purchasers in this offering and the pro forma net tangible book value per share of common stock after the offering. After giving effect to the sale of 1,111,111 shares of common stock (minimum) and 1,777,778 shares of common stock (maximum) in this offering at an estimated offering price of $4.50 per share, and after deducting underwriting commissions and estimated offering expenses payable by us, our pro forma net tangible book value would have been $0.3226 (minimum) and $0.6294 (maximum) per share. This represents an immediate increase in pro forma net tangible book value of 0.3947 (minimum) and $0.7014 (maximum) per share to our existing stockholders and immediate dilution of $4.1774 (minimum) and $3.8706 (maximum) per share to new investors purchasing shares at the proposed public offering price.
The following table illustrates the dilution in pro forma net tangible book value per share to new investors as of December 31, 2015:
| Minimum | Maximum | |||||||
| Assumed initial public offering price per share | $ | 4.5000 | $ | 4.5000 | ||||
| Net tangible book value per share at December 31, 2015 * | $ | (0.0721 | ) | $ | (0.0721 | ) | ||
| Increase in tangible book value per share to the existing stockholders attributable to this offering | $ | 0.3947 | $ | 0.7014 | ||||
| Adjusted net tangible book value per share after this offering | $ | 0.3226 | $ | 0.6294 | ||||
| Dilution in net tangible book value per share to new investors | $ | 4.1774 | $ | 3.8706 | ||||
| * | Including adjustments for the acquisition of the Target Companies. |
The following tables set forth, as of the date of this prospectus, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by the existing holders of our common stock and the price to be paid by new investors at an estimated public offering price of $4.50 per share.
Minimum Offering
| Shares Purchased | Total Consideration | Average Price Per Share | ||||||||||||||||||
| Number | Percent | Amount | % | |||||||||||||||||
| Existing Stockholders before this offering | 5,289,136 | 82.6 | $ | 5,289 | 0.1 | $ | 0.00 | |||||||||||||
| New Investors | 1,111,111 | 17.4 | $ | 5,000,000 | 99.9 | $ | 4.50 | |||||||||||||
| 6,400,247 | 100.0 | $ | 5,005,289 | 100.0 | ||||||||||||||||
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Maximum Offering
| Shares Purchased | Total Consideration | Average Price Per Share | ||||||||||||||||||
| Number | Percent | Amount | % | |||||||||||||||||
| Existing Stockholders before this offering | 5,289,136 | 74.8 | $ | 5,289 | 0.1 | $ | 0.00 | |||||||||||||
| New Investors | 1,777,778 | 25.2 | $ | 8,000,000 | 99.9 | $ | 4.50 | |||||||||||||
| 7,066,914 | 100.0 | $ | 8,005,289 | 100.0 | ||||||||||||||||
The outstanding share information in the tables above under “Existing Stockholders before this offering” is based on 5,289,136 shares of our common stock outstanding as of December 31, 2015, and excludes:
| (i) | 1,377,531 shares of common stock to be issued to Target Companies upon the closing of this offering; |
| (ii) | 159,198 shares of common stock reserved as contingent consideration to be issued to Target Companies upon the achievement of certain Earn-Out provisions; and |
| (iii) | 825,000 shares of common stock to be reserved for issuance under our 2016 Equity Incentive Plan. |
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
We prepared the following unaudited pro forma condensed combined financial statements by applying certain pro forma adjustments to the historical combined financial statements of Alliance. The pro forma adjustments give effect to the following transactions (the “Transactions”):
| • | Our planned acquisition of the assets of CFFC Promotions, LLC (“CFFC”); | |
| • | Our planned acquisition of the assets of Hoosier Fight Club Promotions, LLC (“Hoosier Fight Club” or “HFC”); | |
| • | Our planned acquisition of the assets of Punch Drunk, Inc. d/b/a COmbat GAmes MMA (“COGA”); | |
| • | Our planned acquisition of the assets of Bang Time Entertainment, LLC d/b/a Shogun Fights (“Shogun”); | |
| • | Our planned acquisition of the assets of V3, LLC (“V3 Fights”); | |
| • | Our planned merger with Go Fight Net, Inc. (“GoFightLive” or “GFL”); | |
| • | Our planned acquisition of the assets of CageTix, LLC (“CageTix”); | |
| • | The estimated net proceeds from our initial public offering and the application of the estimated proceeds therefrom. |
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 give effect to the Transactions as if each of them had occurred on January 1, 2015. The unaudited pro forma condensed combined balance sheet as of December 31, 2015 gives effect to the Transactions as if each of them had occurred on December 31, 2015.
These pro forma condensed combined financial statements include adjustments for our planned acquisitions because we believe each of these acquisitions are probable under the standards of Rule 3-05 of Regulation S-X. We determined that each acquisition shown involved the acquisition of a business, considering the guidance in Rule 11-01 (d) of Regulation S-X, and individually as well as in aggregate met the significance test of Rule 3-05 of Regulation S-X. The acquisitions of certain assets of Louis Neglia and Hoss related to copyrights in the Ring of Combat and CFFC MMA and kickboxing fight video libraries did not, individually or in aggregate, meet the significance test in Rule 3-05 of Regulation S-X and are therefore not included in the pro forma condensed combined financial statements.
The historical financial statements of Alliance, and each of the businesses whose acquisition is planned appear elsewhere in this prospectus.
We have based the pro forma adjustments upon available information and certain assumptions that we believe are reasonable under the circumstances. We describe in greater detail the assumptions underlying the pro forma adjustments in the accompanying notes, which you should read in conjunction with these unaudited pro forma condensed combined financial statements. In many cases, we based these assumptions on preliminary information and estimates. The actual adjustments to our audited consolidated financial statements will depend upon a number of factors and additional information that will be available on or after the closing date of our initial public offering. Accordingly, the actual adjustments that will appear in our financial statements will differ from these pro forma adjustments, and those differences may be material.
We account for our proposed acquisitions, including our merger with GFL, using the acquisition method of accounting for business combinations under GAAP, with Alliance being considered the acquiring entity. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets, net of liabilities, based on their estimated fair values as of the acquisition date. We have not completed the acquisition of the Target Companies and therefore the estimated purchase price and fair value of the Target Companies’ assets to be acquired and liabilities assumed is preliminary. Once we complete our final valuation processes for our planned acquisitions, we may report changes to the value of the assets acquired and liabilities assumed, as well as the amount of goodwill, and those changes could differ materially from what we present herein.
| 22 |
We provide these unaudited pro forma condensed combined financial statements for informational purposes only. These unaudited pro forma condensed combined financial statements do not purport to represent what our results of operations or financial condition would have been had the Transactions actually occurred on the assumed dates, nor do they purport to project our results of operations or financial condition for any future period or future date. You should read these unaudited pro forma condensed combined financial statements in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical financial statements, including the related notes thereto, appearing elsewhere in this prospectus.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
For the period commencing January 1, 2015 to December 31, 2015
| Actual Targeted Acquisitions | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shogun | CageTix | CFFC | GFL | HFC | COGA | V3 Fights | Target Acquisitions Subtotal | Alliance MMA | Total Condensed Combined Results | Pro Forma Adjusting Entries | Pro Forma Condensed Combined Results | |||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 538 | $ | 72 | $ | 709 | $ | 496 | $ | 172 | $ | 285 | $ | 160 | $ | 2,432 | $ | - | $ | 2,432 | $ | - | $ | 2,432 | ||||||||||||||||||||||||||
| Cost of revenues | 372 | 0 | 534 | 318 | 115 | 111 | 123 | 1,573 | - | 1,573 | - | 1,573 | ||||||||||||||||||||||||||||||||||||||
| Gross profit | 166 | 72 | 175 | 178 | 57 | 174 | 37 | 859 | - | 859 | - | 859 | ||||||||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 24 | 34 | 107 | 170 | 8 | 127 | 36 | 506 | 42 | 548 | - | 548 | ||||||||||||||||||||||||||||||||||||||
| Professional and consulting fees | 27 | 0 | 49 | 24 | 22 | 28 | 28 | 178 | 344 | 522 | (311 | ) | 4(iii) | 211 | ||||||||||||||||||||||||||||||||||||
| Depreciation | 1 | - | 3 | 36 | 0 | 9 | - | 49 | - | 49 | - | 49 | ||||||||||||||||||||||||||||||||||||||
| Amortization | - | - | - | - | - | - | - | - | - | - | 713 | 4(iv) | 713 | |||||||||||||||||||||||||||||||||||||
| Total operating expenses | 52 | 34 | 159 | 230 | 30 | 164 | 64 | 733 | 386 | 1,119 | 402 | 1,521 | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 114 | $ | 38 | $ | 16 | $ | (52 | ) | $ | 27 | $ | 10 | $ | (27 | ) | $ | 126 | $ | (386 | ) | $ | (260 | ) | $ | (402 | ) | $ | (662 | ) | ||||||||||||||||||||
| Weighted average common shares outstanding | 8,444 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss per common share | $ | (0.0784 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 2015
(in thousands)
| Actual Targeted Acquistions | ||||||||||||||||||||||||||||||||||||||||||||||
| Shogun | CageTix | CFFC | GFL | HFC | COGA | V3 Fights | Target Acquisitions Subtotal | Actual Alliance MMA | Pro Forma Adjusting Entries | Condensed Combined Pro Forma Results | ||||||||||||||||||||||||||||||||||||
| Cash & cash equivalents | $ | 12 | $ | 57 | $ | 5 | $ | 75 | $ | 8 | $ | 4 | $ | 3 | $ | 164 | $ | - | $ | 5,342 | 4(i) | $ | 5,506 | |||||||||||||||||||||||
| Accounts receivable and other assets, net | 6 | - | 11 | - | 3 | - | - | 20 | 25 | (25 | ) | 4(iii) | 20 | |||||||||||||||||||||||||||||||||
| Current assets | 18 | 57 | 16 | 75 | 10 | 4 | 3 | 184 | 25 | 5,317 | 5,526 | |||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | 0 | - | 6 | 37 | 13 | - | 56 | - | - | 56 | ||||||||||||||||||||||||||||||||||||
| Intangible assets, net | - | - | - | - | - | - | - | - | - | 2,854 | 4(iv) | 2,854 | ||||||||||||||||||||||||||||||||||
| Goodwill | - | - | - | - | - | - | - | - | - | 4,554 | 2 | 4,554 | ||||||||||||||||||||||||||||||||||
| Total assets | 18 | 57 | 22 | 112 | 10 | 17 | 3 | 240 | 25 | 12,725 | 12,990 | |||||||||||||||||||||||||||||||||||
| Accounts payable | 18 | 62 | 24 | 20 | 9 | 24 | 33 | 190 | - | - | 190 | |||||||||||||||||||||||||||||||||||
| Accrued expenses | - | 20 | - | - | - | - | 18 | 38 | 53 | - | 91 | |||||||||||||||||||||||||||||||||||
| Ticket tax payable | - | - | - | - | 2 | - | - | 2 | - | - | 2 | |||||||||||||||||||||||||||||||||||
| Deferred revenue | - | - | - | - | 8 | - | - | 8 | - | - | 8 | |||||||||||||||||||||||||||||||||||
| 401K payable | - | - | - | 24 | - | - | - | 24 | - | - | 24 | |||||||||||||||||||||||||||||||||||
| Related party note payable - short term | - | - | 67 | - | - | - | - | 67 | 353 | (420 | ) | 4(ii) | - | |||||||||||||||||||||||||||||||||
| Total current liabilities | 18 | 82 | 91 | 44 | 19 | 24 | 51 | 329 | 406 | (420 | ) | 315 | ||||||||||||||||||||||||||||||||||
| Contingent earnout | - | - | - | - | - | - | - | - | - | 716 | 4(v) | 716 | ||||||||||||||||||||||||||||||||||
| Total liabilities | 18 | 82 | 91 | 44 | 19 | 24 | 51 | 329 | 406 | 296 | 1,031 | |||||||||||||||||||||||||||||||||||
| Retained earnings /(deficit) | 0 | (25 | ) | (69 | ) | 68 | (8 | ) | (7 | ) | (48 | ) | (89 | ) | (386 | ) | (187 | ) | (662 | ) | ||||||||||||||||||||||||||
| Common stock | - | - | - | - | - | - | - | - | 5 | 3 | 8 | |||||||||||||||||||||||||||||||||||
| Additional paid-in-capital | - | - | - | - | - | - | - | - | - | 12,613 | 2,4(i) | 12,613 | ||||||||||||||||||||||||||||||||||
| Total stockholders' equity | 0 | (25 | ) | (69 | ) | 68 | (8 | ) | (7 | ) | (48 | ) | (89 | ) | (381 | ) | 12,429 | 11,959 | ||||||||||||||||||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 18 | $ | 57 | $ | 22 | $ | 112 | $ | 11 | $ | 17 | $ | 3 | $ | 240 | $ | 25 | $ | 12,725 | $ | 12,990 | ||||||||||||||||||||||||
Notes to Unaudited Pro Forma CONDENSED Combined Financial Information
Note 1 — Basis of presentation
The unaudited pro forma condensed combined balance sheet as of December 31, 2015, and the unaudited pro forma condensed combined statement of operations for the period commencing January 1, 2015 to December 31, 2015 are based on the historical financial statements of Alliance MMA, Inc. after giving effect to our planned acquisition of the Target Companies and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information. The actual acquisitions of Target Companies will be concurrent with the date of effectiveness of the registration statement of which this prospectus forms a part.
We account for business combinations pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 805, Business Combinations. In accordance with ASC 805, Alliance uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
The fair values assigned to Alliance’s tangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of these assets acquired and liabilities assumed are considered preliminary and are based on the information and the account balances that were available as of December 31, 2015. We believe that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. We expect to finalize the valuation of the net tangible and intangible assets as soon as practicable, but not later than one year from the acquisition date.
| 24 |
The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of our results of operations or financial position that would have been reported had the acquisitions been completed as of the date presented, and should not be taken as a representation of our future results of operations or financial position. The unaudited pro forma condensed combined financial information does not reflect any operating efficiencies and/or cost savings that we may achieve with respect to the combined businesses of the Target Companies or the media libraries of Hoss or Louis Neglia.
For purposes of these unaudited condensed combined pro forma statements of operations, the acquisitions of Target Companies are assumed to have occurred on January 1, 2015. The pro forma statement of operations for the year ended December 31, 2015 combined the results of Alliance and Target Companies for the period commencing on January 1, 2015 through December 31, 2015.
The unaudited pro forma condensed combined balance sheet as of December 31, 2015 is presented as if the Target Company acquisitions had occurred on December 31, 2015.
Note 2 – Preliminary purchase price allocation
The Company plans to acquire Target Companies concurrent with the date of effectiveness of the registration statement of which this prospectus forms a part. Upon the acquisitions, Alliance will issue the following cash and common shares to Target Company security holders, and will record a contingent liability related to specified earn outs.
In addition, concurrent with the date of the effectiveness of the registration statement, Alliance will acquire the historical MMA and kickboxing video libraries of Louis Neglia’s Martial Arts Karate, Inc. and Hoss Productions, LLC. The purchase price for the copyrights in the MMA video libraries Alliance is purchasing from Louis Neglia and Hoss totals $455,000 of which $200,000 is payable in common stock and the remainder in cash.
| Target Company | Cash | Shares | Consideration paid | Contingent Consideration | Total Shares | Total Consideration | ||||||||||||||||||
| To Shogun members | $ | 250,000 | 111,111 | $ | 750,000 | $ | 174,219 | 149,826 | $ | 924,219 | ||||||||||||||
| To CageTix members | $ | 150,000 | 38,889 | $ | 325,000 | $ | 75,621 | 55,694 | $ | 400,621 | ||||||||||||||
| To CFFC Promotions members | $ | 235,000 | 470,000 | $ | 2,350,000 | $ | 184,632 | 511,029 | $ | 2,534,632 | ||||||||||||||
| To GFL members | $ | 450,000 | 419,753 | $ | 2,338,889 | $ | - | 419,753 | $ | 2,338,889 | ||||||||||||||
| To HFC members | $ | 120,000 | 106,667 | $ | 600,000 | $ | 60,170 | 120,038 | $ | 660,170 | ||||||||||||||
| To COGA members | $ | 80,000 | 75,556 | $ | 420,000 | $ | 182,890 | 116,198 | $ | 602,890 | ||||||||||||||
| To V3 Fights members | $ | 100,000 | 111,111 | $ | 600,000 | $ | 38,862 | 119,747 | $ | 638,862 | ||||||||||||||
| Total Targets Companies | $ | 1,385,000 | 1,333,087 | $ | 7,383,889 | $ | 716,394 | 1,492,285 | $ | 8,100,283 | ||||||||||||||
| To Hoss members | $ | 100,000 | 44,444 | $ | 300,000 | $ | - | 44,444 | $ | 300,000 | ||||||||||||||
| To Louis Neglia members | $ | 155,000 | - | $ | 155,000 | $ | - | - | $ | 155,000 | ||||||||||||||
| Total Target Assets | $ | 255,000 | 44,444 | $ | 455,000 | $ | - | 44,444 | $ | 455,000 | ||||||||||||||
| Total | $ | 1,640,000 | 1,377,531 | $ | 7,838,889 | $ | 716,394 | 1,536,729 | $ | 8,555,283 | ||||||||||||||
The consideration paid was calculated based on an estimated offering price of $4.50 per share.
Under acquisition accounting, we recognize the assets and liabilities acquired at their fair value on the acquisition date, with any excess in purchase price over these values being allocated to identifiable intangible assets and goodwill.
| 25 |
The asset purchase agreements and agreement for planned merger for these Target Companies include the purchase of certain tangible assets and assumption of certain liabilities. We believe that due to the short-term nature of many of the assets acquired that their carrying values, as included in the historical financial statements of the entities, approximate their respective fair values. In addition, we have assigned value to those intangible assets related to customer relationships and contracts, select employment arrangements and non-compete agreements, intellectual property rights to video libraries, as well as the trademarks and trade names of each promotional company acquired. The goodwill recognized for these acquisitions is primarily related to synergies with our combined businesses and assembled workforce.
The following table reflects the preliminary allocation of the purchase price for Target Companies to the identifiable assets, liabilities assumed and pro forma intangible assets and goodwill:
| Total | Shogun | CageTix | CFFC | GFL | HFC | COGA | V3 Fights | |||||||||||||||||||||||||
| Cash and equivalents | $ | 163,850 | $ | 11,842 | $ | 57,334 | $ | 6,006 | $ | 74,532 | $ | 7,610 | $ | 3,829 | $ | 2,697 | ||||||||||||||||
| Accounts receivable, net | 19,495 | 6,000 | - | 10,500 | - | 2,995 | - | - | ||||||||||||||||||||||||
| Property and equipment, net | 56,529 | 142 | - | 5,807 | 37,037 | 534 | 13,009 | - | ||||||||||||||||||||||||
| Intangible assets, net | 3,567,065 | 52,500 | 382,911 | 397,500 | 2,044,154 | 196,875 | 352,500 | 140,625 | ||||||||||||||||||||||||
| Goodwill, net | 4,553,561 | 871,235 | 42,546 | 2,138,469 | 227,128 | 470,841 | 257,237 | 546,105 | ||||||||||||||||||||||||
| Total identifiable assets | 8,360,500 | 941,719 | 482,791 | 2,558,282 | 2,382,851 | 678,855 | 626,575 | 689,427 | ||||||||||||||||||||||||
| Accounts payable and accrued expenses | 260,217 | 17,500 | 82,170 | 90,650 | 43,962 | 18,685 | 23,685 | 50,565 | ||||||||||||||||||||||||
| Total identifiable liabilities | 260,217 | 17,500 | 82,170 | 90,650 | 43,962 | 18,685 | 23,685 | 50,565 | ||||||||||||||||||||||||
| Total purchase price | $ | 8,100,283 | $ | 924,219 | $ | 400,621 | $ | 2,467,632 | $ | 2,338,889 | $ | 660,170 | $ | 602,890 | $ | 638,862 | ||||||||||||||||
The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Target Companies based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.
Note 3 – Identifiable intangible assets
We based our preliminary estimates of each intangible asset type/category that we expect to recognize as part of the planned acquisitions on the nature of the businesses and the contracts that we have entered into with the sellers. Our targeted acquisitions bring value to our business platform through their exceptional reputations as premier mix martial arts promotional companies. As such, customer contracts and relationships, select employment arrangements and non-compete agreements, as well as the intellectual property rights of video libraries compose the significant majority of intangible assets for these types of businesses. In addition, we have acquired the trademarks and trade names of these targeted companies, and we will continue doing business under these names, which have registered trademarks and are defensible.
We based the preliminary estimated useful lives of these intangible assets on the basis of each assets contribution to our business platform and growth strategy. However, all of these estimates are preliminary, as we have not completed these acquisitions or analyzed all the facts surrounding the businesses to be acquired and therefore have not been able to finalize the accounting for these transactions.
