NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
In February 2017, the Board
of Directors of B2Digital, Incorporated ("B2Digital" or the "Company") approved a complete restructuring, new
management team and strategic direction for the Company. Capitalizing on its history in television, video and technology, the Company
is now forging ahead and becoming a full-service live event sports company.
B2Digital's first strategy is
to build an integrated live event Minor League for the Mixed Martial Arts (MMA) marketplace. B2Digital will be creating and developing
Minor League champions that will move on to the MMA Major Leagues from the B2 Fighting Series (B2FS). This will be accomplished
by sponsoring operating live events, acquiring existing MMA promotions and then inviting those champions to the B2FS Regional and
National Championship Series. B2Digital will own all media and merchandising rights and digital distribution networks for the B2FS.
2017 marked the kickoff of the B2FS by
sponsoring and acquiring MMA regional promotion companies for the development of the B2FS. The second strategy is that the Company
plans to add additional sports, leagues, tournaments and special events to its live event business model. This will enable B2Digital
to capitalize on their core technologies and business models that will be key to broadening the revenue base of the Company's live
event core business. B2Digital will also be developing and expanding the B2Digital live event systems and technologies. These include
systems for event management, digital ticketing sales, digital video distribution, digital marketing, Pay-Per View (PPV), fighter
management, merchandise sales, brand management and financial control systems.
Basis of Presentation and Consolidation
The Company has seven wholly-owned subsidiaries.
Hardrock Promotions LLC which owns Hardrock MMA in Kentucky, Colosseum Combat LLC which owns Colosseum Combat MMA in Indiana and
Blue Grass MMA LLC which is a marketing company, United Combat League MMA LLC, Pinnacle Combat LLC, Strike Hard Productions, LLC
and B2 Productions, LLC.
The consolidated financial statements,
which include the accounts of the Company and its six wholly-owned subsidiaries, are prepared in conformity with generally accepted
accounting principles in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have
been eliminated. The consolidated financial statements, which include the accounts of the Company and its six wholly-owned subsidiaries,
and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The Financial Statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) and presented in US dollars. The fiscal year end is March 31.
NOTE 2 - ACCOUNTING POLICIES
The significant accounting policies
of the Company are as follows:
Basis of Accounting
The interim consolidated financial statements
are condensed and should be read in conjunction with the Company’s latest annual financial statements; interim disclosures
generally do not repeat those in the annual statements. The interim unaudited consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
In the opinion of management, the unaudited
interim consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation
of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Use of Estimates
Management uses estimates and assumptions
in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these estimates
and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains deposits primarily
in four financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance
Corporation ("FDIC"). The Company has not experienced any losses related to amounts in excess of FDIC limits or $250,000.
The Company did not have any cash in excess of FDIC limits at December 31, 2019 and March 31, 2019, respectively.
Fair Value of Financial Instruments
The Company’s financial instruments
consist primarily of accounts payable and accrued liabilities. The carrying amounts of such financial instruments approximate their
respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
Property and Equipment
Property and equipment are carried at cost.
Depreciation is provided on the straight-line method over the assets’ estimated service lives. Expenditures for maintenance
and repairs are charged to expense in the period in which they are incurred, and betterments are capitalized. The cost of assets
sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected
in the accompanying consolidated statement of operations of the respective period. The estimated useful lives range from 3 to 7
years.
Goodwill
Goodwill represents the cost in excess
of the fair value of net assets acquired in business combinations. The Company tests goodwill for impairment on an annual basis
and when events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is deemed to be
impaired if the carrying amount of goodwill exceeds its estimated fair value. As of December 31, 2019, goodwill was not deemed
to be impaired. The initial accounting for the business combinations is not completed and the fair value of the acquired identifiable
intangible assets are provisional pending receipt of the final valuations for those assets.
