Notes
to Financial Statements
Note 1. Description of Business and Basis of Presentation
Nature of Business
Alliance MMA, Inc. (“Alliance” or the “Company”)
is a sports media company combining premier regional mixed martial arts (“MMA”) promotions with event ticketing
and fighter management services. Alliance was formed in Delaware in February 2015.
Alliance completed the first tranche of its initial public offering
on September 30, 2016, and completed the offering in October 2016. The Company continues to execute its roll-up strategy and has
acquired the businesses of additional regional MMA promotions, an MMA ticketing platform, and a fighter management company to form
the operations of Alliance. As of December 31, 2017, the Company operates the following businesses:
Promotions
|
·
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CFFC Promotions (“CFFC”);
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|
·
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Hoosier Fight Club (“HFC”);
|
|
·
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COmbat GAmes MMA (“COGA”);
|
|
·
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Shogun Fights (“Shogun”);
|
|
·
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V3 Fights (“V3”);
|
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·
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Iron Tiger Fight Series (“IT Fight Series” or “ITFS”);
|
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·
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Fight Time Promotions (“Fight Time”);
|
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·
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National Fighting Championships (“NFC”);
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·
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Fight Club Orange County (“FCOC” or “Fight Club OC”); and
|
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·
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Victory Fighting Championship (“Victory”).
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Ticketing
Sports Management
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·
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Roundtable Creative, Inc. d/b/a SuckerPunch Entertainment (“SuckerPunch”).
|
As an adjunct to the promotion business, Alliance provides video,
distribution and archiving through its acquisition of Go Fight Net, Inc., doing business as Alliance Sports Media (“GFL”
or “ASM”). Alliance also has acquired 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,
the MMA video library of Hoss Promotions, LLC related to certain CFFC events and the MMA video library of Sheffield Recordings
Limited related to certain Shogun events.
Alliance
MMA, Inc.
Notes to Financial
Statements
For accounting and reporting
purposes, Alliance has been identified as the accounting acquirer of CFFC, HFC, COGA, Shogun, V3, Cagetix and GFL and each
has been identified as an accounting co-predecessor to the Company.
Liquidity and Going Concern
The Company’s primary
need for liquidity is to fund the working capital needs of the business, planned capital expenditures, potential acquisitions, and general corporate purposes. The Company has incurred losses and experienced negative
operating cash flows since the inception of operations in October 2016.
Since completing the IPO in October 2016, the Company has focused
primarily on building out a domestic MMA platform, expanding the existing media library of live MMA events, and developing a professional
corporate infrastructure to support long-term goals.
In August 2017, the Company completed a capital raise of $1.5
million through the placement of 1.5 million units, which consist of one share of common stock and a warrant to purchase one share
of common stock. In October and November 2017, we completed a capital raise of approximately $500,000 through the placement of
390,000 units, which consist of one share of common stock and a warrant to purchase common stock. In January 2018, we completed
a capital raise of $2,150,000 gross through the placement of 2,150,000 units, which consist of one common share and .90 of a warrant
to purchase common stock, totaling 1,935,000 warrants.
Management continually holds discussions with prospective sponsors
and expects sponsorship revenue to increase during 2018.
Additionally, management is in discussions with national and
regional casinos to promote MMA events that are anticipated to produce better margins through a reduction in event costs.
Many challenges are associated with successfully executing our
business plan. The Company has an accumulated deficit of approximately $16.5 million and historical operating results indicating
there is substantial doubt with respect to our ability to continue as a going concern of at least one year from the date of this
report. Unless the Company can generate sufficient revenue to cover operating costs, it will need to continue to raise capital
by selling shares of common stock or by borrowing funds. Management cannot provide any assurances that the Company will generate
sufficient revenue to continue as a going concern or, if it chooses to raise capital, that it will be successful in doing so on
commercially reasonable terms or at all.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America (“GAAP”). The consolidated financial statements include the accounts of Alliance MMA, Inc. and its
wholly-owned subsidiary, Go Fight Net, Inc. and SuckerPunch Holdings, Inc. Acquisitions are included in the consolidated
financial statements from the date of the acquisition. All significant intercompany balances and transactions have been
eliminated in consolidation.
Alliance
MMA, Inc.
Notes to Financial
Statements
Use of Estimates
The preparation of consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed
in the consolidated financial statements and accompanying notes. These estimates relate to revenue recognition, the assessment
of recoverability of goodwill and intangible assets, range of possible outcomes of acquisition earn-out accruals, the assessment
of useful lives and the recoverability of property and equipment, the valuation and recognition of stock-based compensation
expense, loss contingencies, and income taxes. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents.
Cash and cash equivalents are maintained with various financial institutions.