The figures set forth below reflect the preliminary fair value of intangible assets of the businesses we plan to acquire, and their estimated useful lives. All preliminary estimates for the fair value of intangibles will be refined once the offering is completed and the final valuations are ascribed each intangible asset.
| Total | Sho Gun | CageTix | CFFC | GFL | HFC | COGA | V3 Fights | Estimated Useful Life | ||||||||||||||||||||||||||
| Video library, intellecutal property | $ | 3,567 | $ | 52 | $ | 383 | $ | 398 | $ | 2,044 | $ | 197 | $ | 352 | $ | 141 | 5 years | |||||||||||||||||
| Total intangible assets | $ | 3,567 | $ | 52 | $ | 383 | $ | 398 | $ | 2,044 | $ | 197 | $ | 352 | $ | 141 | ||||||||||||||||||
| 26 |
Note 4 – Pro forma adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
| i. | Net proceeds from IPO. Reflects the issuance of 1,777,778 common shares (maximum offering) at the price of our common stock sold in this offering (currently assumed at $4.50 per share), less offering expenses attributable to the registration filing totaling approximately $919,000. We expect our net proceeds for this offering will approximate $7,080,805. We anticipate that these proceeds will be further reduced by the cash portion paid our Target Companies at the closing of our IPO and repayment of an outstanding note payable to Ivy Capital in the amount of $353,450. |
Total cash component of our acquisitions accounted for as Business Combination per Rule 3-05 of Regulation S-X is estimated at $1,385,000.
| ii. | Elimination of Assets/Liabilities not acquired. We have adjusted the unaudited pro forma condensed combined statements of operations and balance sheet for the period ended December 31, 2015 to eliminate nonrecurring expenditures and those assets and liabilities not purchased or assumed by Alliance from Target Companies per terms of their respective purchase agreements. The following liabilities were excluded: |
| Period ended December 31, 2015 | ||||||||
| Liabilities excluded from Target purchases | CFFC | Total | ||||||
| Short-term note payable | $ | 67,000 | $ | 67,000 | ||||
| iii. | Note Payable and expenses directly attributable to the Transaction. In February 2015, Alliance entered into a loan agreement with Ivy Equity Investors, LLC, pursuant to which Ivy would advance up to $500,000 to satisfy the company’s startup expenses, including professional fees incurred with this offering and expenses incident to Target acquisitions. |
This loan is evidenced by an unsecured promissory note which bears interest at the rate of 6% per annum. The principal amount owing under the note as of December 31, 2015 was $353,450. The note matures on the earlier of the closing of the offering made by this prospectus or January 1, 2017. We anticipate paying off the note in full at the closing of the offering from the net proceeds available to us. As such, for pro forma purposes, the Note was reflected as being paid at closing of the IPO and paid in full. Additionally, the actual expenses incurred related to the Offering totaled $25,000 as of December 31, 2015 and were reclassified from capitalized offering expenses and $310,929 of professional and consulting fees were directly related to the acquisition of prospective targets and have been removed from the pro forma results.
| iv. | Amortization of intangible assets. We amortize intangible assets over their estimated useful lives. We based the estimated useful lives of acquired intangible assets on the amount and timing in which we expect to receive an economic benefit. We assigned these intangible assets a useful life of 5 years based upon a number of factors, including contractual agreements, estimated production hours available on video libraries and economic factors pertaining to the combined companies. |
The estimates of fair value and weighted-average useful lives could be impacted by a variety of factors including legal, regulatory, contractual, competitive, economic or other factors. Increased knowledge about these factors could result in a change to the estimate fair value of these intangible assets and/or the weighted-average useful lives from what we have assumed in these unaudited pro forma condensed combined financial statements. In addition, the combined effect of any such changes could result in a significant increase or decrease to the related amortization expense estimates.
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The amortization of intangible assets of our planned acquisitions shown below, assumes that the assets were acquired on January 1, 2015 and amortized over the period associated with each statement of operations.
| Video Media Libraries | Basis | Useful Life | Amortization | Net Balance | ||||||||||
| CFFC | $ | 397,500 | 5 yrs | $ | 79,500 | $ | 318,000 | |||||||
| COGA | 352,500 | 5 yrs | 70,500 | 282,000 | ||||||||||
| CageTix | 382,911 | 5 yrs | 76,582 | 306,329 | ||||||||||
| GFL | 2,044,154 | 5 yrs | 408,831 | 1,635,323 | ||||||||||
| HFC | 196,875 | 5 yrs | 39,375 | 157,500 | ||||||||||
| V3 Fights | 140,625 | 5 yrs | 28,125 | 112,500 | ||||||||||
| Shogun | 52,500 | 5 yrs | 10,500 | 42,000 | ||||||||||
| Total Value of Media Libraries | $ | 3,567,065 | $ | 713,413 | $ | 2,853,652 | ||||||||
| v. | Contingent Consideration. With respect to the consideration paid each of the Target Companies, we expect an upward adjustment in the form of an “earn-out”. Per the terms of each respective Sale Agreement, Target shareholders are eligible to receive additional consideration equivalent to 7 times the increase in their 2015 base line gross profit on a dollar for dollar basis for the year following the closing of the offering. |
Management anticipates that each Target will exceed their gross profit thresholds, earmarking a weighted average increase of 15% for the Targets on a combined basis. This estimate was prepared based on our overall growth strategy and anticipating an average increase between our Targeted Companies of 10-30%. As such, management estimates that an additional $716,394 may be paid to Targets in the form of common stock upon the achievement of such milestones.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the “Unaudited Pro Forma Condensed Combined Financial Information” and the consolidated historical and pro forma financial statements and the related notes thereto included in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” We assume no obligation to update any of these forward-looking statements.
Business Overview
Alliance MMA, Inc. was incorporated in the state of Delaware on February 12, 2016 for the purpose of acquiring businesses that engage in the promotion of mixed martial arts, or MMA, events. Through our acquisition of the Target Companies, Alliance has created a regional venue for the development and showcasing of professional MMA fighters. We intend to operate as a “feeder” organization by which our fighters will advance to the Ultimate Fighting Championship, or UFC, and other premier MMA organizations. Our operations are centered on three primary business segments: live MMA event promotions, MMA content distribution, and sponsorships and promotion.
Results of Operations
The following table sets forth our unaudited condensed combined results of operations for the years ending December 31, 2014 and 2015, respectively, both in absolute terms and as a percentage of revenue.
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| Year ended December 31 | ||||||||||||||||
| 2015 | 2015 | 2014 | 2014 | |||||||||||||
| Net revenue | $ | 2,432,898 | 100.0 | % | $ | 2,349,446 | 100.0 | % | ||||||||
| Cost of revenue | 1,572,972 | 64.7 | % | 1,635,630 | 69.6 | % | ||||||||||
| Gross profit | 859,926 | 35.3 | % | 713,816 | 30.4 | % | ||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 548,644 | 22.6 | % | 429,515 | 18.3 | % | ||||||||||
| Professional and consulting | 521,890 | 21.5 | % | 36,039 | 1.5 | % | ||||||||||
| Depreciation | 49,023 | 2.0 | % | 46,068 | 2.0 | % | ||||||||||
| Total operating expenses | 1,119,557 | 46.0 | % | 511,622 | 21.8 | % | ||||||||||
| Net (loss) income | $ | (259,631 | ) | (10.7 | )% | $ | 202,194 | 8.6 | % | |||||||
Revenue
Our revenue in 2015 was $2,432,898, a 3.6% increase from our revenue of $2,349,446 during 2014. Traditionally, our regional MMA promotions, on a stand-alone basis, run a combined 50-60 events annually. We expect revenues to increase at a greater rate year-to-year as we increase the number of events and introduce opportunities such as national sponsorships, “in-cage” marketing and branding, television programing and access to international video content distribution.
Currently, three types of revenue streams are generated by our three primary business segments:
| · | Live MMA Event Promotions. We generate revenue from ticket sales to our live promotions hosted at casinos and various event venues. |
| · | MMA Content Distribution. We distribute original content on television, cable networks, pay-per-view broadcasts, and over the Internet, in the United States and through international distribution agreements. |
| · | Sponsorships and Promotions. We seek corporate and other sponsorships for our live MMA events and televised productions and related advertising and promotional opportunities. |
In 2015, approximately $1.7 million (71%) of our revenue was derived from live promotions, $0.5million (20%) from content distribution and $0.2 million (9%) from sponsorships, promotions and other sales.
Cost of Revenues/Gross Profit
The following table sets forth a breakdown of our cost of sales and gross profit for the fiscal years ending December 31, 2014 and 2015, respectively.
| Years ended December 31 | Change | |||||||||||||||
| 2015 | 2014 | Amount | % | |||||||||||||
| Net revenue | $ | 2,432,898 | $ | 2,349,446 | $ | 83,452 | 3.55 | % | ||||||||
| Cost of revenues | 1,572,972 | 1,635,630 | (62,658 | ) | (3.8 | )% | ||||||||||
| Gross profit | $ | 859,926 | $ | 713,816 | $ | 146,110 | 20.47 | % | ||||||||
Our cost of revenues consists of all costs associated with running and distributing our MMA events and content including but not limited to venue and site fees, fighter compensation (“purses”), ticket sales, video production and content distribution, merchandise and promotional costs associated with our live events. Year on year, costs associated with generating revenues have remained relatively flat, decreasing slightly from 2014 to 2015 by $62,658 or 3.8%. On a combined basis, our gross profit over the 2014 - 2015 period averaged approximately 33%.
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Operating Expenses
The following table sets forth a breakdown of our operating expenses for the fiscal years ending December 31, 2014 and 2015, respectively.
| Years ended December 31 | Change | |||||||||||||||
| 2015 | 2014 | Amount | % | |||||||||||||
| General and administrative | $ | 548,644 | $ | 429,515 | $ | 119,129 | 27.74 | % | ||||||||
| Professional and consulting | 521,890 | 36,039 | 485,851 | 1348.13 | % | |||||||||||
| Depreciation | 49,023 | 46,068 | 2,955 | 6.41 | % | |||||||||||
| Total operating expenses | $ | 1,119,557 | $ | 511,622 | $ | 607,935 | 118.83 | % | ||||||||
For the year ended December 31, 2015, our operating expenses were $1,119,557, as compared with operating expenses of $511,622 in 2014, an increase of 118.83%. This increase is attributable primarily to legal, accounting and other professional services that were required for the acquisition of the Target Companies and the commencement of this offering incurred by Alliance MMA in the amount of approximately $336,000 ($25,000 directly related to offering expenses incurred for this offering which have been capitalized, and $311,000 related to professional expenses related to consulting, accounting and legal services associated with the diligence and acquisition of prospective target companies.) While we don’t expect these expenses to recur, we do anticipate that our general and administrative expenses as a whole will increase as we expend funds on marketing and other initiatives that are intended to drive revenues. In addition, we will incur costs as a public company, including increased legal fees, accounting fees, and investor relations expenses, that were not borne by the Target Companies prior to the acquisition.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related costs, including compensation, benefits, travel and insurance, as well as selling and marketing expenses for regional MMA events. For the year ended December 31, 2015, our general and administrative expenses increased by 27.74%, primarily as a result of increased expenses associated with Go Fight Net (increase of $15,000 related to increased employee compensation and benefits expenses); CageTix (increase of $24,000 related to increased accounting and audit related services); Punch Drunk (increase of $47,00 related to increase employee compensation and benefits, and travel related expenses) and Alliance MMA (increase of $42,000 directly related to travel, marketing and web development expenses).
Professional and Consulting Expenses.
Our professional and consulting expenses relate primarily to accounting and tax-related expenses for each regional MMA promotion. During 2015, Alliance MMA incurred approximately $336,000 in expenses related to its IPO offering and structuring and negotiating acquisitions with the Target Companies. This amount accounted for approximately 66% of the increase in professional and consulting expenses in 2015 which, as noted above, are not expected to be recurring.
Depreciation Expense.
We depreciate our assets using the straight-line method over the estimated lives of the assets ranging from three to five years. Depreciation for vehicles, general office equipment, computers and production equipment is calculated over three years, while video library equipment is depreciated over five years.
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Liquidity/Capital Resources
The following table summarizes our cash flows for the periods presented.
| 2015 | 2014 | |||||||
| Net cash (used in) provided by operating activities | $ | (16,263 | ) | $ | 308,621 | |||
| Net cash (used in) investing activities | - | (49,224 | ) | |||||
| Net cash provided by (used in) financing activities | 41,395 | (200,393 | ) | |||||
| Net increase in cash | 25,132 | 59,004 | ||||||
| Cash at beginning of year | 138,718 | 79,714 | ||||||
| Cash at end of year | $ | 163,850 | $ | 138,718 | ||||
We intend to finance our business operations using the proceeds of this offering, cash on hand and cash provided by our operating activities. While the Company’s profit/loss in 2014 and 2015, respectively, was close to break even, our expenses may increase more quickly than our revenues as we execute our business plan to acquire additional regional MMA promotion companies, increase our marketing expenditures and hire additional employees. If we begin to operate at a material loss, we will have to fund that loss out of cash on hand, consisting primarily of the net proceeds of this offering. In the event that we sell the maximum number of shares of our common stock in this offering and taking into consideration the acquisitions of Target Companies and assets related to video libraries, we will have working capital of approximately $5.2 million. If we sell only the minimum number of shares, our working capital will be approximately $2.4 million. We believe that, whether we sell the minimum or the maximum number of shares, we will have sufficient working capital for the foreseeable future.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expense and related disclosures. We base our estimates, assumptions and judgments on historical experience, current trends and various other factors that we believe to be reasonable under the circumstances. On a regular basis, we review our accounting policies, estimates, assumptions and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from those anticipated on the basis of our assumptions and estimates, and such differences could be material.
Our significant accounting policies are described in Note 1 to our audited financial statements included in this prospectus, and, of those policies, we believe that the accounting policies discussed below involve the greatest degree of complexity and exercise of judgment by our management. The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results of operations. Accordingly, we believe the policies described below are the most critical for understanding and evaluating our financial condition and results of operations.
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Business Combinations
We account for our business combinations, including the acquisition of the businesses of the respective Target Companies, under the provisions of ASC 805-10, Business Combinations (ASC 805-10), which requires that the purchase method of accounting be used for all business combinations. We have concluded that each of the businesses that are being acquired in connection with this offering, with the exception of the video libraries of Hoss Promotions, LLC and Ring of Combat, constitute a business in accordance with ASC 805-10-55.
We record assets acquired and liabilities assumed at their respective fair values as of the date of acquisition/assumption. ASC 805-10 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the amount by which purchase price for a business exceeds the fair value of the tangible net assets and intangible assets acquired. We recognize acquisition-related expenses separately from the business combinations and expense these amounts as they are incurred. If a business combination provides for contingent consideration, such as the earn-out portion of the purchase price being paid to each Target Company, we record the contingent consideration at fair value as of the acquisition date, and adjust our earnings to the extent of changes in that fair value following the acquisition date. Changes in deferred tax asset valuation allowances and income tax uncertainties after the measurement period will affect income tax expense.
Impairment of Long-Lived Assets and Goodwill
We record intangible assets, including video libraries, customer relationships and the value of agreements not to compete arising from our various acquisitions, at cost less accumulated amortization, and we amortize such assets using a method which reflects the pattern in which the economic benefit of the asset is utilized, which has been estimated to be three to five years. For intangible assets subject to amortization, impairment is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible asset.
We expect to record goodwill in connection with the acquisition of the businesses of the Target Companies. The goodwill generated by those acquisitions will be evaluated at least annually, or whenever events or circumstances indicate that impairment may have occurred. There are many assumptions and estimates that directly impact the results of impairment testing, including an estimate of future expected revenues, earnings and cash flows, and discount rates applied to such expected cash flows in order to estimate fair value. We have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose for testing. To mitigate undue influence, we will set criteria that are reviewed and approved by senior management. The determination of whether or not goodwill or acquired intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of our reporting unit. Changes in our strategy or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets.
Industry Overview
In less than a quarter century, modern day Mixed Martial Arts has gone from a pariah banned in most U.S. states to an international sports phenomenon that many believe will be an Olympic event within the next two decades. MMA is widely regarded as the fastest growing sport in the United States and throughout the world. As it is practiced today, MMA evolved directly from a Brazilian combat sport known as vale tudo, Portuguese for ‘anything goes’, which was popular in the 1920’s. MMA is a full contact sport that permits fighters to use techniques from both striking and grappling martial arts such as Boxing, Wrestling, Taekwondo, Karate, Brazilian jiu-jitsu, Muay Thai, and Judo. The “MMA Industry” generates revenues by promoting live MMA bouts, Pay-Per-View, video-on-demand and televised MMA event programming, merchandise, event and fighter sponsorships, and the monetization of MMA-related intellectual property royalties.
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The MMA industry in its current form traces its origins to the founding of the Ultimate Fighting Championship (“UFC”) in 1993. Initially, the UFC struggled to gain acceptance from the mainstream media perception that the sport is excessively violent. Politicians including Senator John McCain of Arizona and New York state assemblyman Bob Reilly led the charge to ban MMA competitions from cable television. When their cable contracts were terminated in 1997, MMA events survived underground through internet and word of mouth promotions until their organizers agreed to a change of rules that allowed the Nevada State Athletic Commission and the New Jersey State Athletic Control Board to sanction the competitions in 2001. In 2006 Johns Hopkins University Medical School commissioned study published in the Journal of Sports Science and Medicine concluded that the injury rate in sanctioned MMA events is comparable to other combat sports involving striking and that in fact there are lower knockout rates in MMA compared to boxing. According to a study from The British Journal of Sports Medicine, only 28 per cent of MMA bouts ended with a blow to the head, as most fights are decided by a tactical wrestling match where one opponent forces the other into submission.
Now regarded by some as a thinking person’s sport where elite MMA athletes use terms such as “strategic combat” and “chess” to refer to MMA, the sport is legal and regulated in all 50 states. Interest and participation in the sport is growing at a rapid pace. There were over 1,160 professional and pro-am events held in the United States in 2014, and over 3,050 such events in 2015 according to the National MMA Registry, a proprietary database maintained by the Association of Boxing Commissions, a North American not for profit governmental entity professional boxing and Mixed Martial Arts organization that provides a framework for undertaking boxing and MMA bouts and record keeping. It is made up of members from state and tribal athletic commissions from the United States and Canada and beyond. According to the National MMA Registry, in 2015 there were a total of 15,105 professional MMA bouts and 12,190 amateur bouts.
The number of MMA fans worldwide is approximately 300 million, more than that of Major League Baseball’s worldwide fan base. Since 2010, the UFC fan base has grown annually in excess of 30% per year. Led by the UFC in terms of prominence and market share, there are in excess of 600 domestic regional MMA promotion companies promoting approximately 40,000 male and female professional and amateur fighters according to Tapology.com, a leading online MMA forum. On an international basis the number of MMA promotions exceeds 1,025 with in excess of 90,000 professional and amateur MMA fighters In 2014, the UFC’s annual revenues were approximately $483 million and increased to $522 million in 2015. This increase reflects a 64% increase in EBITDA and a 104% increase in Pay-Per-View revenue. Scarborough Sports Marketing’s 2009 first-ever look at the sport found that MMA fans are 15% more likely than the average American adult to have a household income of at least $75,000 with 32% of MMA fans falling into the highly coveted 18-29 year old demographic. In terms of social media following, MMA fan activity on Facebook, Twitter and Instagram exceed the combined results for MLB, NHL and NASCAR. The UFC is currently televised live in 145 countries in over 880 million households in 28 languages.7 In terms Social Media fans, the UFC’s total exceeds that of the NHL, NASCAR, and Major League Soccer combined.4 We believe that the UFC’s recently launched Fight Pass subscription network has garnered close to 1 million subscribers5 in the first year of its launch. UFC annual pay-per-view totals exceed 3 million male viewers age 18-496 per year - a number that exceeds the average viewership of major college football matchups. In 2015, it was reported that the UFC sold approximately 7.75 million pay-per-view subscriptions for its 13 UFC events with two events exceeding 1 million buys.
Fueled in part by the notoriety of celebrity MMA athletes including Olympic medalist Rhonda Rousey, Irish sensation Conor McGregor and legends Anderson Silva, Jose Aldo and Chris Weidman among many others, UFC events appear before sell-out crowds routinely averaging 15,000 with several live gates exceeding 50,000. UFC 193 held in Melbourne Australia on November 14, 2015 which featured the championship bout between UFC Champion Rhonda Rousey and contender Holly Holm set a UFC attendance record of 56,214 with a live ticket gate of $6.8 million. UFC 193 set a UFC record for single-event attendance, toppling the 55,724 standard set by UFC 129. That show, on April 29, 2011 at Rogers Centre in Toronto, was headlined by then-welterweight champion Georges St-Pierre’s successful title defense against Jake Shields. As of April 23, 2016, 357 UFC events have been held in 116 cities in 20 countries with the UFC presiding over approximately 3,653 matches.
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Our Strategy
Our objective is to become the premier feeder organization to the UFC, Bellator MMA and other prestigious MMA promotions throughout the world. To achieve this objective, we intend to employ the following strategies:
Distributing our Original Content. We intend to leverage the existing MMA fight media libraries of the Target Companies, including the GFL media library which has over 10,000 hours of original fight content, to create programming that we will offer through the www.gfl.tv website as well as through other distribution arrangements. We believe there is value in this content that has not been monetized primarily due to the size and scope of the individual Target Company media libraries and the limited financial resources of the Target Companies on a stand-alone basis. When combined, however, our library is one of the largest MMA archives in existence and contains valuable footage of the determining bouts of many MMA stars from early in their professional careers. The UFC recognized the value in historic MMA content and recently launched the UFC Fight Pass subscription service with a basic subscription starting at $7.99 per month which is intended to complement its live event and pay-per-view business. Although in its infancy, reports indicate that the UFC Fight Pass service has been well received. We believe we will have similar success in monetizing our original and exclusive MMA content. We also intend to produce new, original live MMA programming created at our ongoing professional MMA events and monetize this content through domestic and international distribution arrangements. Several of the Target Companies have established live and delayed television arrangements on a variety of networks, including CBS Sports Network and Comcast Sports Net. We are in discussions with several major networks in anticipation of extending our broadcast footprint across a larger segment of the Target Company promotions.
Obtaining National Sponsorships. We are in discussions with several prominent brands that we intend to secure as national sponsors for our live promotion events. Presently, the Target Companies primarily rely upon local and regional sponsors for their live events, although several have established sponsorship and advertising arrangements with larger organizations such as Adidas, MHP, and Bud Light. We have engaged Knock Out Representation, an agency experienced in identifying, negotiating and procuring sponsorship agreements between mixed martial arts fighters and promotions and businesses wishing to sponsor fighters and mixed martial arts events and are working to increase sponsorship revenue at each Target Company event in anticipation of our acquisition of the Target Companies. We are also interviewing several prominent sports marketing and advertising firms with a view towards increasing or expanding existing regional sponsorship arrangements, in support of the Company’s network of live MMA events on a national basis.