Revenue Recognition
Revenue is recognized when a customer obtains
control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration
that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to
determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods
are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction
price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations;
and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
The Company only applies the five-step
model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods
or services it transfers to the customer. Once a contract is determined to be within the scope of Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 606 at contract inception, the Company reviews
the contract to determine which performance obligations the Company must deliver and which of these performance obligations are
distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance
obligation when the performance obligation is satisfied or as it is satisfied. The majority of revenues are received from ticket
and beverage sales before and during the live events. Sponsorship revenue is also recognized when the live event takes place. Any
revenue received for events that have yet to take place are recorded in deferred revenue.
Income Taxes
The Company follows Section 740-10-30 of
the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities
are based on the differences between the consolidated financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal 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 consolidated Statements of Operations in the period that includes the enactment date. Through
December 31, 2019, the Company has an expected loss. Due to uncertainty of realization for these losses, a full valuation allowance
is recorded. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements.
As of March 31, 2019, the Company had not
filed tax returns for the tax years ended March 31, 2008 through 2019 and such returns, when filed, potentially will be subject
to audit by the taxing authorities for a minimum of three years beyond the filing date under the three-year statute of limitations.
The Company has not accrued any potential tax penalties associated with not filing these tax returns. Due to recurring losses,
management believes such potential tax penalties, if any, would not be material in amount.
Stock Based Compensation
The Company records stock-based compensation
in accordance with the provisions of FASB ASC Topic 718, “Accounting for Stock Compensation,” which establishes accounting
standards for transactions in which an entity exchanges its equity instruments for goods or services. In accordance with guidance
provided under ASC.
Topic 718, the Company recognizes an expense
for the fair value of its stock awards at the time of grant and the fair value of its outstanding stock options as they vest, whether
held by employees or others. As of December 31, 2019, there were no options outstanding.
On June 20, 2018, the FASB issued ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07
is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example,
service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value
non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant-date
under ASC 718 and forgo revaluing the award after this date. The Company adopted ASU 2018-07 on April 1, 2019. The adoption of
this standard did not have a material impact on the consolidated financial statements.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Recently Adopted Accounting Pronouncements
In February 2016, FASB issued ASC 842 that
requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of
more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or
operating, with the classification determining the pattern of expense recognition in the income statement.
The ASU will be effective for annual and
interim periods beginning after December 15, 2018, with early adoption permitted, and is applicable on a modified retrospective
basis with various optional practical expedients. The Company has assessed the impact of this standard. The Company’s current
leases as of the balance sheet date do not fall under this guidance as they are month-to-month leases.
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements
unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been
issued that might have a material impact on its financial position or results of operations.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment, net,
consisted of the following at December 31, 2019 and March 31, 2019:
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2019
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
Cages
|
|
$
|
124,025
|
|
|
$
|
46,025
|
|
Trucks trailers and vehicles
|
|
|
12,500
|
|
|
|
9,500
|
|
Event assets
|
|
|
70,573
|
|
|
|
8,987
|
|
Production equipment
|
|
|
42,141
|
|
|
|
–
|
|
Electronics hardware and software
|
|
|
11,845
|
|
|
|
6,960
|
|
|
|
|
261,064
|
|
|
|
71,472
|
|
Less: accumulated depreciation
|
|
|
(36,652
|
)
|
|
|
(16,407
|
)
|
|
|
$
|
224,432
|
|
|
$
|
55,065
|
|
Depreciation expense related
to these assets for the nine months ended December 31, 2019 and 2018 amounted to $20,245 and $9,990, respectively.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
NOTE 4 - RELATED PARTY
B2 Management, LLC (“B2
Management”) has as its sole member the Chief Executive Officer and Chairman of B2Digital. During the nine months ended December
31, 2019, B2 Management received $192,245 in advances. On September 27, 2019, the Company and B2 Management Group LLC (“B2MG”)
entered into an agreement whereby B2MG agreed to return 7,500,000 shares of the Company’s common stock in exchange for the
cancellation of $75,000 owed by B2MG to the Company. The Company recorded a loss on debt forgiveness in the amount of $27,000 related
to this transaction. On December 22, 2019, the Company and B2MG entered into an agreement whereby B2MG agreed to return 21,954,800
shares of the Company’s common stock in exchange for the cancellation of $164,660 owed by B2MG to the Company. At the date
of the agreement the shares were valued at $0.005 per share or $109,773. As a result, the Company recorded a loss on settlement
of debt in the amount of $54,668. As of December 31, 2019 and March 31, 2019, the Company has an uncollateralized, non-interest-bearing
note receivable of $0 and $65,416, respectively, from B2 Management that is due upon demand.