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured
by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Amounts in excess of the FDIC insured limit was
$0.1 million and $4.2 million for the year ended December 31, 2017 and 2016, respectively.
Fair Value of Financial Instruments
Management applies fair value accounting for all financial assets
and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial
statements on a recurring basis. Management defines fair value as the price that would be received from selling an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities, which are required to be recorded at fair value, management considers the principal
or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants
would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three
levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the
fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs
other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets
or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect management's
estimate of assumptions that market participants would use in pricing the asset or liability.
Loss Contingencies
We record a liability when we believe that it is both probable that a loss has been incurred
and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can
be estimated, we disclose the possible loss in the notes to the consolidated financial statements. We review the developments in
our contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related
possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact
of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine
both the probability and the estimated amount.
Legal costs associated with loss
contingencies are accrued based upon legal expenses due at the end of the reporting period.
Allowance for Doubtful Accounts
The Company continually monitors customer payments and maintains
a reserve for estimated losses resulting from its customers’ inability to make required payments. In determining the reserve,
the Company evaluates the collectability of its accounts receivable based upon a variety of factors. In cases where the Company
becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, the Company
records a specific allowance against amounts due. For all other customers, the Company recognizes allowances for doubtful accounts
based on its historical write-off experience in conjunction with the length of time the receivables are past due, customer creditworthiness,
geographic risk and the current business environment. Actual future losses from uncollectible accounts may differ from the Company’s
estimates.
At December 31, 2017 and 2016, the allowance was zero.
Property and Equipment
Property and equipment are recorded at
cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the related assets’ estimated
useful lives:
Promotion equipment
|
2 to 3 years
|
Production equipment
|
2 to 3 years
|
Equipment, furniture and other
|
2 to 3 years
|
Leasehold improvements
|
lesser of related lease term or 5
years
|
Expenditures that materially increase asset life are capitalized,
while ordinary maintenance and repairs are expensed as incurred. The Company capitalizes the costs of purchased software licenses
and consulting costs to implement the software for internal use. These costs are included in the caption “equipment, furniture
and other” in the consolidated balance sheets. Depreciation expense is included in the caption “general and administrative
expense” in the consolidated statements of operations.
Revenue Recognition
Promotion Revenue
The Company records revenue
from ticket sales and sponsorships 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 event and entertainment services to be provided in the future,
typically less than 12 months. The Company receives these funds and recognizes them as a liability until
the services are provided and revenue can be recognized.
The Company produces live MMA content from our events which
is offered on a pay per view (“PPV”) basis. The Company records revenue on PPV transactions upon receipt of payment
from credit processing partners. The Company charges viewers a fee per PPV purchase transaction for entitling a viewer to watch
the desired video. The Company generates revenues from video production services, and recognizes this revenue upon completion
of the video production project.
Ticket Service Revenue
The Company acts as an agent
for ticket sales for promoters and records revenue upon receipt of cash from the credit card companies and accrues for
approved credit card transactions which have not been deposited into our bank account. The Company charges a fee per
transaction for collecting the cash on ticket sales and remits the remaining net amount to the promoter upon completion of
the event or request 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
and for approved transactions pending deposit 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.
Fighter Commission Revenue
The Company records fighter
commission revenue upon the completion of the contracted athlete’s related event including sponsor support, at which time the
fighter’s services have been deemed rendered, the contractual amount due to the fighter is known and the commission due
to the Company related to these activities is fixed and determinable and collectability is reasonably assured.
Alliance
MMA, Inc.
Notes to Financial
Statements
Business Combinations
The Company includes the results of operations of the businesses
that it has acquired in its consolidated results as of the respective dates of acquisition.
The
Company allocates the fair value of the purchase consideration of its acquisitions to the tangible assets, liabilities and
intangible assets acquired, based on their estimated fair values. The excess of the fair value of purchase consideration over
the fair values of these identifiable assets and liabilities is recorded as goodwill. The primary items that generate
goodwill include the value of the synergies between the acquired businesses and Alliance as well as the acquired assembled
workforce, neither of which qualifies as an identifiable intangible asset. The fair value of contingent consideration
associated with acquisitions is remeasured each reporting period and adjusted accordingly. Acquisition and integration
related costs are recognized separately from the business combination and are expensed as incurred.
We allocate
goodwill to the reporting units of the business that are expected to benefit from the business combination.
For additional information regarding the Company's acquisitions,
refer to "Note 4–Business Combinations."