Increasing Profitability Through the CageTix Ticketing Platform. As is customary in the MMA industry, fighters appearing on an event fight card will sell a majority of the tickets sold for that event, an amount that routinely exceeds 70% of total live gate ticket sales. Referred to as “fighter consigned” tickets, they are generally sold in face-to-face cash transactions in an antiquated fashion. Often ticket proceeds are delivered to the regional MMA promoter on the day of the event, making forecasting and budgeting difficult. With the acquisition of CageTix, we intend to aggregate control of the ticketing sales chain by instituting the use of the CageTix platform across all the Target Companies. We believe this will allow us to increase our profit margin while at the same time capturing valuable demographic information concerning our customer base that will facilitate subsequent sales and marketing efforts. Utilizing proprietary web and mobile enabled software that is formatted to fit a range of mobile devices (iPhone, iPad, Android), CageTix facilitates a series of efficiency enhancing functions that significantly enhance promoter profitability, including the security of credit/debit card sales processing; immediate revenue recognition; real time sales reporting; and sales audit and compliance tracking for taxing and regulatory authorities.
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Securing More Favorable Event Venues. We plan to migrate certain of the Target Companies from paid event venue arrangements to venues that will compensate the promotions for hosting events, such as casino venues and community sponsored civic auditoriums. In anticipation of the completion of the offering, we have facilitated paid casino venue arrangements with several of the Target Companies and are in discussions with a leading gaming company to host our events at a number of their casino properties throughout the country. We anticipate that we will promote approximately 65 events in 2016 up from 50 that the Target Companies hosted in 2015. In 2015 approximately 55% of our Target Company events were hosted in venues where the promotion paid to appear at the venue. Relocating as many of these events as practicable to casino and other paid venues will increase our profitability.
Identifying and Signing Top Prospects. We will continue the Target Companies’ history of securing highly-regarded professional fighters to multi-fight agreements which will enhance our reputation and the value of our live MMA programming content. By conducting more professional MMA events than any other regional promotion, and by televising a large number of these events, we are able to guarantee fighters the opportunities and visibility they seek when affiliating with a promotion. By leveraging the relationships of our management team and members of our Board of Directors with top training camps, including Blackhouse MMA, American Top Team, Blackzilians, the Gracie family of training facilities, Jacksons MMA, Chute Boxe, Octagon MMA, and 4oz Fight Club, we anticipate that we will identify top prospects who will ensure compelling matches and solidify our relationship with the UFC and other leading MMA promotions.
In addition, upon the completion of this offering, we intend to selectively acquire additional profitable regional MMA promotions in markets in which we currently do not promote events and bring them into the Alliance family of promotions. We believe that the regional MMA industry is ripe for consolidation and that we can achieve significant growth through further acquisitions as well as by organically growing our existing MMA promotions. According to the Association of Boxing Commissions that operates National MMA Registry, there are presently more than 1,160 registered MMA promoters in the United States and we believe this number exceeds 8,000 worldwide. We estimate that no one promotion has more than a 1% share of the market. We further believe that it is becoming increasingly difficult for regional MMA promotion companies to attract the best prospects given the level of competition amongst regional MMA promoters to secure fighters who are looking to be guaranteed an opportunity to fight in multiple bouts. By conducting over 85 events annually and sending a significant number of fighters to elite promotions such as the UFC, we are able to guarantee multiple fights to top prospects and attract high-quality fighters.
Competition
The market for live and televised MMA events and for historical MMA video content is competitive. Domestically there are approximately 600 regional MMA promotion companies and over a 1,000 globally.
The principal competitive factors in our industry include:
| · | The ability to attract and retain successful professional fighters in order to promote events that are appealing to fans and sponsors. |
| · | The ability to command the attention of the UFC and other premier MMA promotions to scout professional fighters associated one of our promotions are scouted as prospects for these premier organizations. |
| · | The ability to produce high quality audiovisual content on a consistent basis to secure television and other media distribution arrangements. |
| · | The ability to generate brand awareness in the relevant geographic market. |
| · | The ability to promote a large number of events and scheduled bouts such that fighters are willing to commit to multi-fight agreements with a regional promotion knowing that they will be matched routinely and properly. |
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Despite the competition we face, we believe that our unique approach to uniting multiple regional MMA promotions under one umbrella organization enables us to leverage the collective resources and relationships of our regional promotions to more effectively address these competitive factors. By promoting over 65 events annually fighters who sign with us are more likely to be showcased and afforded the opportunity to move up to the UFC and other premier promotions. In addition, our national and in time international developmental league concept enables us to offer sponsors and media outlets a broader geographic footprint to market products, services and content.
Acquisition of Target Companies’ Businesses
Concurrently with the consummation of the offering made by this prospectus, through a series of asset purchase agreements, and in the case of GFL, a merger agreement, we will acquire the businesses of the Target Companies. Unless we close the acquisition of all of the Target Companies, we will not close any of those acquisitions and will not close this offering. The Target Companies, consist of 5 regional MMA promotion companies, the MMA industry’s widely recognized live video promotion and content distribution company, and a electronic ticketing platform solely targeting the MMA community. The Target Companies comprise many of the premier regional MMA promotions in the United States, with several ranked among the top 20 of all regional MMA promotions domestically. Combined, these promotions have sent over 50 professional MMA fighters to the UFC, have over 65 professional MMA fighters under multi-fight contracts, and conducted more than 50 professional MMA events in 2015. Many of our events are televised or streamed live on cable and network stations reaching over 100 million homes. In 2015, the Target Companies on a combined basis generated $2.4 million in gross revenue and $0.127 million in net income. Our primary goal in acquiring the Target Companies’ businesses is to discover and cultivate the next generation of MMA champions and command the attention of an international fan base, mainstream media and blue chip sponsorships in the process. The Target Sellers consist of the following:
* CFFC Promotions, LLC (“CFFC”) – based in Atlantic City, New Jersey, CFFC was founded in 2011 and has promoted over 57 professional MMA events primarily at casino venues in New Jersey and Pennsylvania. Ranked in the top 10 of all regional MMA promotions, CFFC currently airs on the CBS Sports Network as well as www.gfl.tv. and has sent 23 fighters to the UFC including Aljamain Sterling (11-0), Jimmie Rivera (15-1), Lyman Good (13-3), and Paul Felder (10-2). CFFC’s Robert Haydak and Mike Constantino will serve as our President and Regional Vice President for the North East region, respectively. CFFC has approximately 52 fighters under multi-fight contracts and is scheduled to promote 12 events in 2016. Robert Haydak and Mike Constantino have each been inducted into the New Jersey State Martial Arts Hall of Fame.
* Hoosier Fight Club Promotions, LLC (“Hoosier Fight Club” or “HFC”) – based in the Chicago metropolitan area was founded in 2009 and has promoted over 25 events primarily at casino venues, including the first sanctioned event in Indiana in January, 2010. HFC has sent or promoted 8 fighters to the UFC and several to Invicta Fighting Championships (the premier all-female MMA promotion) including Neil Magny (16-5), Felice Herrig (10-6), Phillipe Nover (12-5), Josh Sampo (11-5), and Barb Honchak (10-2) the Invicta FC Flyweight Champion and third-ranked pound-for-pound female MMA fighter in the world by MMARising.com. HFC has 11 fighters under multi-fight contracts and is scheduled to promote 8 events in 2016. HFC is now available on www.gfl.tv. HFC’s Danielle Vale will serve as Regional Vice President in the Chicago area market.
* Punch Drunk, Inc. d/b/a COmbat GAmes MMA (“COGA”) – based in Kirkland, Washington, COGA was founded in 2009 and has promoted over 46 shows primarily at tribal casino venues in Washington. COGA frequently airs on ROOT Sports Pacific Northwest regional network as well as www.gfl.tv. Voted “Best Fight Promotion of the Year” for 2011 and 2012 by NW FightScene Magazine, COGA is recognized as the premier MMA promotion in Washington State. COGA has sent 10 fighters to the UFC including, current bantam weight champion Demetrious Johnson (26-2-1), Ultimate Fighter winner Michael Chiesa (12-2), light heavy weight Trevor Smith (13-6), and heavy weight Anthony Hamilton (14-4). COGA is scheduled to promote 8 events in 2016. COGA’s founder Joe DeRobbio will serve as our Regional Vice President for the Pacific North West region.
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* Bang Time Entertainment LLC (d/b/a “Shogun Fights”) – based in Baltimore, Maryland, Shogun was founded in 2008 and has promoted 13 fights all at the Royal Farms Arena in Baltimore, the same venue that hosted UFC 174 in April of 2014. The premier mid-Atlantic regional MMA promotion, Shogun Fights currently airs on Comcast Sportsnet as well as www.gfl.tv and is scheduled to promote 2 events in 2016, with event attendance typically exceeding 5,000 fans. Shogun has sent 3 fighters to the UFC including Jim Hettes (11-3), Dustin Pague (11-10), and Zach Davis (9-2), with numerous others having fought for Bellator as well. In its past 6 events, Shogun Fights has had the opportunity to have 4 UFC veterans, 3 Ultimate Fighter reality series contestants, 10 Bellator Fighting championship veterans and 1 Strikeforce veteran fight on its professional MMA card. A champion for the legalization of MMA in Maryland, Shogun Fights’ John Rallo will serve as our Regional Vice President for the mid-Atlantic region and is scheduled to promote 2 events in 2016.
* V3, LLC (“V3 Fights”) – Based in Memphis, Tennessee, V3 Fights was founded in 2009 and has promoted 45 events primarily at event centers in Memphis, Tennessee and elsewhere in Tennessee, Mississippi and Alabama. V3Fights is the mid-South’s premier MMA promotion and has been broadcast live on Comcast Sports South as well as www.ustream.com, www.YouTube.com. V3Fights is now available on www.gfl.tv. Notable fighters who have fought for V3Fights are Bellator number one heavyweight contender, Tony Johnson (9-2), Bellator fighter, Jonny Bonilla-Bowman (2-0), and Invicta FC star, Andrea “KGB” Lee (3-1). V3Fights currently has 4 fighters under multi-fight contracts and will play host to 10 events in 2016. V3Fights founder Nick Harmeier will serve as our Regional Vice President for the mid-South and is scheduled to promote 12 events in 2016.
* Go Fight Net, Inc. – founded in 2010, Go Fight Net operates “GoFightLive” or “GFL” a sports media and technology platform focusing exclusively on the combat sports marketplace. With a media library containing 11,000 titles comprising approximately 10,000 hours of unique video content, and continuing to add approximately 1,200 hours of new original content annually, GFL maintains the largest continuously growing database of MMA events, fighters, and fight videos in the world. The GFL fighter database contains information on over 25,000 professional and amateur combat sports fighters comprising over 18,000 fights. GFL combines proprietary technology with content production and acquisition to deliver diverse and compelling content to a global audience. GFL’s content is distributed globally in all broadcast mediums through its proprietary distribution platform via cable/satellite, Internet, IPTV and mobile protocols. The GFL platform utilizes GFL’s proprietary scalable online master control technology which enables a wide range of functionality in the ingest and delivery of large amounts of data and video to viewers using a broad range of devices and formats to access its content. GFL broadcasts an average of 450 live events annually (having broadcast 2,500 events since inception) to viewers in over 175 countries. GFL has produced 150 episodes of the GoFightLiveTM “real fights” series airing weekly on Comcast Sports Net, SNY and other networks globally.
* Cagetix LLC “CageTix” – founded in 2009 by Jay Schneider, a seasoned MMA event promoter, CageTix is the first group sales service to focus specifically on the MMA industry. Generally, fighters appearing on an event fight card will sell a majority of the tickets sold for that event. Referred to as “fighter consigned” tickets, they are customarily sold in face-to-face cash transactions in an antiquated fashion. Often ticket proceeds are delivered to the regional MMA promoter on the day of the event, making forecasting and budgeting difficult. Utilizing proprietary web and mobile enabled software automatically formatted to fit any mobile device (iPhone, iPad, Android), CageTix facilitates a series of efficiency enhancing functions that significantly enhance promoter profitability. These function include: the security of credit/debit card sales processing; immediate revenue recognition; capturing valuable customer information to enable repeat sales and marketing initiatives; real time sales reporting; and sales audit and compliance tracking for taxing and regulatory authorities. CageTix is intended to be complementary to any existing ticket service used by the promotion such as Ticketmaster or box office sales. CageTix presently services the industry’s top International mixed martial arts events including Legacy, RFA, Bellator MMA, King of the Cage, and Glory. Since its inception, CageTix has sold tickets for over 1200 MMA events and currently services 64 MMA promotions operating in 106 cities. In 2014 CageTix sold 15,883 tickets for 1,229 individual fighters to 6,391 customers. Formerly the founder of Victory Fighting Championships, Jay Schneider is a member of the Nebraska Athletic Commission and was a senior columnist for Ultimate MMA magazine under the pen name ‘Victory Jay’ for over a decade. Jay Schneider will serve as our Vice President and has committed to generating at least $100,000 in net income from the CageTix business in 2016.
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Acquisition of Certain Fight Media Libraries
In addition to the acquisition of the Target Companies, we are also acquiring the MMA video libraries of two prominent regional promotions. The fighter libraries consist of the following:
* Ring of Combat, LLC “Ring of Combat” – based in Brooklyn, New York, and founded by MMA icon and three-time World Kickboxing Champion Louis Neglia (34-2), Ring of Combat is perennially regarded amongst the top MMA promotions in the world and currently ranked as the No. 4 promotion in the world by Sherdog. We have acquired the exclusive rights to the Ring of Combat fighter library, which includes all professional MMA, amateur, and kickboxing events and covers approximately 200 hours of video content. Ring of Combat has sent approximately 90 fighters to the UFC including UFC World Champions Matt Serra (11-7), Frankie Edgar (19-4), and Chris Weidman (13-0) whose fights are included in the Ring of Combat fighter library . We have also secured the media rights to all future Ring of Combat promotions. We have had preliminary negotiations with Louis Neglia to acquire Ring of Combat subsequent to the offering made by this prospectus however, as of the date of this prospectus no such transaction is probable.
* Hoss Promotions, LLC “Hoss” – an affiliate of CFFC, Hoss owns the intellectual property rights to approximately 30 of CFFC’s earlier promotional events. We have acquired the exclusive rights to the Hoss fighter library, which covers approximately 100 hours of video content.
Consideration to be Paid to Target Companies Hoss and Louis Neglia
Concurrently with the consummation of the offering made by this prospectus, through a series of asset purchases, and with respect to GFL, a merger, we will acquire the businesses of the Target Companies, and the MMA fighter libraries of Hoss and Louis Neglia. The aggregate consideration we will pay to acquire these businesses and assets will amount to approximately $7.8 million, consisting of cash in the amount of $1.6 million, and shares of our common stock with a market value of $6.2 million based on an estimated initial public offering price of $4.50 per share for the shares sold in this offering. With respect to each Target Company other than GFL, the purchase price will be adjusted upward in the event such Target Company exceeds certain gross profit thresholds in 2016 agreed upon by us and the Target Company. The upward adjustment to the purchase price will be a multiple of 7 times the amount that actual gross profit exceeds the agreed-upon gross profit threshold. Any increase in purchase price will be paid following the filing of quarterly report on Form 10-Q for the quarter immediately following the first full year following the closing of this offering and will be paid in shares of our common stock valued at the average of the closing trading price for our stock over the 20 days prior to the filing of our relevant quarterly report on Form 10-Q.
The Target Companies are valued based upon a number of factors including historical and 2016 projected gross profit, number of professional fighters under contract, event venue arrangements, media library and other intellectual property rights, prominence in the MMA industry, nature and extent of sponsorships, television and pay-per-view arrangements, and other relevant characteristics. The purchase price being paid for each Target Company is on average 21% cash and 79% shares of our common stock valued at the per share price of the shares sold in this offering, and with respect to GFL, 90% of the per share price of the shares sold in this offering.
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Structure of Acquisitions
Although each acquisition agreement contains slightly different terms, we will generally acquire the MMA fight library, goodwill and fixed assets of each of the Target Companies, but not their working capital or debt. We will however acquire the working capital of each Target Company sufficient to conduct each Target Companies’ next scheduled promotional event. The acquisition of GFL is structured as a merger and we will acquire all of the outstanding capital stock of GFL in consideration for cash and shares of our common stock. We will license the trademarks of the Target Companies under perpetual, royalty-free licenses that may be terminated only in the event of a material uncured breach of the respective agreement by us.
Summary of the Terms of the Acquisition Agreements
Although the following summarizes the material terms of the acquisition agreements, it does not purport to be complete in all respects and is subject to, and qualified in its entirety by, the full text of the acquisition agreements, a copy of each of which is filed as an exhibit to the registration statement of which this prospectus forms a part. Additionally, the following summary discusses the acquisition agreements in general terms and does not identify the instances where one acquisition agreement may differ from another. Other than the amount of consideration to be received, all of the acquisition agreements are substantially similar.
Timing of Closing
We expect that the acquisitions will close concurrently with the consummation of this offering. Unless we close all of the acquisitions, we will not close any of the acquisitions and we will not close this offering.
Representations and Warranties
Each acquisition agreement contains a number of representations and warranties made by us on the one hand and the respective Target Company and its principal stockholder(s) on the other hand. These representations and warranties were made as of the date of the acquisition agreement or, in some cases, as of a date specified in the representation, and may be qualified by reference to knowledge, materiality or schedules to the acquisition agreement disclosing exceptions to the representations and warranties. The contents of the representations and warranties reflect the results of arms’ length negotiations between the parties regarding their contractual rights. Based upon the Company’s due diligence investigation of the Target Companies and its review of the schedules to the acquisition agreements, there are no material exceptions to the Target Company’s representation and warranties.
Each party made representations to the other including, among others, representations concerning authority and approval; non-contravention; and financial statements. Among other items, the Target Companies and their stockholders made additional representations to Alliance, including, among others, representations concerning due organization; title to assets; equipment and other purchased assets; intellectual property; litigation; consents; absence of any brokers; no undisclosed liabilities; assumed contracts; tax matters; scope of rights to the purchased assets; compliance with laws; financial statements; absence of any material changes from the date of the financial statements; employees and employment benefit plans; labor relations; sponsors, vendors and suppliers; conflicts of interest; fighters under contract; inventories; accounts receivable; insurance; liabilities; sufficiency of assets; as well as certain representations made by each Target Companies stockholders and members regarding the transaction.
The Target Companies and their stockholders and members party to the acquisition agreements have been offered the opportunity to review a draft of this prospectus and the registration statement of which this prospectus forms a part, and have made representations to us regarding their investment intent, investor sophistication and ability to bear the economic risk of an investment in our common stock.
Indemnification
Each Target Company and certain of their stockholders and members have agreed to indemnify and hold us harmless from a breach by them of their representations and warranties or covenants contained in the acquisition agreement to which they are a party. Losses for a breach of a representation and warranty generally may be indemnified if asserted prior to two years from the closing date, except that breaches of certain fundamental representations, such as the Target Companies’ title to their assets may be asserted at any time, and breaches of tax, ERISA, financial statements, and litigation may be asserted at any time prior to the expiration of the applicable statute of limitations.
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Executive Employment Agreement and Non-Competition and Non-Solicitation Agreements
In connection with the acquisitions of the Target Companies, each of the principal stockholders or members of the Target Companies will enter into executive employments with us where they will serve as our regional vice presidents, and in the case of CFFC, Rob Haydak will serve as our President. Each executive employment agreement is for a three-year term, and provides for guaranteed base compensation and discretionary bonuses. We may terminate an executive employment agreement only for cause which will include the failure to achieve certain gross profit targets for the regional promotion that the executive is overseeing.
In addition to executive employment agreement, each regional vice president and our President will enter into a customary non-competition and non-solicitation agreement that contains restrictions prohibiting each executive from soliciting our employees or conducting a competitive business in the MMA industry for a period of three years after the termination of such executive’s employment with us for any reason.
Trademark License Agreement
At the closing of the acquisition of the Target Companies we will enter into a customary trademark license agreement with each Target Company pursuant to which we will license the trademarks used by the Target Company in connection with the MMA promotion business we are acquiring. Each agreement will provide that the trademarks are licensed on an exclusive, perpetual, fully-paid, royalty-free basis and may be terminated by the licensor only in the event of our material uncured breach or under circumstances where we terminate the regional vice president tasked with overseeing the relevant promotion without cause.
Closing Conditions
The respective obligations of Alliance and the Target Company and each of its stockholders to complete a particular acquisition are subject to the satisfaction of conditions, including, among others:
| • | the material accuracy as of closing of the representations and warranties made by Alliance and the Target Company and each of its stockholders or members, respectively, in the acquisition agreement; | |
| • | material compliance with or performance of the covenants and agreements of each of Alliance and the Target Company and each of its stockholders or members, respectively, to be complied with or performed on or prior to closing; and | |
| • | the offering contemplated by this prospectus shall have closed. |
In addition, our obligation to complete a particular acquisition is subject to the satisfaction of other conditions including:
| • | receipt by the Target Company of third-party consents; | |
| • | execution and delivery of all related agreements including the trademark license agreement and executive employment agreements; | |
| • | the Target Company shall not have sustained a material adverse change; | |
| • | each other acquisition shall have occurred or will occur contemporaneously with the closing of that acquisition; and | |
| • | no action or proceeding by or before any government authority shall have been instituted or threatened to restrain or prohibit the consummation of the acquisition. |
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Termination of the Acquisition Agreements
Each agreement relating to an acquisition may be terminated, under certain circumstances, prior to the closing of this offering, including:
| • | by the mutual consent of Alliance and the Target Company; | |
| • | by either Alliance or the Target Company if this offering and the acquisition of the Target Company is not closed by August 31, 2016; or | |
| • | by either Alliance or the Target Company if a material breach or default under the acquisition agreement by the other party occurs and is not cured within the applicable cure period. |
No acquisition agreement provides for a termination fee for the benefit of any party thereto if such acquisition agreement is terminated by any party thereto. No assurance can be given that the conditions to the closing of all of the acquisitions will be satisfied or waived. Unless we close all of the acquisitions, we will not close any of the acquisitions and will not close this offering.