NOTE 5 – BUSINESS ACQUISITIONS
United Combat League, UCL MMA LLC
Effective May 1, 2019, the Company completed
its previously announced acquisition of 100% of the equity interest in United Combat League, LLC (“UCL”), in an effort
to execute its strategy of developing and building a Premier Development League for the Mixed Martial Arts (“MMA”)
marketplace. The purchase price was $20,000 in cash and 6,000,000 shares of Restricted Common Stock issuable to Michael Davis,
the seller of the equity interest in the acquisition. The Company is required to pay the cash consideration in three payments as
follows: (i) $10,000 on or before 10 calendar days after the execution date of the agreement, (ii) $5,000 on or before 45 calendar
days after the execution date of the agreement, and (iii) $5,000 on or before 90 calendar days after the execution date of the
agreement.
Consideration
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
20,000
|
|
6,000,000 shares of common stock issued to the sellers valued using an observable market price
|
|
|
38,400
|
|
Total consideration
|
|
$
|
58,400
|
|
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired
|
|
|
|
|
|
|
|
|
|
Goodwill resulting from transaction
|
|
$
|
58,400
|
|
Goodwill is calculated as the excess of
the purchase price paid over the net assets recognized. The goodwill recorded as part of the UCL acquisition primarily reflects
the value of adding UCL to B2Digital in order to expand its footprint in the MMA marketplace and execute its strategy of developing
and building a Premier Development League MMA marketplace. Goodwill is not amortizable nor deductible for tax purposes. The Company
analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination.
The initial accounting for this transaction is not completed and the fair value of the acquired identifiable intangible assets
are provisional pending receipt of the final valuations for those assets.
The Company is required to present a pro
forma balance sheet assuming the transaction was consummated on the date of the latest balance sheet included in the filing and
a pro forma statement of operations assuming the transaction was consummated at the beginning of the fiscal year presented and
carried forward through any interim period presented. However, since the initial accounting has not been finalized for the transaction
the Company believes presenting pro forma information is impracticable and plans to present it once the accounting is finalized.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Pinnacle Combat LLC- Acquisition
On July 15, 2019, to be effective June
29, 2019, the Company completed an acquisition of 100% of the equity interest in Pinnacle Combat LLC of Iowa (“Pinnacle”),
in an effort to execute its strategy of developing and building a Premier Development League for the MMA marketplace. The purchase
price was $20,000 in cash and 8,000,000 shares of Restricted Common Stock, 5,000,000 to be issued to Harry Maglaris and 3,000,000
to be issued to Ken Rigdon, collectively the sellers of the equity interest in the acquisition. The Company is required to pay
the cash consideration in three payments as follows: (i) $10,000 on or before 10 calendar days after the execution date of the
agreement, (ii) $5,000 on or before 45 calendar days after the execution date of the agreement, and (iii) $5,000 on or before 90
calendar days after the execution date of the agreement.
Consideration
|
|
|
|
|
Cash
|
|
$
|
20,000
|
|
8,000,000 shares of common stock issued to the sellers valued using an observable market price
|
|
|
51,200
|
|
Total consideration
|
|
$
|
71,200
|
|
|
|
|
|
|
Fair values of identifiable net assets:
|
|
|
|
|
Cages
|
|
$
|
54,000
|
|
Event asset (barriers)
|
|
|
6,000
|
|
Truck/trailer
|
|
|
3,000
|
|
Venture lighting system
|
|
|
25,000
|
|
Total identifiable net assets
|
|
|
88,000
|
|
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
|
Credit card liability
|
|
|
25,028
|
|
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired
|
|
|
62,972
|
|
|
|
|
|
|
Goodwill resulting from transaction
|
|
$
|
8,228
|
|
Goodwill is calculated as the excess of
the purchase price paid over the net assets recognized. The goodwill recorded as part of the Pinnacle acquisition primarily reflects
the value of adding Pinnacle to B2Digital in order to expand its footprint in the MMA marketplace and execute its strategy of developing
and building a Premier Development League MMA marketplace. Goodwill is not amortizable nor deductible for tax purposes. The Company
analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination.