Government Regulation
Although we generally do not contract with state or local government entities, our MMA events are regulated at the state level by the relevant boxing commission in each state where our promotions are conducted.
Intellectual Property
We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality, invention assignment and work for hire agreements with our employees and contractors, and confidentiality agreements with third parties. We further control the use of our proprietary technology and intellectual property through provisions in our websites’ terms of use.
As of December 31, 2015 we have one application pending with the United States Patent and Trademark Office (USPTO) to register the Alliance MMA name and also maintain a catalog of copyrighted works, including copyrights to television programming and photographs. We received an initial office action from the USPTO contesting our application to register the Alliance MMA name due to the fact that the name appears descriptive. We are contesting this initial office action and believe we will ultimately prevail in securing a registration but there can be no assurance we will. We also own a number of domain names including, alliancemma.com, gfl.tv and the domain names of each of the other Target Company promotions.
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries in which we seek protection of our marks or our copyrighted works. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights may harm our business or our ability to compete.
Seasonality
There is no material seasonality in our revenues.
Employees
As of December 31, 2015, not including the employees of the Target Companies who are assisting us in connection with the offering and the other transactions contemplated elsewhere in this prospectus, we had no employees. As of December 31, 2015, pro forma for the acquisition of the Target Companies and our Chief Executive Officer and Chief Financial Officer whose employment commences effective on the closing of the offering made by this prospectus, we would have had approximately 10 employees all of whom are located in the U.S.
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Facilities
We do not own any real property. Our principal executive and administrative offices are temporarily located at an office complex in New York, New York, which includes approximately 20 thousand square feet of shared office space and services that we are leasing. The lease has a one-year term which commenced on December 1, 2015, and allows for the limited use of private offices, conference rooms, mail handling, videoconferencing, and certain other business services. Several of the Target Companies have real property leases which we will assume at the closing of the respective acquisitions. Each of the other Target Company promotions are run out of home offices or shared office space arrangements which will continue after the closing on the same terms.
Legal Proceedings
We are not a party to any material pending legal proceedings. We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of our business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty and the resolution of these matters could materially affect our future results of operations, cash flows or financial position.
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Executive Officers and Directors
The following table sets forth information regarding our directors and executive officers after giving effect to the consummation of the offering made by this prospectus.
| Name | Age | Position(s) | ||
| Paul K. Danner, III | 58 | Chairman of the Board and Chief Executive Officer | ||
| Robert J. Haydak, Jr. | 45 | President | ||
| Frank Gallagi | 50 | Chief Financial Officer | ||
| Joseph Gamberale | 50 | Director | ||
| Renzo Gracie | 48 | Director | ||
| Mark D. Shefts | 58 | Director | ||
| Joel D. Tracy | 55 | Director | ||
| Burt A. Watson | 67 | Director |
Paul K. Danner, III.
Mr. Danner, 58, is our is our Chairman of the Board and Chief Executive Officer. Prior to joining us in 2016, Mr. Danner served as the Managing Director of Destiny Partners Worldwide, a global organizational management and business operations consultancy, from 2006 to 2016. From 2008 to 2010, Mr. Danner was also the Chief Executive Officer of China Crescent Enterprises, a publicly traded information technologies company headquartered in Shanghai, China. Previously, he served as Chairman & Chief Executive Officer of Paragon Financial Corporation, a publicly traded financial services firm listed on Nasdaq, from 2002 to 2006. From January 1998 to 2001, Mr. Danner was employed in various roles at MyTurn.com, Inc., a Nasdaq listed company, including as Chief Executive Officer. From 1996 to 1997, Mr. Danner was the Managing Partner of Technology Ventures, a consulting firm. From 1985 to 1996 he held executive-level and sales & marketing positions with a number of technology companies including NEC Technologies and Control Data Corporation. Mr. Danner served as a Naval Aviator flying the F-14 Tomcat, and subsequently as an Aerospace Engineering Duty Officer supporting the Naval Air Systems Command, for 8 years on active duty plus 22 years with the reserve component of the United States Navy. Mr. Danner retired from the Navy in 2009 with the rank of Captain. Mr. Danner holds a BS in Business Finance from Colorado State University and an MBA from Old Dominion University and has completed curricula at the Naval War College, Defense Acquisition University and the National Defense University.
Robert J. Haydak, Jr.
Mr. Haydak, 45, will serve as our President contingent and effective upon the consummation of this offering. Prior to joining us in 2016, Mr. Haydak was the Chief Executive Officer of Cage Fury Fighting championships a leading MMA promotion serving the Atlantic City, New Jersey and Pennsylvania markets from 2011. Prior to CFFC, Mr. Haydak served as Chief Executive Officer of Global Distribution Group, Inc., a privately held logistics and consulting firm serving domestic retailers seeking sales and distribution assistance in overseas markets which he co-founded in 2007. From 1997 through 2006 served as founder and President of RJH Express, Inc., a privately held residential home delivery company serving major retailers in the Northeast. A former NCAA Division 1 wrestler, Mr. Haydak holds a BS in Business Administration from Flagler College.
Frank Gallagi
Mr. Gallagi, 50, is our Chief Financial Officer. Prior to joining us in 2016, Mr. Gallagi was Chief Financial and Operating Officer of Mycell Technologies, a privately held ingredient technology company. Prior to joining Mycell Technologies in 2012, Mr. Gallagi served as an Investment Director at private equity firms Endeavor Capital Management from 2010 through 2012, Metropolitan Equity Partners from 2009 through 2010, Greenwoods Capital Partners 2005 through 2009, and FG II Ventures from 1999 through 2005. From 1995 through 1999, Mr. Gallagi served as Chief Financial Officer of Hungarian-American Enterprise Fund, a U.S. Government sponsored private equity firm established to promote free enterprise throughout Hungary. Mr. Gallagi began his professional career as an auditor at public accounting firm KPMG from 1988 through 1992 where he rose to an Audit Senior before leaving to become a Divisional Controller at Ethan Allen Interiors, a manufacturer and retailer of home furnishings from 1992 through 1995. Mr. Gallagi is a CPA and holds a BS in Accounting from Fordham University.
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Joseph Gamberale
Mr. Gamberale, 50, is our Founder and has served a director since our formation in February, 2015. Prior to founding Alliance, Mr. Gamberale was the founder and managing member of Ivy Equity Investors, LLC, a New York based private investment firm that he launched in 2014. From 2011 to 2014 Mr. Gamberale was a private investor. In 2001, Mr. Gamberale co-founded Centurion Capital Hedge Fund a multi-strategy investment firm which he actively managed until his retirement in 2011. From 1996 through 2001 Mr. Gamberale oversaw the Athletes and Entertainers Private Client Group at Merrill Lynch where he advised clients on a wide spectrum of securities and industries, particularly involving roll-up transactions in fragmented businesses. From 1991 to 1996 Mr. Gamberale was a financial advisor at Solomon Smith Barney. Mr. Gamberale is a member of the Central Park Conservatory, Columbus Citizens Foundation, Grand Havana Room and politically active in supporting numerous charitable organizations. Mr. Gamberale is a graduate of Rutgers University.
The Board of Directors believes that Mr. Gamberale is qualified to serve as a director because of his extensive experience as an executive in the financial services industry, particularly as such experience relates to roll-up transactions.
Renzo Gracie
Mr. Gracie, 48, will serve as our director contingent and effective upon the consummation of this offering. One of the true martial arts legends, Renzo Gracie is a Jiu-Jitsu black belt from the famous Gracie family. Born in Rio de Janeiro, Brazil, Mr. Gracie is the grandson of Gracie Jiu Jitsu founder Carlos Gracie and son of 9th Dan BJJ black belt Robson Gracie, brother to Ralph and Ryan Gracie. Like most men in the Gracie family, Renzo started training Jiu Jitsu as an infant. He had formal instruction from many of the Gracie patriarchs, but two of his biggest influences were the legendary Rolls Gracie and Carlos Gracie Jr. (the man who later awarded him his black belt). Mr. Gracie has won numerous competitions, the most prestigious being the Abu Dhabi Combat Club (ADCC), in which he is a two-time champion. Mr. Gracie’s name is also synonymous with Vale-Tudo, the famous “no holds barred” style of fighting in Brazil that is credited with originating modern MMA. Mr. Gracie has fought all over the world for organizations such as Pride FC and the UFC. Mr. Gracie pioneered Brazilian Jiu-Jitsu in America in the 1990’s when he founded Renzo Gracie Academy in New York City, one of the cornerstones of Brazilian Jiu-Jitsu in America. Mr. Gracie is recognized as one of the sports best teachers and mentors. With his signature combination of charisma and intelligence, Mr. Gracie has guided students such as Matt Serra a former UFC Champion, Roger Gracie a ten-times Jiu Jitsu world champion, John Danaher the Jiu-Jitsu Coach to UFC Champions Georges St-Pierre and Chris Weidman, Shawn Williams, and Ricardo Almeida to black belt.
The Board of Directors believe that Mr. Gracie is qualified to serve as a director because of his substantial experience in the MMA industry.
Mark D. Shefts
Mr. Shefts, 58, will serve as our director and chairman of our audit committee contingent and effective upon the consummation of this offering. Since 2004, Mr. Shefts has served as the Chief Executive Officer of The Rushcap Group, Inc., a privately held investment and consulting firm. Since 2005, Mr. Shefts has served as a Trustee of The Onyx & Breezy Foundation, a non-profit organization. Previously, Mr. Shefts was the Director, President and co-owner of All-Tech Investment Group Inc. from 1987 to 2001 and Domestic Securities, Inc. from 1993 to 2011, each a FINRA registered broker dealer. Mr. Shefts has previously owned seats on both the New York Stock Exchange and the Chicago Stock Exchange. Mr. Shefts has been an arbitrator for the American Arbitration Association and FINRA Dispute Resolution, Inc. with an area of specialization in the field of financial services area. Mr. Shefts holds a FINRA Series 7, 24, 63 and a Series 27 qualification as a Financial and Operations Principal. Mr. Shefts is also certified as Financial Services Auditor and a Certified Fraud Examiner. Mr. Shefts has been a Director, EVP & Chief Financial officer of Arbor Entech Corp. and Solar Products Sun-Tank, Inc., each a publicly traded companies. Mr. Shefts holds a BS in accounting from Brooklyn College of The City University of New York.
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The Board of Directors believe that Mr. Shefts is qualified to serve as a director because of his substantial experience as an executive in the financial services industry and his experience as an officer and director of several private & public companies.
Joel D. Tracy
Mr. Tracy, 55, will serve as our director contingent and effective upon the consummation of this offering. Mr. Tracy has worked as a self-employed Certified Public Accountant since 1989, specializing in tax and estate planning for high net worth individuals. From 2004 to 2016, Mr. Tracy was the managing member of ABT Realty, LLC, a privately held real estate company. From 2008 to 2016, Mr. Tracy was the managing member of Vista Bridge Associates, LLC, a privately held company lending money for personal injury settlements. Previously, from 1980 to 2000, Mr. Tracy was the President of Auto-Rite Supply Company, Inc., a family owned auto parts store chain. He has been involved in various local and community organizations including the American Institute of Certified Public Accountants and Optimists International, a not for profit organization for children. Mr. Tracy holds a Bachelor of Science in Commerce from Rider College, Lawrenceville, New Jersey.
The Board of Directors believe that Mr. Tracy is qualified to serve as a director because of his substantial experience as an accountant and financial services professional and his experience as an officer and director of several private & public companies.
Burt A. Watson
Mr. Watson, 67, will serve as our director contingent and effective upon the consummation of this offering. Mr. Watson began his decades long career in boxing and MMA as business manager to the legendary “Smokin” Joe Frazier where he handled all aspects of administrative support from contract negotiations and personal appearances to television interviews and public relations. As one of the industry’s most sought after event coordinators, Mr. Watson has worked with boxing greats Muhammad Ali, Larry Holmes, George Foreman, Ken Norton, Mike Tyson and Oscar De La Hoya. As an independent site coordinator Mr. Watson has assisted some of boxing’s most notable promoters, including Don King, Lou Duva, Frank Warren Sports of London, and Univision. In 2001, Mr. Watson began his career in MMA when UFC President Dana White recruited Mr. Watson to the UFC. During his tenure at the UFC from 2001 until 2015, Mr. Watson served as event and athlete relations coordinator. With extensive television relations, Mr. Watson has organized championship fights and boxing events on such networks as ESPN, Showtime, HBO, CBS and ABC.
The Board of Directors believes that Mr. Watson is qualified to serve as a director because of his substantial experience and perspective in the MMA industry.
Board Composition
Upon completion of this offering, our Board of Directors will consist of six directors.
Our certificate of incorporation provides that that the number of authorized directors will be determined in accordance with our bylaws. Our bylaws provide that the number of authorized directors shall be determined from time to time by a resolution of the Board of Directors and any vacancies in our board and newly created directorships may be filled only by our Board of Directors.
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Director Independence
The rules of the Nasdaq Stock Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Under the Nasdaq Rules, a director will only qualify as an independent director if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules require that our Board of Directors must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation we pay to the director and any affiliations with the company.
Our Board of Directors undertook a review of the composition of our Board of Directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined that each of our directors is independent as defined under the Nasdaq Rules.
Committees of the Board of Directors
Our Board of Directors has established an audit committee, a compensation committee and a nominating and governance committee. Each of these committees will operate under a charter that will be approved by our Board of Directors prior to this offering.
Audit Committee. Our audit committee consists of three independent directors. The members of the audit committee are Mr. Shefts, who will chair the committee, Mr. Tracy and Mr. Gamberale. The audit committee consists exclusively of directors who are financially literate. In addition, Mr. Shefts will be considered an “audit committee financial expert” as defined by the SEC’s rules and regulations.
The audit committee responsibilities include:
| • | overseeing the compensation and work of and performance by our independent auditor and any other registered public accounting firm performing audit, review or attestation services for us; |
| • | engaging, retaining and terminating our independent auditor and determining the terms thereof; |
| • | assessing the qualifications, performance and independence of the independent auditor; |
| • | evaluating whether the provision of permitted non-audit services is compatible with maintaining the auditor’s independence; |
| • | reviewing and discussing the audit results, including any comments and recommendations of the independent auditor and the responses of management to such recommendations; |
| • | reviewing and discussing the annual and quarterly financial statements with management and the independent auditor; |
| • | producing a committee report for inclusion in applicable SEC filings; |
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| • | reviewing the adequacy and effectiveness of internal controls and procedures; |
| • | establishing procedures regarding the receipt, retention and treatment of complaints received regarding the accounting, internal accounting controls, or auditing matters and conducting or authorizing investigations into any matters within the scope of the responsibility of the audit committee; and |
| • | reviewing transactions with related persons for potential conflict of interest situations. |
Compensation Committee. Our compensation committee consists of two independent directors. The members of the Compensation Committee are Mr. Gamberale, who will chair the committee, and Mr. Shefts. The committee has primary responsibility for:
| • | reviewing and recommending all elements and amounts of compensation for each executive officer, including any performance goals applicable to those executive officers; |
| • | reviewing and recommending for approval the adoption, any amendment and termination of all cash and equity-based incentive compensation plans; |
| • | once required by applicable law, causing to be prepared a committee report for inclusion in applicable SEC filings; |
| • | approving any employment agreements, severance agreements or change of control agreements that are entered into with the CEO and certain executive officers; and |
| • | reviewing and recommending the level and form of non-employee director compensation and benefits. |
Nominating and Governance Committee. The Nominating and Governance Committee consists of three independent directors. The members of the Nominating and Governance Committee are Mr. Gamberale, who will chair the committee, Mr. Tracy and Mr. Watson. The Nominating and Governance Committee’s responsibilities include:
| • | recommending persons for election as directors by the stockholders; |
| • | recommending persons for appointment as directors to the extent necessary to fill any vacancies or newly created directorships; |
| • | reviewing annually the skills and characteristics required of directors and each incumbent director’s continued service on the board; |
| • | reviewing any stockholder proposals and nominations for directors; |
| • | advising the Board of Directors on the appropriate structure and operations of the board and its committees; |
| • | reviewing and recommending standing board committee assignments; |
| • | developing and recommending to the board Corporate Governance Guidelines, a Code of Business Conduct and Ethics and other corporate governance policies and programs and reviewing such guidelines, code and any other policies and programs at least annually; |
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| • | making recommendations to the board as to determinations of director independence; and |
| • | making recommendations to the board regarding corporate governance based upon developments, trends, and best practices. |
The Nominating and Governance Committee will consider stockholder recommendations for candidates for the Board of Directors.
Our bylaws provide that, in order for a stockholder’s nomination of a candidate for the board to be properly brought before an annual meeting of the stockholders, the stockholder’s nomination must be delivered to the Secretary of the company no later than 120 days prior to the one-year anniversary date of the prior year’s annual meeting.
Code of Business Conduct and Ethics
Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following this offering, a copy of the code will be made available on the Corporate Governance section of our website, which is located at www. alliancemma.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K filed with the SEC.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee is or has at any time during the past fiscal year been an officer or employee of the company. None of our executive officers serve or in the past fiscal year has served as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board of Directors or compensation committee.
Director Compensation
Historically, we have not paid our directors. Upon completion of this offering, (i) Messrs. Tracy and Watson will each receive 16,667 shares of our common stock valued at $75,000 based upon the offering price of the shares sold in this offering, (ii) Mr. Shefts will receive 38,889 shares of our common stock valued at $175,000 based upon the offering price of the shares sold in this offering, and (iii) Mr. Gracie will receive 66,667 shares of our common stock valued at $300,000 based upon the offering price of the shares sold in this offering together with a cash payment of $100,000, in each case solely as compensation for board or board committee service. We intend to reimburse our non-employee directors for expenses incurred by them associated with attending meetings of our Board of Directors and committees of our Board of Directors. We may also provide stock, option or other equity-based incentives to our directors for their service. We did not compensate our directors for service as directors prior to the offering made by this prospectus.
Limitation on Liability and Other Indemnification Matters
Section 102 of the Delaware General Corporation Law, as amended (“DGCL”) allows a corporation to eliminate or limit the personal liability of directors to a corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase or redemption in violation of Delaware corporate law or engaged in a transaction from which the director obtained an improper personal benefit. In accordance with Delaware law, our Certificate of Incorporation provides that no director shall be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director, except for the foregoing exceptions set forth in Section 102 of the DGCL.
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Section 145 of the DGCL provides, among other things, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the corporation’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding. The power to indemnify applies if (i) such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful or, (ii) to the extent that such person is a present or former director or officer of a corporation, such person is successful on the merits or otherwise in defense of any action, suit or proceeding. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense expenses (including attorneys’ fees but excluding amounts paid in settlement) actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event such person is adjusted to be liable to the corporation, unless a court determines that in light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director who willfully and negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions to the full amount of the dividend unlawfully paid or the purchase or redemption of the corporation’s stock, with interest from the time such liability accrued. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered on the books containing the minutes of the meetings of the Board of Directors at the time the action occurred or immediately after the absent director receives notice of the unlawful acts.
Our Bylaws provide that we will indemnify, to the fullest extent permitted by the DGCL, any person made or threatened to be made a party to any action by reason of the fact that the person is or was our director or officer, or serves or served as a director or officer of any other enterprise at our request. Expenses incurred by a director or officer in defending against such legal proceedings are payable before the final disposition of the action, provided that the director or officer undertakes to repay us if it is later determined that he or she is not entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
We do not maintain policies of insurance under which coverage is provided (a) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to us with respect to payments which we may make to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law for a privately held company. We anticipate modifying our coverage to address public company specific exposures in connection with the completion of this offering.
Compensation of Executive Officers
Alliance was formed in February 2015. From our inception to the closing of the offering made by this prospectus Messrs. Danner and Gallagi were our only officers and Messrs. Danner and Gamberale our only directors. Prior to the offering made by this prospectus, no officer or director has received any compensation for his services to us.
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We have entered into executive employment agreements with Messrs. Danner and Gallagi pursuant to which they will serve as our chief executive officer and chief financial officer, respectively. Mr. Danner’s agreement provides for a cash salary of $175,000 per year. Mr. Gallagi’s agreement provides for a cash salary of $150,000 per year. We have entered into an executive employment agreement with Mr. Haydak pursuant to which he will serve as our president effective upon the closing of the offering made by this prospectus. Mr. Haydak’s agreement provides for a cash salary of $170,000 per year.
Equity Awards
We had no equity awards outstanding as of December 31, 2015.
Employee Benefit Plans
2016 Equity Incentive Plan
In connection with this offering, we adopted the Alliance MMA 2016 Equity Incentive Plan (the “2016 Plan”) pursuant to which the Company may grant an aggregate of [825,000] shares of the Company’s common stock to the Company’s directors, officers, employees or consultants. The 2016 Plan has been designed to provide the Board of Directors with an integral resource as it evaluates the Company’s compensation structure, performance incentive programs, and long-term equity targets for executives and key employees. Set forth below is a summary of the 2016 Plan, but this summary is qualified in its entirety by reference to the full text of the 2016 Plan.
Administration
The Board shall appoint and maintain as administrator of the 2016 Plan a Committee (the “Committee”) consisting of two or more directors who are (i) “Independent Directors” (as such term is defined under the rules of the Nasdaq Stock Market), (ii) “Non-Employee Directors” (as such term is defined in Rule 16b-3 under the Securities and Exchange Action of 1934, as amended) and (iii) “Outside Directors” (as such term is defined in Section 162(m) of the United States Internal Revenue Code of 1986, as amended (the “Code”)). The Committee, subject to the terms of the 2016 Plan, shall have full power and authority to designate recipients of Options and restricted stock (“Restricted Stock”) and to determine the terms and conditions of the respective Option and Restricted Stock agreements (which need not be identical) and to interpret the provisions and supervise the administration of the 2016 Plan. The Committee shall have the authority, without limitation, to designate which Options granted under the Plan shall be Incentive Options and which shall be Nonqualified Options. In the absence of a Committee, the Plan shall be administered by the Board of Directors of the Company.
Eligibility
Generally, the persons who are eligible to receive grants are directors, officers and employees of, and consultants and advisors to, the Company or any subsidiary; provided that Incentive Options may only be granted to employees of the Company and any subsidiary.
Stock Subject to the 2016 Plan
Stock subject to grants may be authorized, but unissued, or reacquired common stock. Subject to adjustment as provided in the 2016 Plan, (i) the maximum aggregate number of shares of common stock that may be issued under the 2016 Plan is 1,777,778. The shares of common stock subject to the 2016 Plan shall consist of unissued shares, treasury shares or previously issued shares held by any subsidiary of the Company, and such number of shares of common stock shall be reserved for such purpose. Any of such shares of common stock that may remain unissued and that are not subject to outstanding Options at the termination of the 2016 Plan shall cease to be reserved for the purposes of the 2016 Plan, but until termination of the 2016 Plan the Company shall at all times reserve a sufficient number of shares of common stock to meet the requirements of the 2016 Plan.
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Terms and Conditions of Options
Options awarded under the 2016 Plan shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonqualified Stock Option. The purchase price of each share of common stock purchasable under an Incentive Option shall be determined by the Committee at the time of grant, but shall not be less than 100% of the Fair Market Value (as defined in the 2016 Plan) of such share of common stock on the date the Option is granted; provided, however, that with respect to an Optionee who, at the time such Incentive Option is granted, owns (more than 10% of the total combined voting power of all classes of stock of the Company or of any subsidiary, the purchase price per share of common stock shall be at least 110% of the Fair Market Value per share of common stock on the date of grant. The purchase price of each share of common stock purchasable under a Nonqualified Option shall not be less than 100% of the Fair Market Value of such share of common stock on the date the Option is granted.
The term of each Option shall be fixed by the Committee, but no Option shall be exercisable more than ten years after the date such Option is granted and in the case of an Incentive Option granted to an Optionee who, at the time such Incentive Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of any Subsidiary, no such Incentive Option shall be exercisable more than five years after the date such Incentive Option is granted.
Terms and Conditions of Restricted Stock
Restricted Stock may be granted to participants at any time as shall be determined by Committee, in its sole discretion. Subject to the 2016 Plan, the Committee shall have complete discretion to determine (i) the number of shares subject to a Restricted Stock award granted to any participant, and (ii) the conditions that must be satisfied, which typically will be based principally or solely on continued provision of services but may include a performance-based component, upon which is conditioned the grant, vesting or issuance of Restricted Stock.
The Committee, subject to the provisions of the 2016 Plan, shall have complete discretion to determine the terms and conditions of Restricted Stock granted under the 2016 Plan; provided that Restricted Stock may only be issued in the form of shares. Restricted Stock grants shall be subject to the terms, conditions, and restrictions determined by the Committee at the time the stock or the restricted stock unit is awarded. Any certificates representing the shares of stock awarded shall bear such legends as shall be determined by the Committee.
Transferability of Awards
Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant, without the prior written consent of the Committee. If the Committee makes an Award transferable, such Award shall contain such additional terms and conditions as the Committee deems appropriate.
Merger or Change in Control
In the event of a Change in Control (as defined in the 2016 Plan), the Committee may accelerate the vesting and exercisability of outstanding Options, in whole or in part, as determined by the Committee in its sole discretion. In its sole discretion, the Committee may also determine that, upon the occurrence of a Change in Control, each outstanding Option shall terminate within a specified number of days after notice to the Optionee thereunder, and each such Optionee shall receive, with respect to each share of the Company’s common stock subject to such Option, an amount equal to the excess of the Fair Market Value of such shares immediately prior to such Change in Control over the exercise price per share of such Option; such amount shall be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or a combination thereof, as the Committee shall determine in its sole discretion.
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In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Company’s common stock, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares reserved for issuance under the 2016 Plan and in the number and option price of shares subject to outstanding Options granted under the 2016 Plan, to the end that after such event each Optionee’s proportionate interest shall be maintained (to the extent possible) as immediately before the occurrence of such event. The Committee shall, to the extent feasible, make such other adjustments as may be required under the tax laws so that any Incentive Options previously granted shall not be deemed modified within the meaning of Section 424(h) of the Code. Appropriate adjustments shall also be made in the case of outstanding Restricted Stock granted under the Plan.
Federal Income Tax Consequences
The following is a brief summary of the federal income tax consequences as of the date hereof with respect to awards under the 2016 Plan for participants who are both citizens and residents of the United States. This description of the federal income tax consequences is based upon law and Treasury interpretations in effect on the date of this information statement (including proposed and temporary regulations which may be changed when finalized), and it should be understood that this summary is not exhaustive, that the law may change and further that special rules may apply with respect to situations not specifically discussed herein, including federal employment taxes, foreign, state and local taxes and estate or inheritance taxes. Accordingly, participants are urged to consult with their own qualified tax advisors.
Non-Qualified Options
No taxable income will be realized by the participant upon the grant of a non-qualified option. On exercise, the excess of the fair market value of the stock at the time of exercise over the option price of such stock will be compensation and (i) will be taxable at ordinary income tax rates in the year of exercise, (ii) will be subject to withholding for federal income tax purposes and (iii) generally will be an allowable income tax deduction to us. The participant’s tax basis for stock acquired upon exercise of a non-qualified option will be equal to the option price paid for the stock, plus any amounts included in income as compensation. If the participant pays the exercise price of an option in whole or in part with previously-owned shares of common stock, the participant’s tax basis and holding period for the newly-acquired shares is determined as follows: As to a number of newly-acquired shares equal to the number of previously-owned shares used by the participant to pay the exercise price, no gain or loss will be recognized by the participant on the date of exercise and the participant’s tax basis and holding period for the previously-owned shares will carry over to the newly-acquired shares on a share-for-share basis, thereby deferring any gain inherent in the previously-owned shares. As to each remaining newly acquired share, the participant’s tax basis will equal the fair market value of the share on the date of exercise and the participant’s holding period will begin on the day after the exercise date. The participant’s compensation income and our deduction will not be affected by whether the exercise price is paid in cash or in shares of common stock. Special rules, discussed below under “Incentive Stock Options - Disposition of Incentive Option Shares,” will apply if a participant surrenders previously-owned shares acquired upon the exercise of an incentive option that have not satisfied certain holding period requirements in payment of any or all of the exercise price of a non-qualified option.
Disposition of Option Shares
When a sale of the acquired shares occurs, a participant will recognize capital gain or loss equal to the difference between the sales proceeds and the tax basis of the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets. The capital gain or loss will be long-term capital gain or loss treatment if the shares have been held for more than twelve months. There will be no tax consequences to us in connection with a sale of shares acquired under an option.
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Incentive Stock Options
The grant of an Incentive Stock Option will not result in any federal income tax to a participant. Upon the exercise of an incentive option, a participant normally will not recognize any income for federal income tax purposes. However, the excess of the fair market value of the shares transferred upon the exercise over the exercise price of such shares (the “spread”) generally will constitute an adjustment to income for purposes of calculating the alternative minimum tax of the participant for the year in which the option is exercised. As a result of the exercise a participant’s federal income tax liability may be increased. If the holder of an incentive stock option pays the exercise price, in full or in part, with shares of previously acquired common stock, the exchange should not affect the incentive stock option tax treatment of the exercise. No gain or loss should be recognized on the exchange and the shares received by the participant, equal in number to the previously acquired shares exchanged therefor, will have the same basis and holding period as the previously acquired shares. The participant will not, however, be able to utilize the old holding period for the purpose of satisfying the incentive stock option holding period requirements described below. Shares received in excess of the number of previously acquired shares will have a basis of zero and a holding period, which commences as of the date the common stock is issued to the participant upon exercise of the incentive option. If an exercise is effected using shares previously acquired through the exercise of an incentive stock option, the exchange of the previously acquired shares will be considered a disposition of such shares for the purpose of determining whether a disqualifying disposition has occurred.
Disposition of Incentive Option Shares. If the incentive option holder disposes of the stock acquired upon the exercise of an incentive stock option (including the transfer of acquired stock in payment of the exercise price of another incentive stock option) either within two years from the date of grant or within one year from the date of exercise, the option holder will recognize ordinary income at the time of such disqualifying disposition to the extent of the difference between the exercise price and the lesser of the fair market value of the stock on the date the incentive option is exercised or the amount realized on such disqualifying disposition. Any remaining gain or loss is treated as a short-term or long-term capital gain or loss, depending on how long the shares were held prior to the disqualifying disposition. In the event of such disqualifying disposition, the incentive stock option alternative minimum tax treatment described above may not apply (although, where the disqualifying disposition occurs subsequent to the year the incentive stock option is exercised, it may be necessary for the participant to amend his return to eliminate the tax preference item previously reported).
Our Deduction. We are not entitled to a tax deduction upon either exercise of an incentive option or disposition of stock acquired pursuant to such an exercise, except to the extent that the option holder recognized ordinary income in a disqualifying disposition.
Stock Grants
A participant who receives a stock grant under the 2016 Plan generally will be taxed at ordinary income rates on the fair market value of shares when they vest, if subject to vesting or other restrictions, or, otherwise, when received. However, a participant who, within 30 days after receiving such shares, makes an election under Section 83(b) of the Code, will recognize ordinary income on the date of issuance of the stock equal to the fair market value of the shares on that date. If a Section 83(b) election is made, the holding period for the shares will commence on the day after the shares are received and no additional taxable income will be recognized by the participant at the time the shares vest. However, if shares subject to a Section 83(b) election are forfeited, no tax deduction is allowable to the participant for the forfeited shares. Taxes are required to be withheld from the participant at the time and on the amount of ordinary income recognized by the participant. We will be entitled to a deduction at the same time and in the same amount as the participant recognizes income.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following includes a summary of transactions since our formation on February 12, 2015 to which we have been a party and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described in the section entitled “Executive Compensation.”
Ivy Equity Note
In February 2015, we entered into a loan agreement with Ivy Equity Investors, LLC an affiliate of Mr. Gamberale our founder and Chairman of the Board pursuant to which Ivy would advance up to $500,000 to satisfy our startup expenses, including professional fees incurred with this offering, the Target Company transactions and the purchase of Hoss and Louis Neglia. On May 1, 2016 this Note was amended and restated to permit an aggregate borrowing of up to $600,000. This loan is evidenced by an unsecured promissory note which bears interest at the rate of 6% per annum. The principal amount owing under the note as of December 31, 2015 was $353,450. The note matures on the earlier of the closing of the offering made by this prospectus or January 1, 2017. We anticipate paying off the note in full at the closing of the offering from the net proceeds available to us. We believe that the terms of this note are comparable to those that we would have paid under a similar loan agreement with an unrelated third party.
Policies and Procedures for Related Party Transactions
Immediately following the completion of this offering, the audit committee will have the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. For purposes of this responsibility, a related person will be defined as a director, executive officer, nominee for director, or stockholders who own greater than 5% of our outstanding common stock and their affiliates, in each case since the beginning of the most recently completed fiscal year, and their immediate family members. Our audit committee charter will provide that the audit committee shall review and approve or disapprove any related party transactions. As of the date of this prospectus, we have not adopted any formal standards, responsibilities or procedures governing the review and approval of related-party transactions, but we expect that our audit committee will do so in the future.
Our policy will provide that if advance approval of a related-party transaction is not obtained, it must be promptly submitted to the Audit Committee for possible ratification, approval, amendment, termination or rescission. In reviewing any transaction, the Audit Committee will take into account, among other factors the Audit Committee deems appropriate, recommendations from senior management, whether the transaction is on terms no less favorable than the terms generally available to a third party in similar circumstances and the extent of the related person’s interest in the transaction. Any related party transaction must be conducted at arm’s length. Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote on the approval or ratification of the transaction. However, such a director may be counted in determining the presence of a quorum at a meeting of the Audit Committee that considers a transaction.
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The following table sets forth information about the beneficial ownership of our common stock at May __, 2016 by:
| • | each person known to us to be the beneficial owner of more than 5% of our common stock; | |
| • | each named executive officer; | |
| • | each of our directors and director nominees; and | |
| • | all of our executive officers and directors as a group. |
Beneficial ownership is determined according to the rules of the SEC, and generally means that person has beneficial ownership of a security if he or she possesses sole or shared voting or investment power of that security, and includes options that are currently exercisable or exercisable within 60 days. Each director or officer, as the case may be, has furnished us with information with respect to beneficial ownership. Except as indicated in the footnotes below, to our knowledge, the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
The percentage ownership information shown in the table is based upon 5,289,136 shares of common stock outstanding as of December 31, 2015.
Unless otherwise indicated, the address of each of the individuals and entities named below is c/o Alliance MMA, Inc., 590 Madison Avenue, 21st Floor, New York, New York 10022.
| Named Executive Officers and Directors | Number of Shares Beneficially Owned (1) | Pre-Offering Percentage Ownership (1) | Post-Offering Percentage Ownership (2)(3) | |||||||||
| Paul K. Danner | 150,000 | 2.25 | 1.78 | |||||||||
| Robert J. Haydak, Jr. | 103,334 | 1.55 | 1.22 | |||||||||
| Frank Gallagi | 66,667 | 1.00 | * | |||||||||
| Joseph Gamberale | 376,010 | (4) | 5.64 | 4.45 | ||||||||
| Renzo Gracie | 66,667 | 1.0 | * | |||||||||
| Mark D. Shefts | 101,388 | (5) | 1.52 | 1.20 | ||||||||
| Joel D. Tracy | 124,702 | 1.87 | 1.48 | |||||||||
| Burt A. Watson | 16,667 | * | * | |||||||||
| Directors and Executive Officers as a Group (8 persons) | 1,005,435 | 15.08 | 11.91 | |||||||||
| 5% Stockholders Not Mentioned Above | ||||||||||||
| Ivy Equity Investors, LLC | 359,343 | 5.39 | 4.26 | |||||||||
* Less than 1%
(1) Assumes and gives effect to the issuance of 1,377,531 shares as partial consideration for the acquisition of the Target Companies and the Target Assets and is based upon an assumed public offering price of $4.50 per share.
(2) Assumes the maximum amount of 1,777,778 shares is sold in the offering.
(3) Assumes no exercise of the underwriters’ over-allotment option to purchase additional shares and excludes 177,778 shares (assuming the maximum offering is completed) of common stock issuable upon the exercise of the warrants issued to the underwriter.
(4) Includes 359,343 shares held by Ivy Equity Investors, LLC. Mr. Gamberale has voting and dispositive power over the shares held by Ivy Equity Investors, LLC.
(5) Includes 62,500 shares held by the Rushcap Group, Inc. Mr. Shefts has voting and dispositive power over the shares held by the Rushcap Group, Inc.
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DESCRIPTION OF OUR CAPITAL STOCK
General
The following description summarizes the most important terms of our capital stock, as they are expected to be in effect upon the completion of this offering. This summary does not purport to be complete and is qualified in its entirety by the provisions of our certificate of incorporation and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part. For a complete description of our capital stock, you should refer to our certificate of incorporation and bylaws that are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law. Immediately following the completion of this offering, our authorized capital stock will consist of 45,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of undesignated preferred stock, $0.001 par value per share.
As of December 31, 2015, there were 5,289,136 shares of our common stock outstanding, held by [74] stockholders of record. Our Board of Directors is authorized, without stockholder approval, except as required by the listing standards of Nasdaq, to issue additional shares of our capital stock.
Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock will be entitled to receive dividends out of funds legally available if our Board of Directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our Board of Directors may determine. See the section titled “Dividend Policy” for additional information.
Voting Rights
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our certificate of incorporation.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Preferred Stock
Following this offering, our Board of Directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our Board of Directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.
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Anti-Takeover Provisions
The provisions of Delaware law, our certificate of incorporation and our bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our Board of Directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales or other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years of the date on which it is sought to be determined whether such person is an “interested stockholder,” did own, 15% or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing a change in our control.
Certificate of Incorporation and Bylaw Provisions
Advance Notice Requirements. Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of stockholders. These procedures provide that notice of stockholder proposals must be timely and given in writing to our corporate Secretary. Generally, to be timely, notice must be received at our principal executive offices not fewer than 120 calendar days prior to the first anniversary date on which our notice of meeting and related proxy statement were mailed to stockholders in connection with the previous year’s annual meeting of stockholders. The notice must contain the information required by the bylaws, including information regarding the proposal and the proponent.
Special Meetings of Stockholders. Our bylaws provides that special meetings of stockholders may be called at any time by only the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors, or in their absence or disability, by any vice president.
Exclusive Forum Provision. Our certificate of incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), or our certificate of incorporation or the bylaws, and (iv) any action asserting a claim against us governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, a court could find these provisions of our certificate of incorporation to be inapplicable or unenforceable in respect of one or more of the specified types of actions or proceedings, which may require us to incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
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Amendment of Bylaws. Our stockholders may amend any provisions of our bylaws by obtaining the affirmative vote of the holders of a majority of each class of issued and outstanding shares of our voting securities, at a meeting called for the purpose of amending and/or restating our bylaws.
Preferred Stock. Our certificate of incorporation authorizes our Board of Directors to create and issue rights entitling our stockholders to purchase shares of our stock or other securities. The ability of our board to establish the rights and issue substantial amounts of preferred stock without the need for stockholder approval may delay or deter a change in control of us. See “Preferred Stock” above.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Transfer Online, 512 SE Salmon Street, Portland, OR 97214, Phone: (503) 227-2950.
Listing
We intend to apply for the listing of our common stock on the Nasdaq Capital Market under the symbol “AMMA”.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering, due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.
Following the completion of this offering, and after giving effect to the acquisition of the Target Companies and the purchase of Hoss and Louis Neglia which will occur upon the completion of this offering, based on the number of shares of our capital stock outstanding as of December 31, 2015, we will have a total of 8,444,445 shares of our common stock outstanding assuming the maximum amount is sold in the offering and not giving effect to the exercise of the underwriters’ overallotment option. Of these outstanding shares, all of the shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.
The remaining outstanding shares of our common stock will be deemed “restricted securities” as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. In addition, holders of holders of 1% or more of our common stock have entered into lock-up agreements with us under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements, subject to the provisions of Rule 144 or Rule 701, based on an assumed offering date of ___________ __, 2016, shares will be available for sale in the public market as follows:
| • | beginning on the date of this prospectus, the [1,777,778] shares of common stock sold in this offering will be immediately available for sale in the public market; | |
| • | beginning 181 days after the date of this prospectus, [6,666,667] additional shares of common stock will become eligible for sale in the public market, of which [1,377,531] shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below; and | |
| • | the remainder of the shares of common stock will be eligible for sale in the public market from time to time thereafter, subject in some cases to the volume and other restrictions of Rule 144, as described below. |
Lock-Up Agreements
We, our officers and directors and holders of 1% or more of our common stock have agreed that, subject to certain exceptions and under certain conditions, for a period of 180 days after the date of this prospectus, we and they will not, without the prior written consent of the underwriter Network 1 Financial Securities, Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our capital stock. The underwriter may, in its discretion, release any of the securities subject to these lock-up agreements at any time.
The restrictions described in the immediately preceding paragraph do not apply to:
| • | bona fide gifts; | |
| • | the transfer by a security holder of our common stock to any immediate family member of the security holder or any trust for the direct or indirect benefit of the security holder or the immediate family of the security holder; |
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| • | transfers of our common stock by operation of law, including domestic relations orders; | |
| • | transfers by testate succession or intestate distribution; |
| • | a forfeiture of shares of common stock or other securities solely to us in a transaction exempt from Section 16(b) of the Exchange Act in connection with the payment of taxes due upon the exercise of options to purchase our common stock or vesting of our securities pursuant to our 2016 Equity Incentive Plan; | |
| • | transfers of our common stock by a security holder as a distribution to limited partners, members, stockholders or other security holders or, if the security holder is a trust, to the beneficiaries of the by a security holder; | |
| • | transfers of our common stock by a security holder to the security holder’s affiliates or to any investment fund or other entity controlled or managed by, or under common control or management by, the security holder; | |
| • | the sale of shares of common stock purchased by a security holder on the open market if (i) such sales are not required during the lock-up period to be reported in any public report or filing with the SEC or otherwise and (ii) the security holder does not otherwise voluntarily effect any public filing or report regarding such sales during the lock-up period; and | |
| • | the exercise of stock options granted pursuant to the Company’s equity incentive plans or warrants to purchase Common Stock, so long as the shares of common stock received upon such exercise remain subject to the terms of the lock-up agreement. |
In the event that any of our officers or directors or a person or group (as such term is used in Section 13(d)(3) of the Exchange Act) that is the record or beneficial owner of one percent (aggregating ownership of affiliates) or more of our capital stock is granted an early release, then each person or group who has executed a lock-up agreement automatically will be granted an early release from its obligations under the lock-up agreement on a pro rata basis.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
| • | 1% of the number of shares of our common stock then outstanding, which will equal approximately 82,500 shares immediately after this offering; or | |
| • | the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. |
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
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Rule 701
Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701
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We have entered into an underwriting agreement with Network 1 Financial Securities, Inc., with respect to the shares of our common stock in this offering. Under the terms and subject to the conditions contained in the underwriting agreement, we have agreed to issue and sell to the public through the underwriter, and the underwriter has agreed to offer and sell, up to 1,777,778 shares of our common stock, on a best efforts basis.