The initial accounting for this transaction is not completed and the fair value of the acquired identifiable intangible assets
are provisional pending receipt of the final valuations for those assets.
The Company is required to present a pro
forma balance sheet assuming the transaction was consummated on the date of the latest balance sheet included in the filing and
a pro forma statement of operations assuming the transaction was consummated at the beginning of the fiscal year presented and
carried forward through any interim period presented. However, since the initial accounting has not been finalized for the transaction
the Company believes presenting pro forma information is impracticable and plans to present it once the accounting is finalized.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Strike Hard Productions LLC- Acquisition
On September 1, 2019, the Company completed
an acquisition of 100% of the equity interest in Strike Hard Productions LLC, a fighting promotion business, in an effort to execute
its strategy of developing and building a Premier Development League for the MMA marketplace. The purchase price was $20,000 in
cash and 9,000,000 shares of Restricted Common Stock, 3,000,000 Restricted Shares issued to be issued to David Elder, 3,000,000
Restricted Common Shares to be issued to James Sullivan and 3,000,000 Restricted Common Shares to be issued to Matt Leavell, collectively
the sellers of the equity interest in the acquisition. The Company is required to pay the cash consideration in three payments
as follows: (i) $10,000 on or before 10 calendar days after the execution date of the agreement, (ii) $5,000 on or before 45 calendar
days after the execution date of the agreement, and (iii) $5,000 on or before 90 calendar days after the execution date of the
agreement.
Consideration
|
|
|
|
|
Cash
|
|
$
|
20,000
|
|
9,000,000 shares of common stock issued to the sellers valued using an observable market price
|
|
|
57,600
|
|
Total consideration
|
|
$
|
77,600
|
|
|
|
|
|
|
Fair values of identifiable net assets:
|
|
|
|
|
Cages
|
|
$
|
22,000
|
|
Event asset (tables)
|
|
|
1,000
|
|
Total fair value of identifiable net assets
|
|
|
23,000
|
|
|
|
|
|
|
Goodwill resulting from transaction
|
|
$
|
54,600
|
|
Goodwill is calculated as the excess of
the purchase price paid over the net assets recognized. The goodwill recorded as part of the Strike Hard acquisition primarily
reflects the value of adding Strike Hard to B2Digital in order to expand its footprint in the MMA marketplace and execute its strategy
of developing and building a Premier Development League MMA marketplace. Goodwill is not amortizable nor deductible for tax purposes.
The Company analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a
business combination. The initial accounting for this transaction is not completed and the fair value of the acquired identifiable
intangible assets are provisional pending receipt of the final valuations for those assets.
The Company is required to present a pro
forma balance sheet assuming the transaction was consummated on the date of the latest balance sheet included in the filing and
a pro forma statement of operations assuming the transaction was consummated at the beginning of the fiscal year presented and
carried forward through any interim period presented. However, since the initial accounting has not been finalized for the transaction
the Company believes presenting pro forma information is impracticable and plans to present it once the accounting is finalized.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
NOTE 6 - NOTES PAYABLE
The following is a summary of notes payable as of
December 31, 2019 and March 31, 2019:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Notes payable - current maturity:
|
|
|
|
|
|
|
|
|
Emry Capital $14,000, 4% loan with principal and interest due April, 2020
|
|
$
|
14,000
|
|
|
$
|
14,000
|
|
Notes payable – in default:
|
|
|
|
|
|
|
|
|
Good Hunting $15,000, 7.5% loan with principal and interest due March 31, 2019
|
|
|
7,000
|
|
|
|
15,000
|
|
Notes payable – long term:
|
|
|
|
|
|
|
|
|
WLES LP LLC $60,000, 5% loan due January 15, 2022
|
|
|
60,000
|
|
|
|
60,000
|
|
Total
|
|
$
|
81,000
|
|
|
$
|
89,000
|
|
On August 31, 2019, WLES LP LLC agreed
to sign an amendment which extended the maturity date of the note and added conversion option. This amendment gave rise to a modification
because a substantive conversion option was added to the contract. Under ASC 470-50-40-10, when a modification or an exchange of
debt instruments adds a substantive conversion option debt extinguishment accounting is required. As a result, the Company recorded
a loss on modification of debt in the amount of $50,756.