The underwriting agreement provides that the obligation of the underwriters to arrange for the offer and sale of the shares of our common stock, on a best efforts basis, is subject to certain conditions precedent, including but not limited to (i) receipt of a listing approval letter from the Nasdaq Capital Market, (ii) delivery of legal opinions, and (iii) delivery of auditor comfort letters. The underwriters are under no obligation to purchase any shares of our common stock for their own account. As a “best efforts” offering, there can be no assurance that the offering contemplated hereby will ultimately be consummated, or even if consummated that we will in fact obtain a listing on the Nasdaq Capital Market. The underwriters may, but are not obligated to, retain other selected dealers that are qualified to offer and sell the shares and that are members of the Financial Industry Regulatory Authority, Inc. The underwriters propose to offer the shares to investors at the public offering price, and will receive the underwriting commissions, set forth on the cover of this prospectus. The gross proceeds of this offering will be deposited at [Signature Bank, New York, New York], in an escrow account established by us, until we have sold a minimum of 1,111,111 shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. Once we satisfy the minimum stock sale and Nasdaq listing conditions, the funds will be released to us.
We anticipate the shares of our common stock will be listed on the Nasdaq Capital Market under the symbol “AMMA.” In order to list, the Nasdaq Capital Market requires that, among other criteria, at least 1,111,111 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $4.0 million, the bid price per share of our common stock be $4.50 or more, and there be at least three registered and active market makers for our common stock. If the application is approved, trading of our shares on the Nasdaq Capital Market is expected to begin within five days after the date of initial issuance of the common stock.
The following table and the two succeeding paragraphs summarize the underwriting compensation and estimated expenses we will pay:
| Public Offering Price | Underwriting Commissions | Proceeds to Us, Before Expenses | ||||||||||
| Per share | $ | 4.50 | $ | $ | ||||||||
| Total minimum offering | $ | 5,000,000 | $ | $ | ||||||||
| Total maximum offering | $ | 8,000,000 | $ | $ | ||||||||
We have agreed to reimburse the underwriters for expenses incurred relating to the offering, including all actual fees and expenses incurred by the underwriters in connection with, among other things, due diligence costs, the underwriters’ “road show” expenses, and the fees and expenses of the underwriters’ counsel. The fees and expenses of underwriters’ counsel shall not exceed $75,000. We estimate that the total expenses of this offering, excluding underwriting commissions described above, will be approximately $400,000. We have also agreed to pay the representative a financial advisory fee of 1.5% of the gross proceeds raised at the closing of this offering (including any shares sold upon the exercise of the underwriters’ over-allotment option).
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As additional compensation to the underwriters, upon consummation of this offering, we will issue to the underwriters or their designees warrants to purchase an aggregate number of shares of our common stock equal to 10% of the number of shares of common stock issued in this offering, at an exercise price per share equal to 125.0% of the initial public offering price (the “Underwriter Warrants”). The Underwriter Warrants and the underlying shares of common stock will not be exercised, sold, transferred, assigned, or hypothecated or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Underwriter Warrants by any person for a period of 180 days from the effective date of the registration statement for this offering in accordance with FINRA Rule 5110. The Underwriter Warrants will expire on the fifth anniversary of the effective date of the registration statement for this offering.
A prospectus in electronic format may be made available on the website maintained by the underwriter, or selling group members, if any, participating in the offering. The underwriter may agree to allocate a number of shares to selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriter, and selling group members, if any, that may make Internet distributions on the same basis as other allocations.
We have agreed that we will not: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of our company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of our company or such other securities, in cash or otherwise, in each case without the prior consent of the underwriter for a period of twelve months after the date of this prospectus, other than (A) the shares of our common stock to be sold hereunder, (B) the issuance by us of shares of our common stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of this offering, hereafter issued pursuant to our currently existing or hereafter adopted equity compensation plans or employment or consulting agreements or arrangements of which the representative has been advised in writing or which have been filed with the Commission or (C) the issuance by us of stock options or shares of capital stock of our company under any currently existing or hereafter adopted equity compensation plan or employment/consulting agreements or arrangements of our company.
The underwriting agreement provides that we will indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments the underwriters may be required to make in respect thereof.
We have applied to have our common stock approved for listing on the Nasdaq Capital Market under the symbol “AMMA.” If the application is approved, trading of our common stock on the Nasdaq Capital Market is expected to begin within five days after the date of initial issuance of the common stock. We will not consummate and close this offering without a listing approval letter from the Nasdaq Capital Market. Our receipt of a listing approval letter is not the same as an actual listing on the Nasdaq Capital Market. The listing approval letter will serve only to confirm that, if we sell a number of shares in this best efforts offering sufficient to satisfy applicable listing criteria, our common stock will in fact be listed.
Prior to this offering, there has been no public market for our common stock. The initial public offering price has been determined by negotiations between us and the underwriter. In determining the initial public offering price, we and the underwriter have considered a number of factors including:
| · | the information set forth in this prospectus and otherwise available to the underwriter; |
| · | our prospects and the history and prospects for the industry in which we compete; |
| · | an assessment of our management; |
| · | our prospects for future earnings; |
| · | the general condition of the securities markets at the time of this offering; |
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| · | the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| · | other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for shares of our common stock, or that the shares will trade in the public market at or above the initial public offering price.
The validity of the common stock being offered hereby and other certain legal matters will be passed upon for us by Mazzeo Song P.C., New York, New York. Certain legal matters will be passed upon for the underwriters by ________________, New York, New York.
Friedman LLP, our independent registered public accounting firm, has audited our financial statements from our inception on February 12, 2015 through December 31, 2015, as set forth in their report. Friedman LLP has also audited the financial statements for each of the years ended December 31, 2015 and 2014 for each of the Target Companies, as set forth in their report. We have included our financial statements and the financial statements of each of the Target Companies in the prospectus and elsewhere in the registration statement in reliance on Friedman LLP’s report, given on their authority as experts in accounting and auditing.
The current address of Friedman LLP is 1700 Broadway, New York, New York 10019.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to our common stock offered hereby. This prospectus, which forms part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information about us and our common stock, we refer you to the registration statement and the exhibits and schedules to the registration statement filed as part of the registration statement. Statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit are qualified in all respects by reference to the actual text of the exhibit. You may read and copy the registration statement, including the exhibits and schedules to the registration statement, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC and from which you can electronically access the registration statement, including the exhibits and schedules to the registration statement.
As a result of the offering, we will become subject to the full informational requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements certified by an independent registered public accounting firm. We also maintain an Internet site at www.alliancemma.com. Information on, or accessible through, our website is not a part of this prospectus.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated costs and expenses to be incurred in connection with the issuance and distribution of the securities of Alliance MMA, Inc. (the “Registrant”) which are registered under this Registration Statement on Form S-1 (this “Registration Statement”), other than underwriting discounts and commissions. All amounts are estimates except the Securities and Exchange Commission registration fee and the Financial Industry Regulatory Authority, Inc. filing fee.
The following expenses will be borne solely by the Registrant.
| Amount to be | ||||
| Paid | ||||
| SEC Registration fee | $ | 906 | ||
| Financial Industry Regulatory Authority, Inc. filing fee | $ | 2,500 | ||
| Nasdaq Listing fees | $ | 75,000 | ||
| Printing and engraving expenses | $ | * | ||
| Legal fees and expenses | $ | * | ||
| Accounting fees and expenses | $ | * | ||
| Transfer Agent’s fees | $ | * | ||
| Miscellaneous fees and expenses | $ | * | ||
| Total | * | |||
| * | To be provided by amendment. |
Item 14. Indemnification of Directors and Officers.
Pursuant to Section 145 of the Delaware General Corporation Law (the “DGCL”), a corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than a derivative action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or serving at the request of such corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of such corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The DGCL also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to such corporation unless the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
To the extent a present or former director or officer is successful in the defense of such an action, suit or proceeding referenced above, or in defense of any claim, issue or matter therein, a corporation is required by the DGCL to indemnify such person for actual and reasonable expenses incurred in connection therewith. Expenses (including attorneys’ fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon in the case of a current officer or director, receipt of an undertaking by or on behalf of such person to repay such amount if it is ultimately determined that such person is not entitled to be so indemnified.
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The DGCL provides that the indemnification described above shall not be deemed exclusive of other indemnification that may be granted by a corporation pursuant to its bylaws, disinterested directors’ vote, stockholders’ vote and agreement or otherwise.
Section 102(b)(7) of the DGCL enables a corporation, in its certificate of incorporation or an amendment thereto, to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for violations of the directors’ fiduciary duty, except (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. The Registrant’s certificate of incorporation provides for such limitations on liability for its directors.
The DGCL also provides corporations with the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation in a similar capacity for another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability as described above. In connection with this offering, the Registrant will obtain liability insurance for its directors and officers. Such insurance would be available to its directors and officers in accordance with its terms.
The Registrant’s certificate of incorporation in requires the Registrant to indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “covered person”) who was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”) by reason of the fact that he or she is or was a director, officer or member of a committee of the Registrant, or, while a director or officer of the Registrant, is or was serving at the request of the Registrant as a director or officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees), judgment, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with a proceeding.
In addition, under the Registrant’s certificate of incorporation, in certain circumstances, the Registrant shall pay the expenses (including attorneys’ fees) incurred by a covered person in defending a proceeding in advance of the final disposition of such proceeding; provided, however, that the Registrant shall not be required to advance any expenses to a person against whom the Registrant directly brings an action, suit or proceeding alleging that such person (1) committed an act or omission not in good faith or (2) committed an act of intentional misconduct or a knowing violation of law. Additionally, an advancement of expenses incurred by a covered person shall be made only upon delivery to the Registrant of an undertaking, by or on behalf of such covered person, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal or otherwise in accordance with Delaware law that such covered person is not entitled to be indemnified for such expenses.
The foregoing statements are subject to the detailed provisions of Section 145 of the DGCL and the full text of the Registrant’s certificate of incorporation, which is filed as Exhibit 3.1 hereto. Reference is made to the form of underwriting agreement to be filed as Exhibit 1.1 hereto for provisions providing that the underwriters are obligated under certain circumstances, to indemnify our directors, officers and controlling persons against certain liabilities under the Securities Act of 1933, as amended.
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Item 15. Recent Sales of Unregistered Securities.
Except as set forth below, in the three years preceding the filing of this Registration Statement, the Registrant has not issued any securities except as set forth below:
Upon the effective date of the registration statement of which this prospectus is a part, and listing of our common stock on the Nasdaq Capital Market, we will issue an aggregate of 1,377,531 shares of our common stock to the stockholders and members of the Target Companies and Hoss.
None of these transactions involved any underwriters’ underwriting discounts or commissions, or any public offering. We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits: Reference is made to the Exhibit Index following the signature pages hereto, which Exhibit Index is hereby incorporated into this Item.
(b) Financial Statement Schedules: All schedules are omitted because the required information is inapplicable or the information is presented in the financial statements and the related notes.
Item 17. Undertakings
The undersigned hereby undertakes:
(a) The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this Registration Statement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of new York, New York, on __________ __, 2016.
| Alliance MMA, Inc. | ||
| By: | /s/ Paul K. Danner, III | |
| Paul K. Danner, III, Chief Executive Officer and Director (Principal Executive Officer) | ||
| By: | /s/ Frank Gallagi | |
| Frank Gallagi, Chief Financial Officer (Principal Accounting and Financial Officer) | ||
| By: | /s/ Joseph Gamberale | |
| Joseph Gamberale, Director | ||
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EXHIBIT INDEX
| Exhibit Number |
Description | |
| 1.1 | Form of Underwriting Agreement* | |
| 3.1 | Certificate of Incorporation | |
| 3.2 | Certificate of Correction to Certificate of Incorporation | |
| 3.3 | Bylaws* | |
| 5 | Opinion of Mazzeo Song P.C. as to legality of the securities being registered* | |
| 10.1 | Alliance MMA, Inc. 2016 Equity Incentive Plan * | |
| 10.2 | Asset Purchase Agreement by and between Alliance MMA, Inc., CageTix LLC, and Jay Schneider dated February 23, 2016.* | |
| 10.3 | Asset Purchase Agreement by and between Alliance MMA, Inc., CFFC Promotions, LLC, Robert J. Haydak, and Michael V. Constantino dated February 23, 2016.* | |
| 10.4 | Asset Purchase Agreement by and between Alliance MMA, Inc., Punch Drunk, Inc., d/b/a Combat Games MMA, Joe DeRobbio and Jason Robinett dated February 23, 2016.* | |
| 10.5 | Asset Purchase Agreement by and between Alliance MMA, Inc., Hoosier Fight Club Promotions, LLC, Danielle L. Vale and Paul Vale dated February 23, 2016.* | |
| 10.6 | Asset Purchase Agreement by and between Alliance MMA, Inc., Bang Time Entertainment, LLC, d/b/a Shogun Fights, and John Rallo dated March 18, 2016.* | |
| 10.7 | Asset Purchase Agreement by and between Alliance MMA, Inc., V3, LLC, and Nick Harmeier dated February 23, 2016.* | |
| 10.8 | Fight Library Copyright Purchase Agreement by and between Alliance MMA, Inc. and Louis Neglia’s Martial Arts Karate, Inc. dated September 15, 2015.* | |
| 10.9 | Fight Library Copyright Purchase Agreement by and between Alliance MMA, Inc. and Hoss Promotions, Inc. dated February 23, 2016.* | |
| 10.10 | Agreement and Plan of Merger by and among Alliance MMA, Inc., GFL Acquisition Co., Inc., Go Fight Net, Inc., and David Klarman dated March 1, 2016.* | |
| 10.11 | Executive Employment Agreement between Alliance MMA, Inc. and Paul K. Danner dated May 1, 2016. | |
| 10.12 | Executive Employment Agreement between Alliance MMA, Inc. and Frank Gallagi dated May 1, 2016. | |
| 10.13 | Amended and Restated Unsecured Promissory Note between Alliance MMA, Inc. and Ivy Equity Investors, LLC dated February 12, 2015. | |
| 21 | Subsidiaries of the Registrant* | |
| 23.1 | Consent of Independent Registered Public Accounting Firm | |
| 23.2 | Consent of Mazzeo Song P.C. (included in Exhibit 5)* |
| * | To be filed by amendment. |
| 69 |
FINANCIAL STATEMENTS
DECEMBER 31, 2015
ALLIANCE MMA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2015
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-3 |
| Balance Sheet | F-4 |
| Statement of Operations | F-5 |
| Statement of Cash Flows | F-6 |
| Statement of Changes in Stockholders’ Deficit | F-7 |
| Notes to Financial Statements | F-8-F-11 |
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management of
Alliance MMA, Inc.
We have audited the accompanying balance sheet of Alliance MMA, Inc. (the “Company”) as of December 31, 2015, and the related statements of operations, stockholders’ deficit, and cash flows for the period from February 12, 2015 (inception) to December 31, 2015. The Company’s management is responsible for these financial statements. 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 provides 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 the Company as of December 31, 2015, and the results of its operations and its cash flows for the period from February 12, 2015 (inception) to December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s losses, negative cash flows from operations and working capital deficit raise substantial doubt its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-3 |
BALANCE SHEET
DECEMBER 31,
| 2015 | ||||
| ASSETS | ||||
| CURRENT ASSETS | ||||
| Deferred offering expenses | 25,000 | |||
| Total current assets | 25,000 | |||
| TOTAL ASSETS | $ | 25,000 | ||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||
| CURRENT LIABILITIES | ||||
| Accrued expenses | $ | 52,717 | ||
| Related party - note payable | 353,450 | |||
| TOTAL CURRENT LIABILITIES | 406,167 | |||
| TOTAL LIABILITIES | 406,167 | |||
| STOCKHOLDERS' DEFICIT | ||||
| Preferred Stock, $.001 par value; 5,000,000 shares authorized at December 31, 2015; nil shares issued and outstanding. | - | |||
| Common stock, $.001 par value; 45,000,000 shares authorized 5,289,136 shares issued and outstanding | 5,289 | |||
| Accumulated deficit | (386,456 | ) | ||
| TOTAL STOCKHOLDERS' DEFICIT | (381,167 | ) | ||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 25,000 | ||
The accompanying notes are an integral part of these financial statements
| F-4 |
STATEMENT OF OPERATIONS
FROM FEBRUARY 12, 2015 (INCEPTION) THROUGH DECEMBER 31, 2015
| 2015 | ||||
| OPERATING EXPENSES | ||||
| General and administrative expenses | $ | 42,027 | ||
| Professional and consulting fees | 344,429 | |||
| Total Operating Expenses | 386,456 | |||
| NET LOSS APPLICABLE TO COMMON SHARES | $ | (386,456 | ) | |
| WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING | ||||
| BASIC AND DILUTED | 5,289,136 | |||
| NET LOSS PER BASIC AND DILUTED SHARES | $ | (0.07 | ) | |
The accompanying notes are an integral part of these financial statements
| F-5 |
STATEMENT OF CASH FLOWS
FROM FEBRUARY 12, 2015 (INCEPTION) THROUGH DECEMBER 31, 2015
| 2015 | ||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Net loss | $ | (386,456 | ) | |
| Changes in assets and liabilities: | ||||
| Deferred offering costs | (25,000 | ) | ||
| Accrued expenses | 52,717 | |||
| Net cash used in operating activities | (358,739 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Proceeds from notes payable | 353,450 | |||
| Proceeds from issuing founders shares | 5,289 | |||
| Net cash provided by financing activities | 358,739 | |||
| INCREASE IN CASH | - | |||
| CASH - BEGINNING OF YEAR | - | |||
| CASH - END OF YEAR | $ | - | ||
The accompanying notes are an integral part of these financial statements
| F-6 |
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FROM FEBRUARY 12, 2015 (INCEPTION) THROUGH DECEMBER 31, 2015
| Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
| Paid-in | Retained | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||||
| Balance, February 12, 2015 | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
| Founders shares | - | - | 5,289,136 | 5,289 | - | - | 5,289 | |||||||||||||||||||||
| Net loss | (386,456 | ) | (386,456 | ) | ||||||||||||||||||||||||
| Balance, December 31, 2015 | - | $ | - | 5,289,136 | $ | 5,289 | $ | - | $ | (386,456 | ) | $ | (381,167 | ) | ||||||||||||||
The accompanying notes are an integral part of these financial statements
| F-7 |
FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
Alliance MMA, Inc. was formed in Delaware on February 12, 2015 to acquire the businesses of the following:
| · | CFFC Promotions, LLC; |
| · | Hoosier Fight Club LLC; |
| · | Punch Drunk Inc., also known as Combat Games MMA; |
| · | Bang Time Entertainment, LLC DBA Shogun Fights; |
| · | Cagetix LLC; |
| · | And V3, LLC. |
In addition the Company plans to merge with Go Fight Net, Inc a leading MMA video production and distribution Company. Cagetix LLC is a leading MMA ticketing platform. We refer to the aforementioned companies as the Target Companies. By combining the Target Companies, Alliance intends to create a developmental league for professional MMA fighters and the premier feeder organization to the Ultimate Fighting Championship, or the UFC, the sports largest mixed martial arts promotion company featuring most of the top-ranked fighters in world as well as other premier MMA promotions such as Bellator. Under the Alliance MMA umbrella, the Target Company promotions and other regional MMA promotions we intend to acquire over time will discover and cultivate the next generation of UFC and other premier MMA promotion champions, while at the same time generating live original media content, attracting an international fan base, and generating sponsorship revenue for our live MMA events and professional fighters.
NOTE 2 – LIQUIDITY AND GOING CONCERN
These financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception, generates no operating revenue, and as reflected in the accompanying financial statements, includes net loss applicable to common stockholders of $386,456 for the period ended December 31, 2015.
We plan to raise capital through a public offering of our common stock, which we anticipate will be completed in the second half of 2016. Upon completion of the offering, Alliance will acquire the certain operating businesses. Our management believes that the revenue generated by these businesses, together with the net proceeds of the offering, will provide Alliance with sufficient capital to fund our operations; however, management cannot provide any assurances that the offering will be completed or that we will be able to obtain additional capital if our operating revenue and the proceeds of the offering are not sufficient to fund our operations.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| F-8 |
ALLIANCE MMA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates
The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
| F-9 |
ALLIANCE MMA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 4 – Deferred OFFERING COSTS
During 2015, the Company incurred $25,000 related to legal services in relation to its Form S-1 Registration Statement. As such, these expenses were deferred for reporting purposes at December 31, 2015.
NOTE 5 – INCOME TAXES
| December 31, 2015 | ||||
| Deferred tax assets | $ | 135,260 | ||
| Deferred tax valuation allowance | (135,260 | ) | ||
| Net deferred tax assets | $ | - | ||
NOTE 6 – RELATED PARTY NOTE PAYABLE
In February 2015, we entered into a loan agreement with Ivy Equity Investors, LLC, an affiliate of our founder Mr. Joseph Gamberale , and at the time the note was entered into our sole director, pursuant to which Ivy would advance up to $500,000 to satisfy our start up expenses, including professional fees incurred with this offering and expenses incident to the Target Company transactions. This loan is evidenced by an unsecured promissory note which bears interest at the rate of 6% per annum. On March 1, 2015, $5,289 which represents the par value of the shares issued to the founding stockholders was applied to reduce the outstanding principal and accrued interest on the note. The principal amount owing under the note as of December 31, 2015 was $ 353,450. The note matures on the earlier of the closing of the offering made by this prospectus or January 1, 2017. We anticipate paying off the note in full at the closing of the offering from the net proceeds available to us. The accrued interest on this note as of December 31, 2015 was $ 8,127.
NOTE 7 – STOCKHOLDERS’ EQUITY
There were 5,000,000 shares of preferred stock authorized, with nil shares issued and outstanding at December 31, 2015.
There were 45,000,000 shares of common stock authorized, with 5,289,136 shares issued and outstanding at December 31, 2015.
| F-10 |
ALLIANCE MMA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 8- SUBSEQUENT EVENTS
The related party note payable increased by the amount $147,201 to the new balance of $500,651 as of April 15, 2016.
On May 1, 2016, the related party note payable was amended and restated to permit an aggregate borrowing of up to $600,000.
| F-11 |
CFFC PROMOTIONS, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| F-12 |
CFFC PROMOTIONS, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-14 |
| Balance Sheets | F-15 |
| Statements of Operations | F-16 |
| Statements of Members' Deficiency | F-17 |
| Statements of Cash Flows | F-18 |
| Notes to Financial Statements | F-19-F-22 |
| F-13 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management of
CFFC Promotions, LLC
We have audited the accompanying balance sheet of CFFC Promotions, LLC (the “Company”) as of December 31, 2015 and 2014, and the statements of operations, members’ deficiency, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. 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 provides 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 the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-14 |
BALANCE SHEETS
DECEMBER 31,
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 6,006 | $ | 3,065 | ||||
| Accounts receivable, net | 10,500 | - | ||||||
| Total current assets | 16,506 | 3,065 | ||||||
| Property and equipment - net | 5,807 | 8,486 | ||||||
| TOTAL ASSETS | $ | 22,313 | $ | 11,551 | ||||
| LIABILITIES AND MEMBERS' DEFICIENCY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accrued expenses | $ | 23,650 | $ | - | ||||
| Related party note payable - short term | - | 36,000 | ||||||
| Total current liabilities | 23,650 | 36,000 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Related party note payable - long term | 67,000 | 46,000 | ||||||
| 67,000 | 46,000 | |||||||
| TOTAL LIABILITIES | 90,650 | 82,000 | ||||||
| Members' deficit | (68,337 | ) | (70,449 | ) | ||||
| TOTAL LIABILITIES AND MEMBERS' DEFICIENCY | $ | 22,313 | $ | 11,551 | ||||
The accompanying notes are an integral part of these financial statements
| F-15 |
| CFFC PROMOTIONS, LLC |
| STATEMENTS OF OPERATIONS |
| FOR THE YEARS ENDED DECEMBER 31, |
| 2015 | 2014 | |||||||
| REVENUE | $ | 709,468 | $ | 626,835 | ||||
| COST OF REVENUE | 533,628 | 532,761 | ||||||
| GROSS PROFIT | 175,840 | 94,074 | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 84,584 | 108,525 | ||||||
| Bad debt expense | 22,625 | - | ||||||
| Professional and consulting fees | 49,300 | 18,721 | ||||||
| Depreciation | 2,679 | 1,600 | ||||||
| Total Operating Expenses | 159,188 | 128,846 | ||||||
| NET INCOME (LOSS) | $ | 16,652 | $ | (34,772 | ) | |||
The accompanying notes are an integral part of these financial statements
| F-16 |
| CFFC PROMOTIONS, LLC |
| STATEMENTS OF MEMBERS' DEFICIENCY |
| FOR THE YEARS ENDED DECEMBER 31, |
| Total | ||||
| Balance, January 1, 2014 | $ | - | ||
| Net Loss | (34,772 | ) | ||
| Distributions | (63,372 | ) | ||
| Contributions | 27,695 | |||
| Balance, December 31, 2014 | (70,449 | ) | ||
| Net Income | 16,652 | |||
| Distributions | (14,540 | ) | ||
| Balance, December 31, 2015 | $ | (68,337 | ) | |
The accompanying notes are an integral part of these financial statements
| F-17 |
| CFFC PROMOTIONS, LLC |
| STATEMENTS OF CASH FLOWS |
| FOR THE YEARS ENDED DECEMBER 31, |
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | 16,652 | $ | (34,772 | ) | |||
| Adjustments to reconcile net income (loss) to cash | ||||||||
| provided by operating activities: | ||||||||
| Bad debt expense | 22,625 | - | ||||||
| Depreciation | 2,679 | 1,600 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (33,125 | ) | - | |||||
| Accrued expenses | 23,650 | - | ||||||
| Net cash provided by (used in) operating activities | 32,481 | (33,172 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Members' distributions | (14,540 | ) | (63,372 | ) | ||||
| Members' contributions | - | 17,609 | ||||||
| Proceeds from related party | - | 100,000 | ||||||
| Repayment of related party note payable | (15,000 | ) | (18,000 | ) | ||||
| Net cash (used in) provided by financing activities | (29,540 | ) | 36,237 | |||||
| INCREASE IN CASH | 2,941 | 3,065 | ||||||
| CASH - BEGINNING OF YEAR | 3,065 | - | ||||||
| CASH - END OF YEAR | $ | 6,006 | $ | 3,065 | ||||
| SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY: | ||||||||
| Members' contribution of equity | $ | - | $ | 10,086 | ||||
The accompanying notes are an integral part of these financial statements
| F-18 |
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
CFFC Promotions, LLC (“CFFC") promotes mixed martial arts cage fighting in the New York and Pennsylvania. The Company was formed on January 28, 2014.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Accounts Receivable
Accounts receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded based on a combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management has determined that $22,625 allowance is required at December 31, 2015.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Routine maintenance and repairs and minor replacement costs are charged to expense as incurred, while expenditures that extend the life of these assets are capitalized. Depreciation and amortization are provided for in amounts sufficient to write off the cost of depreciable assets to operations over their estimated service lives. The Company uses the same depreciation method for both financial reporting and tax purposes. Upon the sale or retirement of property and equipment, the cost and related accumulated depreciation and amortization will be removed from the accounts and the resulting
| F-19 |
CFFC PROMOTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment (Continued)
profit or loss will be reflected in the statement of income. The estimated lives used to determine depreciation and amortization are:
| Equipment | 5 - 7 years |
Revenue Recognition
The Company records revenue from ticket sales and sponsorship income upon successful completion of the related event, at which time services have been deemed rendered, the sales price is fixed and determinable and collectability is reasonably assured.
Advertising Costs
Advertising costs, which are expensed as incurred, totaled approximately $13,797 and $21,230 for the years ended December 31, 2015 and 2014, respectively.
Income Taxes
The Company has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Company’s federal tax status as a pass-through entity is based on its legal status as a limited liability company. Accordingly, the Company is not required to take any tax positions in order to qualify as a pass-through entity. The Company is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Company has no other tax positions, which must be considered for disclosure.
| F-20 |
CFFC PROMOTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consists of the following at December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Accounts receivable | 33,125 | - | ||||||
| Less allowance for doubtful accounts | (22,625 | ) | - | |||||
| Accounts receivable, net | $ | 10,500 | $ | - | ||||
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Equipment | 10,086 | 10,086 | ||||||
| Less accumulated depreciation | (4,279 | ) | (1,600 | ) | ||||
| Property and equipment, net | $ | 5,807 | $ | 8,486 | ||||
Depreciation expense for the year ended December 31, 2015 and 2014 was $ 2,679 and $ 1,600, respectively.
| F-21 |
CFFC PROMOTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 4 – RELATED PARTY TRANSACTIONS
On February 1, 2014, the Company entered into a note with Mr. Jerry Colombino for $100,000 and is due on February 1, 2017. In 2014 the short and long term portions are $36,000 and $46,000, respectively. In 2015 the Company paid $15,000 to reduce the Note Payable and agreed to defer all remaining payments until February 1, 2017. As of December 31, 2015, the Company has classified the remaining $67,000 as long term.
NOTE 5 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2015 through the date of the auditors’ report, and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-22 |
HOOSIER FIGHT CLUB PROMOTIONS, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| F-23 |
HOOSIER FIGHT CLUB PROMOTIONS, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| Financial Statements | ||
| Report of Independent Registered Public Accounting Firm | F-25 | |
| Balance Sheets | F-26 | |
| Statements of Income | F-27 | |
| Statements of Member’s (Deficiency) Equity | F-28 | |
| Statements of Cash Flows | F-29 | |
| Notes to Financial Statements | F-30-F-32 |
| F-24 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member
Hoosier Fight Club Promotions, LLC
We have audited the accompanying balance sheets of Hoosier Fight Club Promotions, LLC (the “Company”) as of December 31, 2015 and 2014, and the statements of income, member’s (deficit) equity, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 audits 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 the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-25 |
| HOOSIER FIGHT CLUB PROMOTIONS, LLC |
| BALANCE SHEETS |
| DECEMBER 31, |
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 7,610 | $ | 1,974 | ||||
| Account receivable | 2,995 | - | ||||||
| 10,605 | 1,974 | |||||||
| Property and equipment - net | 534 | 801 | ||||||
| TOTAL ASSETS | $ | 11,139 | $ | 2,775 | ||||
| LIABILITIES AND MEMBER'S (DEFICIENCY) EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accrued expenses | 9,000 | |||||||
| Ticket tax payable | 2,185 | - | ||||||
| Deferred revenue | 7,500 | - | ||||||
| TOTAL CURRENT LIABILITIES | 18,685 | - | ||||||
| TOTAL LIABILITIES | 18,685 | - | ||||||
| Member's (deficit) equity | (7,546 | ) | 2,775 | |||||
| LIABILITIES AND MEMBER'S (DEFICIENCY) EQUITY | $ | 11,139 | $ | 2,775 | ||||
The accompanying notes are an integral part of these financial statements
| F-26 |
| HOOSIER FIGHT CLUB PROMOTIONS, LLC |
| STATEMENTS OF INCOME |
| FOR THE YEARS ENDED DECEMBER 31, |
| 2015 | 2014 | |||||||
| REVENUE | $ | 172,315 | $ | 183,195 | ||||
| COST OF REVENUE | 115,010 | 119,114 | ||||||
| GROSS PROFIT | 57,305 | 64,081 | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 8,218 | 9,025 | ||||||
| Professional and consulting fees | 21,800 | - | ||||||
| Depreciation | 267 | 267 | ||||||
| Total Operating Expenses | 30,285 | 9,292 | ||||||
| NET INCOME | $ | 27,020 | $ | 54,789 | ||||
The accompanying notes are an integral part of these financial statements
| F-27 |
| HOOSIER FIGHT CLUB PROMOTIONS, LLC |
| STATEMENT OF MEMBER'S (DEFICIENCY) EQUITY |
| FOR THE YEARS ENDED DECEMBER 31, |
| Total | ||||
| Balance, January 1, 2014 | $ | 3,432 | ||
| Net Income | 54,789 | |||
| Distributions | (55,446 | ) | ||
| Balance, December 31, 2014 | 2,775 | |||
| Net Income | 27,020 | |||
| Contributions | 16,680 | |||
| Distributions | (54,021 | ) | ||
| Balance, December 31, 2015 | $ | (7,546 | ) | |
The accompanying notes are an integral part of these financial statements
| F-28 |
| HOOSIER FIGHT CLUB PROMOTIONS, LLC |
| STATEMENTS OF CASH FLOWS |
| FOR THE YEARS ENDED DECEMBER 31, |
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 27,020 | $ | 54,789 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation | 267 | 267 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (2,995 | ) | - | |||||
| Accrued expenses | 9,000 | - | ||||||
| Ticket tax payable | 2,185 | - | ||||||
| Deferred revenue | 7,500 | - | ||||||
| Net cash provided by operating activities | 42,977 | 55,056 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Member's distribution | (54,021 | ) | (55,446 | ) | ||||
| Member's contribution | 16,680 | - | ||||||
| Net cash used in financing activities | (37,341 | ) | (55,446 | ) | ||||
| INCREASE (DECREASE) IN CASH | 5,636 | (390 | ) | |||||
| CASH - BEGINNING OF YEAR | 1,974 | 2,364 | ||||||
| CASH - END OF YEAR | $ | 7,610 | $ | 1,974 | ||||
The accompanying notes are an integral part of these financial statements
| F-29 |
HOOSIER FIGHT CLUB PROMOTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
Hoosier Fight Club Promotions, LLC was started in the State of Indiana on March 1, 2009. Hoosier Fight Club Promotions, LLC (HFC) continues to work towards rising above the status quo and taking local fight promotions to a higher level. HFC's focus is on becoming the premier Mixed Martial Arts (MMA) promoter in Northwest Indiana and the Chicagoland markets. The Porter County Expo Center has become home to HFC.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Accounts Receivable
Accounts receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded based on a combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management has determined that no allowance is required at December 31 2015 and 2014.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
| F-30 |
HOOSIER FIGHT CLUB PROMOTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Routine maintenance and repairs and minor replacement costs are charged to expense as incurred, while expenditures that extend the life of these assets are capitalized. Depreciation and amortization are provided for in amounts sufficient to write off the cost of depreciable assets to operations over their estimated service lives. The Company uses the same depreciation method for both financial reporting and tax purposes. Upon the sale or retirement of property and equipment, the cost and related accumulated depreciation and amortization will be removed from the accounts and the resulting profit or loss will be reflected in the statement of income. The estimated lives used to determine depreciation and amortization are:
| Equipment | 5 years |
| Computer equipment | 3 years |
Revenue Recognition
The Company records revenue from ticket sales and sponsorship income upon successful completion of the related event, at which time services have been deemed rendered, the sales price is fixed and determinable and collectability is reasonably assured.
Deferred Revenue
The Company received prepayment for sponsor revenue from a sponsor as the Company requires prepayment before the date of the event. As of December 31, 2015 and December 31, 2014, the Company had deferred revenue of $7,500 and nil, respectively. The Company recognizes revenue and decreases deferred revenue in accordance with its revenue recognition policy.
Income Taxes
The Company has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Company’s federal tax status as a pass-through entity is based on its legal status as a limited liability company. Accordingly, the Company is not required to take any tax positions in order to qualify as a pass-through entity. The Company is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Company has no other tax positions, which must be considered for disclosure.
| F-31 |
HOOSIER FIGHT CLUB PROMOTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Equipment | 1,335 | 1,335 | ||||||
| Less accumulated depreciation and amortization | (801 | ) | (534 | ) | ||||
| Property and equipment, net | $ | 534 | $ | 801 | ||||
NOTE 4 – ACCRUED EXPENSES
Accrued expenses consists of the following at December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Audit fee | 9,000 | - | ||||||
| Accrued expenses | $ | 9,000 | $ | - | ||||
NOTE 5 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2015 through the date of the auditors’ report, and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-32 |
PUNCH DRUNK INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| F-33 |
PUNCH DRUNK INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-35 |
| Balance Sheets | F-36 |
| Statements of Income | F-37 |
| Statements of Changes in Retained Earnings (Deficit) | F-38 |
| Statements of Cash Flows | F-39 |
| Notes to Financial Statements | F-40-F-42 |
| F-34 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of
Punch Drunk Inc.
We have audited the accompanying balance sheets of Punch Drunk Inc. (the “Company”) as of December 31, 2015 and 2014, and the statements of income, changes in retained earnings (deficit), and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 audits 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 the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-35 |
BALANCE SHEETS
DECEMBER 31,
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 3,829 | $ | 7,829 | ||||
| 3,829 | 7,829 | |||||||
| Property and equipment - net | 13,009 | 22,192 | ||||||
| TOTAL ASSETS | $ | 16,838 | $ | 30,021 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 23,685 | $ | 9,673 | ||||
| Customer deposits | - | 12,500 | ||||||
| Short-term loan from related party | - | 5,000 | ||||||
| TOTAL CURRENT LIABILITIES | 23,685 | 27,173 | ||||||
| TOTAL LIABILITIES | 23,685 | 27,173 | ||||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Common stock, $.001 par value; 1,000 shares authorized 1,000 issued shares issued and outstanding | 1 | 1 | ||||||
| Retained earnings | (6,848 | ) | 2,847 | |||||
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (6,847 | ) | 2,848 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 16,838 | $ | 30,021 | ||||
The accompanying notes are an integral part of these financial statements
| F-36 |
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| REVENUE | $ | 285,415 | $ | 197,968 | ||||
| COST OF REVENUE | 111,234 | 83,758 | ||||||
| GROSS PROFIT | 174,181 | 114,210 | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 127,111 | 83,399 | ||||||
| Professional and consulting fees | 27,780 | 7,343 | ||||||
| Depreciation and amortization | 9,183 | 9,563 | ||||||
| Total operating expenses | 164,074 | 100,305 | ||||||
| NET INCOME | $ | 10,107 | $ | 13,905 | ||||
The accompanying notes are an integral part of these financial statements
| F-37 |
STATEMENTS OF CHANGES IN RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
| Total | ||||
| Balance, January 1, 2014 | $ | 9,007 | ||
| Net Income | 13,905 | |||
| Contributions | 29,352 | |||
| Distributions | (49,417 | ) | ||
| Balance, December 31, 2014 | 2,847 | |||
| Net Income | 10,107 | |||
| Contributions | 3,610 | |||
| Distributions | (23,412 | ) | ||
| Balance, December 31, 2015 | $ | (6,848 | ) | |
The accompanying notes are an integral part of these financial statements
| F-38 |
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 10,107 | $ | 13,905 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
| Depreciation and amortization | 9,183 | 9,563 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable and accrued expenses | 14,012 | (139 | ) | |||||
| Customer deposits | (12,500 | ) | - | |||||
| Net cash provided by operating activities | 20,802 | 23,329 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | - | (8,649 | ) | |||||
| Net cash used in investing activities | - | (8,649 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from related parties | - | 5,000 | ||||||
| Repayment to related parties | (5,000 | ) | - | |||||
| Stockholders’ contributions | 3,610 | 29,352 | ||||||
| Stockholders’ distributions | (23,412 | ) | (49,417 | ) | ||||
| Net cash used in financing activities | (24,802 | ) | (15,065 | ) | ||||
| DECREASE IN CASH | (4,000 | ) | (385 | ) | ||||
| CASH - BEGINNING OF YEAR | 7,829 | 8,214 | ||||||
| CASH - END OF YEAR | $ | 3,829 | $ | 7,829 | ||||
The accompanying notes are an integral part of these financial statements
| F-39 |
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
Punch Drunk Inc., also known as Combat Games MMA, was incorporated in the State of Washington on March 11, 2009. Punch Drunk Inc. continues to work towards rising above the status quo and taking local fight promotions to a higher level. Punch Drunk Inc.’s focus is on becoming the premier Mixed Martial Arts (MMA) promoter in northwest markets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Reclassifications
Certain reclassifications have been made to the 2014 financial statements to conform to the 2015 financial statements presentation. These reclassifications had no effect on balance sheet, net earnings or cash flows as previously reported.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Routine maintenance and repairs and minor replacement costs are charged to expense as incurred, while expenditures that extend the life of these assets are capitalized. Depreciation and amortization are provided for in amounts sufficient to write off the cost of depreciable assets to operations over their estimated service lives. The Company uses the same depreciation method for both financial reporting and tax purposes. Upon the sale or retirement of property and equipment, the cost and related accumulated depreciation and amortization will be removed from the accounts and the resulting profit or loss will be reflected in the statement of income.
| F-40 |
PUNCH DRUNK INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment (Continued)
The estimated lives used to determine depreciation and amortization are:
| Property and Equipment | 5-7 years | |||
| Vehicles | 5 years | |||
| Website | 3 years |
Revenue Recognition
The Company records revenue from ticket sales and sponsorship income upon the successful completion of the related event, at which time services have been deemed rendered, the sales price is fixed and determinable and collectability is reasonably assured. Customer deposits consist of amounts received from the customer for fight promotion and entertainment services to be provided in the next fiscal year. The Company receives these funds and recognizes them as a liability until the services are provided and revenue can be recognized.
Advertising Costs
Advertising costs, which are expensed as incurred, totaled approximately $6,243 and $4,932 for the years ended December 31, 2015 and 2014, respectively.
Income Taxes
The Company is treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Company’s federal tax status as a pass-through entity is based on its legal status as a limited liability company. Accordingly, the Company is not required to take any tax positions in order to qualify as a pass-through entity. The Company is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Company has no other tax positions, which must be considered for disclosure.
| F-41 |
PUNCH DRUNK INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Property and equipment | 48,634 | 48,634 | ||||||
| Vehicles | 6,669 | 6,669 | ||||||
| Website | 3,450 | 3,450 | ||||||
| Total Fixed Assets | 58,753 | 58,753 | ||||||
| Less accumulated depreciation and amortization | (45,744 | ) | (36,561 | ) | ||||
| Property and equipment, net | $ | 13,009 | $ | 22,192 | ||||
Depreciation expense for the year ended December 31, 2015 and 2014 was $9,183 and $9,563, respectively.
NOTE 4 – SHORT-TERM LOAN FROM RELATED PARTY
On September 15, 2014, the Company secured a working capital loan in the amount of $5,000 from Jason Robinett, Vice President of Operations. The interest rate on the loan was zero percent. The Company repaid this loan in full in March, 2015.