NOTE 7 – CONVERTIBLE NOTE PAYABLE
October 4, 2019 Note – GS Capital
Partners, LLC
On October 4, 2019, the Company entered
into a Securities Purchase Agreement with GS Capital Partners, LLC, an accredited investor (“GS Capital”), pursuant
to which the Company issued to GS Capital a Convertible Promissory Note (“Note 1”) in the aggregate principal amount
of $82,000. The Company received net proceeds of $75,000 after a $7,000 original note discount. Note 1 has a maturity date of October
4, 2020 and the Company has agreed to pay interest on the unpaid principal balance of Note 1 at the rate of eight percent (8%)
per annum from the date on which Note 1 is issued until the same becomes due and payable, whether at maturity or upon acceleration
or by prepayment or otherwise. The Company shall have the right to prepay Note 1, provided it makes a payment to GS Capital as
set forth in Note 1.
The outstanding principal amount of Note
1 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months
of the term of Note 1. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest
trading prices of the Company’s common stock.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Accounting Considerations
The Company has accounted for Note 1 as
a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to
making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC
815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be
evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and
closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion
option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related
to the host debt agreement and required bifurcation. The contracts do not permit the Company to settle in registered shares and
the contracts also contain make-whole provisions both of which preclude equity classification. Current accounting principles that
are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require
bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as
a single, compound embedded derivative.
Based on the previous conclusions, the
Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host
debt contract, as follows:
|
|
Allocation
|
|
Compound embedded derivative
|
|
$
|
17,425
|
|
Convertible notes payable
|
|
|
57,575
|
|
Net proceeds
|
|
$
|
75,000
|
|
The net proceeds of $75,000 were allocated
to the compound embedded derivative. Note 1 will be amortized up to its face value of $75,000 over the life of Note 1 based on
an effective interest rate. Amortization expense for the period amounted to $5,322. As of December 31, 2019, the unamortized discount
remaining was $12,103. The carrying value of Note 1 as of December 31, 2019 amounted to $62,897.
October 31, 2019 Note – GS
Capital Partners, LLC
On October 31, 2019, the Company entered
into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory
Note (“Note 2”) in the aggregate principal amount of $208,000. The Company received net proceeds of $202,000 after
a $6,000 original note discount. Note 2 has a maturity date of December 15, 2020 and the Company has agreed to pay interest on
the unpaid principal balance of Note 2 at the rate of eight percent (8%) per annum from the date on which Note 2 is issued until
the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have
the right to prepay Note 2, provided it makes a payment to GS Capital as set forth in Note 2.
The outstanding principal amount of Note
2 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months
of the term of Note 2. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest
trading prices of the Company’s common stock.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Accounting Considerations
The Company has accounted for Note 2 as
a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to
making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC
815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be
evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and
closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion
option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related
to the host debt agreement and required bifurcation. The contracts do not permit the Company to settle in registered shares and
the contracts also contain make-whole provisions both of which preclude equity classification. Current accounting principles that
are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require
bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as
a single, compound embedded derivative.
Based on the previous conclusions, the
Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host
debt contract, as follows:
|
|
Allocation
|
|
Compound embedded derivative
|
|
$
|
2,703
|
|
Convertible notes payable
|
|
|
199,297
|
|
Net proceeds
|
|
$
|
202,000
|
|
The net proceeds of $202,000 were allocated
to the compound embedded derivative. Note 2 will be amortized up to its face value of $208,000 over the life of Note 2 based on
an effective interest rate. Amortization expense for the period amounted to $1,032. As of December 31, 2019, the unamortized discount
remaining was $1,671. The carrying value of Note 2 as of December 31, 2019 amounted to $200,329.
December 5, 2019 Note – GS
Capital Partners, LLC
On December 5, 2019, the Company entered
into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory
Note (“Note 3”) in the aggregate principal amount of $62,000. The Company received net proceeds of $60,000 after a
$2,000 original note discount. Note 3 has a maturity date of December 5, 2020 and the Company has agreed to pay interest on the
unpaid principal balance of Note 3 at the rate of eight percent (8%) per annum from the date on which Note 3 is issued until the
same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the
right to prepay Note 3, provided it makes a payment to GS Capital as set forth in Note 3.
The outstanding principal amount of Note
3 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months
of the term of Note 3. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest
trading prices of the Company’s common stock.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Accounting Considerations
The Company has accounted for Note 3 as
a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to
making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC
815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be
evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and
closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion
option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related
to the host debt agreement and required bifurcation. The contracts do not permit the Company to settle in registered shares and
the contracts also contain make-whole provisions both of which preclude equity classification. Current accounting principles that
are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require
bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as
a single, compound embedded derivative.
Based on the previous conclusions, the
Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host
debt contract, as follows:
|
|
Allocation
|
|
Compound embedded derivative
|
|
$
|
775
|
|
Convertible notes payable
|
|
|
59,225
|
|
Net proceeds
|
|
$
|
60,000
|
|
The net proceeds of $60,000 were allocated
to the compound embedded derivative. Note 3 will be amortized up to its face value of $62,000 over the life of Note 3 based on
an effective interest rate. Amortization expense for the period amounted to $209. As of December 31, 2019, the unamortized discount
remaining was $566. The carrying value of Note 3 as of December 31, 2019 amounted to $59,434.
December 31, 2019 Note – GS
Capital Partners, LLC
On December 31, 2019, the Company entered
into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory
Note (“Note 4”) in the aggregate principal amount of $62,000. The Company received net proceeds of $60,000 after a
$2,000 original note discount. Note 4 has a maturity date of December 5, 2020 and the Company has agreed to pay interest on the
unpaid principal balance of Note 4 at the rate of eight percent (8%) per annum from the date on which Note 4 is issued until the
same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the
right to prepay Note 4, provided it makes a payment to GS Capital as set forth in Note 4.
The outstanding principal amount of Note
4 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months
of the term of Note 4. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest
trading prices of the Company’s common stock.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Accounting Considerations
The Company has accounted for Note 4 as
a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to
making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC
815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be
evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and
closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion
option and default puts. The contracts do not permit the Company to settle in registered shares and the contracts also contain
make-whole provisions both of which preclude equity classification. The conversion option and default puts bear risks of equity
which were not clearly and closely related to the host debt agreement and required bifurcation. Current accounting principles that
are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require
bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as
a single, compound embedded derivative.
Based on the previous conclusions, the
Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host
debt contract, as follows:
|
|
Allocation
|
|
Compound embedded derivative
|
|
$
|
763
|
|
Convertible notes payable
|
|
|
59,237
|
|
Net proceeds
|
|
$
|
60,000
|
|
The net proceeds of $60,000 were allocated
to the compound embedded derivative. Note 4 will be amortized up to its face value of $62,000 over the life of Note 4 based on
an effective interest rate. Amortization expense for the period amounted to $208. As of December 31, 2019, the unamortized discount
remaining was $555. The carrying value of Note 4 as of December 31, 2019 amounted to $59,445.