NOTE 5 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2015 through the date of the auditors’ report, and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-42 |
BANG TIME ENTERTAINMENT, LLC
DBA SHOGUN FIGHTS
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| F-43 |
BANG TIME ENTERTAINMENT, LLC
DBA SHOGUN FIGHTS
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-45 |
| Balance Sheets | F-46 |
| Statements of Income | F-47 |
| Statements of Members' Equity | F-48 |
| Statements of Cash Flows | F-49 |
| Notes to Financial Statements | F-50-F-52 |
| F-44 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members
Bang Time Entertainment, LLC
DBA Shogun Fights
We have audited the accompanying balance sheets of Bang Time Entertainment, LLC (the “Company”) (DBA Shogun Fights) as of December 31, 2015 and 2014, and the statements of income, members’ equity, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 audits 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 the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-45 |
DBA SHOGUN FIGHTS
BALANCE SHEETS
DECEMBER 31,
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 11,842 | $ | 21,689 | ||||
| Accounts receivable, net | 6,000 | 2,000 | ||||||
| Total current assets | 17,842 | 23,689 | ||||||
| Property and equipment - net | 142 | 737 | ||||||
| TOTAL ASSETS | $ | 17,984 | $ | 24,426 | ||||
| LIABILITIES AND MEMBERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 17,500 | $ | 75 | ||||
| Total current liabilities | 17,500 | 75 | ||||||
| Members' equity | 484 | 24,351 | ||||||
| TOTAL LIABILITIES AND MEMBERS' EQUITY | $ | 17,984 | $ | 24,426 | ||||
The accompanying notes are an integral part of these financial statements
| F-46 |
DBA SHOGUN FIGHTS
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| REVENUE | $ | 537,872 | $ | 488,791 | ||||
| COST OF REVENUE | 371,949 | 344,173 | ||||||
| GROSS PROFIT | 165,923 | 144,618 | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 17,924 | 23,298 | ||||||
| Bad debt expense | 6,500 | - | ||||||
| Professional and consulting fees | 26,791 | 2,010 | ||||||
| Depreciation | 595 | 658 | ||||||
| Total Operating Expenses | 51,810 | 25,966 | ||||||
| NET INCOME | $ | 114,113 | $ | 118,652 | ||||
The accompanying notes are an integral part of these financial statements
| F-47 |
DBA SHOGUN FIGHTS
STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
| Total | ||||
| Balance, January 1, 2014 | $ | 28,548 | ||
| Net Income | 118,652 | |||
| Distributions | (122,849 | ) | ||
| Balance, December 31, 2014 | 24,351 | |||
| Net Income | 114,113 | |||
| Distributions | (142,980 | ) | ||
| Contributions | 5,000 | |||
| Balance, December 31, 2015 | $ | 484 | ||
The accompanying notes are an integral part of these financial statements
| F-48 |
DBA SHOGUN FIGHTS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 114,113 | $ | 118,652 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 595 | 658 | ||||||
| Bad debt expense | 6,500 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (10,500 | ) | 5,000 | |||||
| Accounts payable | 17,425 | (1,258 | ) | |||||
| Net cash provided by operating activities | 128,133 | 123,052 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Members' distribution | (142,980 | ) | (122,849 | ) | ||||
| Members' contribution | 5,000 | - | ||||||
| Net cash used in financing activities | (137,980 | ) | (122,849 | ) | ||||
| (DECREASE) INCREASE IN CASH | (9,847 | ) | 203 | |||||
| CASH - BEGINNING OF YEAR | 21,689 | 21,486 | ||||||
| CASH - END OF YEAR | $ | 11,842 | $ | 21,689 | ||||
The accompanying notes are an integral part of these financial statements
| F-49 |
DBA SHOGUN FIGHTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
Bang Time Entertainment, LLC DBA Shogun Fights (the Company) is a Maryland limited liability company. The Company operates as a promoter for mixed martial arts events in the Baltimore, Washington area.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Accounts Receivable
Accounts receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded based on a combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management has determined that $6,500 allowance is required at December 31, 2015.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
| F-50 |
BANG TIME ENTERTAINMENT, LLC
DBA SHOGUN FIGHTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Routine maintenance and repairs and minor replacement costs are charged to expense as incurred, while expenditures that extend the life of these assets are capitalized. Depreciation and amortization are provided for in amounts sufficient to write off the cost of depreciable assets to operations over their estimated service lives. The Company uses the same depreciation method for both financial reporting and tax purposes. Upon the sale or retirement of property and equipment, the cost and related accumulated depreciation and amortization will be removed from the accounts and the resulting profit or loss will be reflected in the statement of income. The estimated lives used to determine depreciation and amortization are:
| Equipment | 5 years | |||
| Computer equipment | 3 years |
Revenue Recognition
The Company records revenue from ticket sales and sponsorship income upon successful completion of the related event, at which time services have been deemed rendered, the sales price is fixed and determinable and collectability is reasonably assured.
Income Taxes
The Company is treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Company’s federal tax status as a pass-through entity is based on its legal status as a limited liability company. Accordingly, the Company is not required to take any tax positions in order to qualify as a pass-through entity. The Company is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Company has no other tax positions, which must be considered for disclosure.
| F-51 |
BANG TIME ENTERTAINMENT, LLC
DBA SHOGUN FIGHTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 – ACCOUNTS Receivable
Accounts receivable consists of the following at December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Accounts receivable | 12,500 | 2,000 | ||||||
| Less allowance for doubtful accounts | (6,500 | ) | - | |||||
| Accounts receivable - net | $ | 6,000 | $ | 2,000 | ||||
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Equipment | 4,321 | 4,321 | ||||||
| Less accumulated depreciation and amortization | (4,179 | ) | (3,584 | ) | ||||
| Property and equipment, net | $ | 142 | $ | 737 | ||||
NOTE 5 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2015 through the date of the auditors’ report, and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-52 |
V3, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| F-53 |
V3, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-55 |
| Balance Sheets | F-56 |
| Statements of Operations | F-57 |
| Statements of Members' Deficit | F-58 |
| Statements of Cash Flows | F-59 |
| Notes to Financial Statements | F-60-F-61 |
| F-54 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management of
V3, LLC
We have audited the accompanying balance sheets of V3, LLC (the “Company”) as of December 31, 2015 and 2014, and the statements of operations, members’ deficit, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 audits 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 the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s losses, negative cash flows from operations and working capital deficit raise substantial doubt its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-55 |
BALANCE SHEETS
DECEMBER 31,
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 2,697 | $ | 5,000 | ||||
| Total current assets | 2,697 | 5,000 | ||||||
| TOTAL ASSETS | $ | 2,697 | $ | 5,000 | ||||
| LIABILITIES AND MEMBERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 33,065 | $ | 15,212 | ||||
| Accrued expense | 17,500 | - | ||||||
| Total current liabilities | 50,565 | 15,212 | ||||||
| Members' deficit | (47,868 | ) | (10,212 | ) | ||||
| TOTAL LIABILITIES AND MEMBERS' DEFICIT | $ | 2,697 | $ | 5,000 | ||||
The accompanying notes are an integral part of these financial statements
| F-56 |
| V3, LLC |
| STATEMENTS OF OPERATIONS |
| FOR THE YEARS ENDED DECEMBER 31, |
| 2015 | 2014 | |||||||
| REVENUE | $ | 159,575 | $ | 174,967 | ||||
| COST OF REVENUE | 122,564 | 145,010 | ||||||
| GROSS PROFIT | 37,011 | 29,957 | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 35,845 | 32,489 | ||||||
| Professional and consulting fees | 28,210 | - | ||||||
| Depreciation | - | 1,464 | ||||||
| Total Operating Expenses | 64,055 | 33,953 | ||||||
| NET LOSS | $ | (27,044 | ) | $ | (3,996 | ) | ||
The accompanying notes are an integral part of these financial statements
| F-57 |
| V3, LLC |
| STATEMENTS OF MEMBERS' DEFICIT |
| FOR THE YEARS ENDED DECEMBER 31, |
| Total | ||||
| Balance, January 1, 2014 | $ | (1,296 | ) | |
| Net Loss | (3,996 | ) | ||
| Distributions | (13,970 | ) | ||
| Contributions | 9,050 | |||
| Balance, December 31, 2014 | (10,212 | ) | ||
| Net Loss | (27,044 | ) | ||
| Distributions | (15,112 | ) | ||
| Contributions | 4,500 | |||
| Balance, December 31, 2015 | $ | (47,868 | ) | |
The accompanying notes are an integral part of these financial statements
| F-58 |
| V3, LLC |
| STATEMENTS OF CASH FLOWS |
| FOR THE YEARS ENDED DECEMBER 31, |
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (27,044 | ) | $ | (3,996 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | - | 1,464 | ||||||
| Changes in assets and liabilities: | ||||||||
| Other receivables | - | 984 | ||||||
| Accounts payable | 17,853 | 10,392 | ||||||
| Accrued expense | 17,500 | - | ||||||
| Net cash provided by operating activities | 8,309 | 8,844 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Members' distributions | (15,112 | ) | (13,970 | ) | ||||
| Members' contribution | 4,500 | 9,050 | ||||||
| Net cash used in financing activities | (10,612 | ) | (4,920 | ) | ||||
| (DECREASE) INCREASE IN CASH | (2,303 | ) | 3,924 | |||||
| CASH - BEGINNING OF YEAR | 5,000 | 1,076 | ||||||
| CASH - END OF YEAR | $ | 2,697 | $ | 5,000 | ||||
The accompanying notes are an integral part of these financial statements
| F-59 |
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
V3, LLC (the "Company") was founded in Memphis, TN as an amateur fighting circuit in 2009. The Company’s mission is to provide quality professional MMA events for fans across the mid-south whether it be live, on television, online, or pay per view.
NOTE 2 – LIQUIDITY AND GOING CONCERN
The Company has incurred operating losses of $27,044 and $3,996 for the years ended December 31, 2015 and 2014, respectively. The Company has a working capital deficiency of $47,868 and $10,212 as of December 31, 2015 and 2014, respectively and a members’ deficit of $47,868 and $10,212 at December 31, 2015 and 2014, respectively.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from additional common stock issuances. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
| F-60 |
V3, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Routine maintenance and repairs and minor replacement costs are charged to expense as incurred, while expenditures that extend the life of these assets are capitalized. Depreciation and amortization are provided for in amounts sufficient to write off the cost of depreciable assets to operations over their estimated service lives. The Company uses the same depreciation method for both financial reporting and tax purposes. Upon the sale or retirement of property and equipment, the cost and related accumulated depreciation and amortization will be removed from the accounts and the resulting profit or loss will be reflected in the statement of income. The estimated lives used to determine depreciation and amortization are:
| Equipment | 5 years |
| Computer equipment | 3 years |
Revenue Recognition
The Company records revenue from ticket sales and sponsorship income upon successful completion of the related event, at which time services have been deemed rendered, the sales price is fixed and determinable and collectability is reasonable assured.
Advertising Costs
Advertising costs, which are expensed as incurred, totaled approximately $11,991 and $14,013 for the years ended December 31, 2015 and 2014, respectively.
Income Taxes
The Company is treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Company’s federal tax status as a pass-through entity is based on its legal status as a limited liability company. Accordingly, the Company is not required to take any tax positions in order to qualify as a pass-through entity. The Company is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Company has no other tax positions, which must be considered for disclosure.
NOTE 4 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2015 through the date of the auditors’ report, and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-61 |
GO FIGHT NET, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| F-62 |
GO FIGHT NET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-64 |
| Balance Sheets | F-65 |
| Statements of Operations | F-66 |
| Statements of Changes in Stockholders’ Equity | F-67 |
| Statements of Cash Flows | F-68 |
| Notes to Financial Statements | F-69-F-72 |
| F-63 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management of
Go Fight Net, Inc.
We have audited the accompanying balance sheets of Go Fight Net, Inc. (the “Company”) as of December 31, 2015 and 2014, and the statements of operations, stockholders’ equity, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 audits 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 the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-64 |
BALANCE SHEETS
DECEMBER 31,
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 74,532 | $ | 84,414 | ||||
| 74,532 | 84,414 | |||||||
| Property and equipment - net | 37,037 | 73,336 | ||||||
| TOTAL ASSETS | $ | 111,569 | $ | 157,750 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 19,962 | $ | 18,202 | ||||
| 401K payable | 24,000 | 20,000 | ||||||
| TOTAL CURRENT LIABILITIES | 43,962 | 38,202 | ||||||
| TOTAL LIABILITIES | 43,962 | 38,202 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock, $.001 par value; 20,000,000 shares authorized 8,000,000 shares issued and outstanding | 8,000 | 8,000 | ||||||
| Retained earnings | 59,607 | 111,548 | ||||||
| TOTAL STOCKHOLDERS' EQUITY | 67,607 | 119,548 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 111,569 | $ | 157,750 | ||||
The accompanying notes are an integral part of these financial statements
| F-65 |
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| REVENUE | $ | 496,233 | $ | 624,142 | ||||
| COST OF REVENUE | 318,587 | 410,814 | ||||||
| GROSS PROFIT | 177,646 | 213,328 | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 169,708 | 157,724 | ||||||
| Professional and consulting fees | 23,580 | 7,965 | ||||||
| Depreciation and amortization | 36,299 | 32,516 | ||||||
| Total operating expenses | 229,587 | 198,205 | ||||||
| Net (Loss) Income | $ | (51,941 | ) | $ | 15,123 | |||
The accompanying notes are an integral part of these financial statements
| F-66 |
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
| Common Stock | ||||||||||||||||
| Retained | ||||||||||||||||
| Shares | Amount | Earnings | Total | |||||||||||||
| Balance, January 1, 2014 | 8,000,000 | 8,000 | 96,425 | 104,425 | ||||||||||||
| Net income | 15,123 | 15,123 | ||||||||||||||
| Balance, December 31, 2014 | 8,000,000 | $ | 8,000 | $ | 111,548 | $ | 119,548 | |||||||||
| Net loss | (51,941 | ) | (51,941 | ) | ||||||||||||
| Balance, December 31, 2015 | 8,000,000 | $ | 8,000 | $ | 59,607 | $ | 67,607 | |||||||||
The accompanying notes are an integral part of these financial statements
| F-67 |
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | (51,941 | ) | $ | 15,123 | |||
| Adjustments to reconcile net (loss) income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 36,299 | 32,516 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable and accrued expenses | 1,760 | 17,179 | ||||||
| 401K payable | 4,000 | 20,000 | ||||||
| Net cash (used in) provided by operating activities | (9,882 | ) | 84,818 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | - | (40,575 | ) | |||||
| Net cash used in investing activities | - | (40,575 | ) | |||||
| (DECREASE) INCREASE IN CASH | (9,882 | ) | 44,243 | |||||
| CASH - BEGINNING OF YEAR | 84,414 | 40,171 | ||||||
| CASH - END OF YEAR | $ | 74,532 | $ | 84,414 | ||||
The accompanying notes are an integral part of these financial statements
| F-68 |
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
Go Fight Net, Inc. (“GFL” or “the Company”) is a sports media company and brand focusing on the combat sports marketplace. The Company combines proprietary technology with content production and acquisition to deliver diverse and compelling content to a global audience. Our content is distributed globally in all broadcast mediums through our proprietary distribution platform via cable/Satellite, Internet, IPTV and mobile protocols.
GFL by the Numbers:
| · | Broadcast an average of 450 live events annually (2,500 events since 2008) to viewers in 199 countries. |
| · | Produced 150 weekly episodes of the GFL “real fights” series airing on Comcast Sports Net, SNY and other networks globally – this series continues to air weekly. |
| · | More than 25,000 fighters in our database comprising over 18,000 fights. |
| · | More than 10,000 titles comprising approximately 10,000 hours of video - adding 1200 hrs annually to our library. |
Technology Platform
The Company has built a scalable online master control that enables a wide range of functionality in the ingest and delivery of large amounts of data and video to viewers using a broad range of devices and formats to access its content.
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-confirming events. Accordingly, the actual results could differ significantly from estimates.
| F-69 |
GO FIGHT NET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company acts as a producer, distributor and licensor of video content. Our online video content is offered on a pay per view (“ppv”) basis for ourselves and our promoter clients. We record revenue on pay per view transactions upon receipt of payment to our credit processing partners. The Company charges viewers a fee per pay per view purchase transaction for entitling a viewer to watch the desired video. The Company records revenue net of a fee for the credit card processing cost per transaction. The Company maintains all revenues from videos we film for ourselves and distribute a profit share, typically 50% to promoters who use our streaming services. The Company generates revenues from video production services, and books this revenue upon completion of the video production project. The Company generates revenues from licensing the rights to videos to networks overseas and domestically, and books those revenues upon delivery of content. To the extent there are issues (i) watching a video (ii) with our production services or (iii) with the quality of a video we send out for distribution to a network we would issue a partial or full refund based on the circumstances. Given the nature of our business, these refund requests come within days of delivery, thus we would not anticipate any refund request in excess of 30 days from a ppv purchase, a license delivery or video production performance. The Company has reserves of $2,099 and $4,029 for the years ended 2014 and 2015, respectively.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets acquired as follows:
| Computers | 3 years | |
| Production Equipment | 3 years | |
| Video Library equipment | 5 years | |
| Vehicle | 3 years |
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
| F-70 |
GO FIGHT NET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
NOTE 3- PROPERTY AND EQUIPMENT-NET
| 2015 | 2014 | |||||||
| Computers | $ | 13,565 | $ | 13,565 | ||||
| Production equipment | 95,710 | 95,710 | ||||||
| Video library equipment | 10,000 | 10,000 | ||||||
| Vehicle | 6,500 | 6,500 | ||||||
| Total fixed assets | 125,775 | 125,775 | ||||||
| Less accumulated depreciation and amortization | (88,738 | ) | (52,439 | ) | ||||
| Property and equipment, net | $ | 37,037 | $ | 73,336 | ||||
Depreciation expense for the year ended December 31, 2015 and 2014 was $ 36,299 and $ 32,516, respectively.
| F-71 |
GO FIGHT NET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 4- 401K PAYABLE
The Company maintains a contributory profit sharing plan as defined under Section 401(k) of the U.S. Internal Revenue Code covering one employee. In 2015 and 2014, the Company accrued $5,000 on a quarterly basis to set up this plan. The Company contributions during the years ended December 31, 2015 and 2014 were approximately $20,000 and $20,000, respectively. The Company contributed the full 2014 contribution of $20,000 in March 2015 and paid $16,500 of the 2015 contribution in the first quarter of 2016. As of December 31, 2015 the Company also owes $4,000 of payroll withholdings. The Company owes $24,000 and $20,000 in total to the 401(k) plan as of December 31, 2015 and 2014, respectively.
NOTE 5- SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2015 through the date of the auditors’ report, and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-72 |
CageTix, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
| F-73 |
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-75 |
| Balance Sheets | F-76 |
| Statements of Income | F-77 |
| Statements of Members' Deficiency | F-78 |
| Statements of Cash Flows | F-79 |
| Notes to Financial Statements | F-80-F-81 |
| F-74 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management of
CageTix LLC
We have audited the accompanying balance sheets of CageTix LLC (the”Company”) as of December 31, 2015 and 2014, and the related statements of income, members’ deficit, and cash flows for the years ended December 31, 2015 and 2014. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits 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, audits of its internal control over financial reporting. Our audits 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 audits 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 the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
Marlton, New Jersey
May 12, 2016
| F-75 |
BALANCE SHEETS
DECEMBER 31,
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 57,334 | $ | 14,747 | ||||
| TOTAL ASSETS | $ | 57,334 | $ | 14,747 | ||||
| LIABILITIES AND MEMBERS' DEFICIENCY | ||||||||
| CURRENT LIABITIES | ||||||||
| Accounts payable | 62,449 | 25,432 | ||||||
| Accrued expenses | 19,721 | - | ||||||
| Total current liabilities | 82,170 | 25,432 | ||||||
| Members' deficit | (24,836 | ) | (10,685 | ) | ||||
| TOTAL LIABILITIES AND MEMBERS' DEFICIENCY | $ | 57,334 | $ | 14,747 | ||||
The accompanying notes are an integral part of these financial statements
| F-76 |
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| NET REVENUE | $ | 72,020 | $ | 53,548 | ||||
| OPERATING EXPENSES | 34,102 | 15,055 | ||||||
| NET INCOME | $ | 37,918 | $ | 38,493 | ||||
The accompanying notes are an integral part of these financial statements
| F-77 |
STATEMENTS OF MEMBERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31,
| Total | ||||
| Balance, January 1, 2014 | (10,828 | ) | ||
| Net Income | 38,493 | |||
| Contributions | 14,775 | |||
| Distributions | (53,125 | ) | ||
| Balance, December 31, 2014 | $ | (10,685 | ) | |
| Net Income | 37,918 | |||
| Contributions | 9,150 | |||
| Distributions | (61,219 | ) | ||
| Balance, December 31, 2015 | $ | (24,836 | ) | |
The accompanying notes are an integral part of these financial statements.
| F-78 |
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 37,918 | $ | 38,493 | ||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable | 37,017 | 8,201 | ||||||
| Accrued expenses | 19,721 | - | ||||||
| Net cash provided by operating activities | 94,656 | 46,694 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Members' contributions | 9,150 | 14,775 | ||||||
| Members' distributions | (61,219 | ) | (53,125 | ) | ||||
| Net cash used in financing activities | (52,069 | ) | (38,350 | ) | ||||
| INCREASE IN CASH | 42,587 | 8,344 | ||||||
| CASH - BEGINNING OF YEAR | 14,747 | 6,403 | ||||||
| CASH - END OF YEAR | $ | 57,334 | $ | 14,747 | ||||
The accompanying notes are an integral part of these financial statements
| F-79 |
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS
Nature of Business
CageTix, LLC allows fighters to sell consigned tickets online and have sales tracked for promoters. The Company is the first group sales service to focus specifically on Mixed Martial Arts and expanded in 2015 to more sports.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Revenue Recognition
The Company acts as an agent for ticket sales for promoters and records revenue upon receipt of cash from the credit card companies. The Company charges a fee per transaction for collecting the cash on ticket sales and remits the remaining amount to the promoter upon completion of the event or request for advance from the promoter. The Company’s fee is non-refundable and is recognized immediately as it is not tied to the completion of the event. The Company recognizes revenue upon receipt from the credit card companies due to the following: the fee is fixed and determined and the service of collecting the cash for the promoter has been rendered and collection has occurred.
| F-80 |
CageTix, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company is treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Company’s federal tax status as a pass-through entity is based on its legal status as a limited liability company. Accordingly, the Company is not required to take any tax positions in order to qualify as a pass-through entity. The Company is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Company has no other tax positions, which must be considered for disclosure.
NOTE 3 – REVENUE
| 2015 | 2014 | |||||||
| Ticket sales | $ | 1,028,468 | $ | 766,008 | ||||
| Promoter portion | (956,448 | ) | (712,460 | ) | ||||
| Net Revenue | $ | 72,020 | $ | 53,548 | ||||
NOTE 4 - Concentrations
Sales to one customer were approximately 22% and 16% of net sales, respectively, for the years ended December 31, 2015 and 2014.
NOTE 5 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2015 through the date of the auditors’ report, and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-81 |