NOTE 8 –DERIVATIVE FINANCIAL INSTRUMENTS
The following tables summarize the components
of the Company’s derivative liabilities and linked common shares as of December 31, 2019:
|
|
December 31, 2019
|
|
The financings giving rise to derivative financial instruments
|
|
Indexed
Shares
|
|
|
Fair
Values
|
|
Compound embedded derivatives
|
|
|
41,774,258
|
|
|
$
|
(4,305
|
)
|
Total
|
|
|
41,774,258
|
|
|
$
|
(4,305
|
)
|
The following table summarizes the effects
on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of
financing for the nine months ended December 31, 2019:
The financings giving rise to derivative financial instruments and the income effects:
|
|
|
|
Compound embedded derivatives
|
|
$
|
17,360
|
|
Total gain (loss)
|
|
$
|
17,360
|
|
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
The Company’s Convertible Promissory
Notes issued on October 4, 2019, October 31, 2019, December 5, 2019, and December 31, 2019, respectively, gave rise to derivative
financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt
agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.
Current accounting principles that are
provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and
carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately
for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification
as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound
embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded
derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption
inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions
include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional
inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level
three valuation technique because it requires the development of significant internal assumptions in addition to observable market
indicators.
Significant inputs and results arising
from the Monte Carlo Simulations process are as follows for the embedded derivatives that have been bifurcated from the Convertible
Notes and classified in liabilities:
|
Inception
|
Quoted market price on valuation date
|
$0.0005 - $0.0055
|
Contractual conversion rate
|
$0.01
|
Contractual term to maturity
|
1.00 Years – 1.13 Years
|
Market volatility:
|
|
Equivalent Volatility
|
147.06% - 221.73%
|
Interest rate
|
8.0%
|
The following table reflects the issuances
of compound embedded derivatives and detachable warrants and changes in fair value inputs and assumptions related to the compound
embedded derivatives during the period ended December 31, 2019.
|
|
December 31, 2019
|
|
Balance at April 1, 2019
|
|
$
|
–
|
|
Issuances:
|
|
|
|
|
Compound embedded derivatives
|
|
|
21,665
|
|
Gain on changes in fair value
inputs and assumptions reflected in income
|
|
|
(17,360
|
)
|
Balance at December 31, 2019
|
|
$
|
4,305
|
|
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
NOTE 9 - EQUITY
Preferred Stock
There are 50,000,000 shares authorized
as preferred stock, of which 40,000,000 are designated as Series B and 2,000,000 are designated as Series A. 8,000,000 shares have
yet to be designated. All 2,000,000 shares of Series A preferred are issued and outstanding. Each share of Series A preferred is
convertible into 240 shares of common stock. The Series A Preferred Stock votes with the Common Stock on all matters to be voted
on by the common stock on an as-converted basis. On such matters, each holder of Series A Preferred Stock is entitled to 240 votes
for each share of Series A Preferred Stock held by such shareholder.
Common Stock
2018 Common Stock Issuances
On April 19, 2018, the Company issued 3,478,000
shares of common stock in exchange for the conversion of a Note in the amount of $38,020.
On April 25, 2018, the Company issued 35,000,000
shares of common stock in exchange for services valued at $350 or $0.00001 per share.
On April 25, 2018, the Company sold 30,000,000
shares of common stock for $300 or $0.00001 per share.
On September 10, 2018, the Company issued
9,000,000 shares of common stock in exchange for services valued at $90 or $0.00001 per share.
On December 10, 2018, the Company sold
6,250,000 shares of common stock for $50,000 or $0.008 per share.
2019 Common Stock Issuances
On April 23, 2019, the Company issued 4,000,000
shares of common stock in exchange for services valued at $25,600 or $0.0064 per share.
On May 14, 2019, the Company sold 1,562,500
shares of common stock for $10,000 or $0.0064 per share.
On May 25, 2019, the Company sold 11,718,750
shares of common stock for $75,000 or $0.0064 per share.
On June 1, 2019, the Company issued 67,000,000
shares of common stock in exchange for services valued at $428,800 or $0.0064 per share.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
On June 1, 2019, the Company issued 6,000,000
shares of common stock in exchange for the acquisition of UCL MMA LLC valued at $38,400 or $0.0064 per share.
On July 3, 2019, the Company issued 6,000,000
shares of common stock in exchange for services valued at $38,400 or $0.0064 per share.
On July 8, 2019, the Company entered into
a Subscription Agreement with a holder for the sale of 14,062,500 shares of common stock at $0.0064 per share, or $90,000.
On July 15, 2019, the Company issued 30,500,000
shares of common stock in exchange for services valued at $195,200 or $0.0064 per share.
On July 15, 2019, the Company issued 8,000,000
shares of common stock in exchange for the acquisition of Pinnacle Combat LLC valued at $51,200 or $0.0064 per share.
On August 30, 2019, the Company sold 15,625,000
shares of common stock for $100,000 or $0.0064 per share.
On September 7, 2019, the Company sold
7,812,500 shares of common stock for $50,000 or $0.0064 per share.
On September 19, 2019, the Company sold
11,718,750 shares of common stock for $75,000 or $0.0064 per share.
On September 27, 2019, the Company canceled
7,500,000 shares of the outstanding stock, valued at $48,000 in exchange for the cancellation of $75,000 in Notes Receivable.
On November 27, 2019, the Company issued
9,000,000 shares of common stock valued at $57,600 or $0.0064 per share in exchange for the acquisition of Strike Hard Productions
LLC.
On December 3, 2019, the Company purchased
14,062,500 shares of stock back from GS Capital in exchange for the payment of $101,250 in cash.
On December 22, 2019, B2MG returned 21,954,800
shares of the Company’s common stock, valued at $109,773 in exchange for the cancellation of $164,441 owed by B2MG to the
Company.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
During the normal course of business, the
Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case
in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement
strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and
can be reasonably estimated, it establishes the necessary accruals. As of December 31, 2019, the Company is not aware of any contingent
liabilities that should be reflected in the consolidated financial statements.
The Company entered into employment agreements
with its Chief Executive Officer and Executive Vice President as of November 24, 2017. Under the terms of these agreements the
Company will be liable for severance and other payments under certain conditions. The employment agreement for the Executive Vice
President is for a period of 36 months and renews for a successive two years unless written notice is provided by either party
under the terms of the agreement. The employment agreement for the Chief Executive Officer can be terminated by the Chief Executive
Officer upon three months written notice. Termination of the Chief Executive Officer requires 80% of the votes of all stockholders
of the Company.
B2DIGITAL, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
Each of the acquisition agreements contain
a Management Services Agreement (“MSA”) whereby the Company agrees to pay a management fee based on certain performance
targets. The MSA agreements expire 10 years from the acquisition agreement dates.
NOTE 11 – GOING CONCERN
The accompanying financial statements have
been prepared on a going concern basis. For the nine months ended December 31, 2019 the Company had a net loss of $1,179,481, had
net cash used in operating activities of $347,368, and had negative working capital of $482,515. These matters raise substantial
doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. The
Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet
its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions,
and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements by
continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there
are no assurances that, if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating
results. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 12 - SUBSEQUENT EVENTS
Business Acquisition
On January 6, 2020, the Company
completed an acquisition of 100% of the equity interest in One More Gym LLC (“1MG”), a gym. The purchase price was
$30,000 in cash and 6,000,000 shares of Restricted Common Stock (valued at $31,800 or $0.0053 per share), 6,000,000 shares to be
issued to BHC Management LLC, the seller of the equity interest in the acquisition. The initial accounting for this acquisition
is not completed.
Convertible Promissory Note
On January 27, 2020, the Company entered
into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory
Note in the aggregate principal amount of $184,000. The Company received net proceeds of $178,500 after a $5,500 original note
discount. The note has a maturity date of December 5, 2020 and the Company has agreed to pay interest on the unpaid principal balance
of the note at the rate of eight percent (8%) per annum from the date on which the note is issued until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the
note, provided it makes a payment to GS Capital as set forth in the note.
The outstanding principal amount
of the note is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first
six months of the term of the note. After the six-month anniversary, the conversion price is equal to 63% of the average of the
three lowest trading prices of the Company’s common stock. The initial accounting for this note is not completed.
Share Repurchase Agreement
On January 28, 2020, the Company purchased
11,718,750 shares of stock back from GS Capital in exchange for the payment of $87,891 in cash.