Goodwill and Purchased
Identified Intangible Assets
Goodwill
Goodwill is recorded as the difference, if any, between the
aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets acquired
under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible
asset. The Company reviews impairment of goodwill annually in the fourth quarter, or more frequently if events or circumstances
indicate that the goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is necessary
to perform the quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, the Company
determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the
quantitative goodwill impairment test is unnecessary. If, based on the qualitative assessment, it is determined that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform
the quantitative goodwill impairment test. The Company first determines the fair value of a reporting unit using weighted results
derived from an income approach and a market approach. The income approach is estimated through the discounted cash flow method
based on assumptions about future conditions such as future revenue growth rates, new product and technology introductions, gross
margins, operating expenses, discount rates, future economic and market conditions, and other assumptions. The market approach
estimates the fair value of the Company’s equity by utilizing the market comparable method which is based on revenue multiples
from comparable companies in similar lines of business. The Company then compares the derived fair value of a reporting unit with
its carrying amount. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in
an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
During the year ended December 31, 2017, the Company recorded
a goodwill impairment charge within the promotion segment of $2.4 million.
Purchased Identified Intangible Assets
Identified finite-lived intangible assets consist
of acquired video library intellectual property, venue contracts/relationships, ticketing software, tradename,
fighter contracts, promoter relationships and sponsor relationships resulting from business combinations. The
Company’s identified intangible assets are amortized on a straight-line basis over their estimated useful lives,
ranging from three to ten years. The Company makes judgments about the recoverability of finite-lived intangible assets
whenever facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying
amount of assets may not be recoverable. If such facts and circumstances exist, the Company assesses recoverability by
comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining
lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the
fair value of those assets. If the useful life is shorter than originally estimated, the Company would accelerate the rate of
amortization and amortize the remaining carrying value over the new shorter useful life. The Company evaluates the carrying
value of indefinite-lived intangible assets on an annual basis, and an impairment charge would be recognized to the extent
that the carrying amount of such assets exceeds their estimated fair value. For further discussion of goodwill and
identified intangible assets, see “Note 5–Goodwill and Purchased Identified Intangible Assets.”
During the year ended December 31, 2017, the Company recorded
an impairment charge of $893,000 related to the impairment of certain video library, venue contracts, and trade name intangible
assets.
Long-Lived Assets
Long-lived assets that are held and used
by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted
future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived
assets that management expects to hold and use is based on the difference between the fair value of the asset and its carrying
value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value.
Advertising Costs
Advertising costs, which are expensed as
incurred, totaled approximately $161,317 and $20,720 for the years ended
December 31, 2017 and 2016.
Stock-Based Compensation
The Company accounts for stock-based compensation
expense in accordance with the authoritative guidance on share-based payments. Under the provisions of the guidance,
stock-based compensation expense is measured at the grant date based on the fair value of the option or warrant using a
Black-Scholes option pricing model and is recognized as expense on a straight-line basis over the requisite service period,
which is generally the vesting period. The fair value of the Company’s stock awards for non-employees is estimated
based on the fair market value on each vesting date, accounted for under the variable-accounting method.
The authoritative guidance on share-based payments also
requires that the Company measure and recognize stock-based compensation expense upon modification of the term of the stock
award. The stock-based compensation expense for such modification is the sum of any unamortized expense of the award before
modification and the modification expense. The modification expense is the incremental amount of the fair value of the award
before the modification and the fair value of the award after the modification, measured on the date of modification. In the
case when the modification results in a longer requisite period than in the original award, the Company has elected to apply
the pool method where the aggregate of the unamortized expense and the modification expense is amortized over the new
requisite period on a straight-line basis. In addition, any forfeiture will be based on the original requisite period prior
to the modification.
Calculating stock-based compensation expense requires the input
of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting
option forfeiture rate. The Company estimates the expected life of options granted based on the life of the underlying award. The
Company estimates the volatility of the Company’s common stock on the date of grant based on historical volatility. The assumptions
used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve
inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different
assumptions, its stock-based compensation expense could be materially different in the future. In addition, the Company is required
to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the
forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled. If the actual
forfeiture rate is materially different from the estimate, stock-based compensation expense could be significantly different from
what was recorded in the current period. The expected levels of achievement are reassessed over the requisite service periods and,
to the extent that the expected levels of achievement change, stock-based compensation is adjusted in the period of change and
recorded on the statements of operations and the remaining unrecognized stock-based compensation is recorded over the remaining
requisite service period. See “Note 8–Stockholders’ Equity” for additional detail.
Segments
Beginning in the fourth quarter of 2017, the Company began reporting
its financial results within three reportable segments: (1) Promotions, (2) Ticket Services and (3) Athlete Management. There are
certain corporate overhead costs that are not allocated to these reportable segments because these operating amounts are not considered
in evaluating the operating performance of the Company’s business segments. The Chief Executive Officer is the Chief Operating
Decision Maker (“CODM”) as defined by the authoritative guidance on segment reporting. The Promotion segment includes
all the acquired promotion businesses, video library assets and the video production activities of ASM. The Promotion segment promotes
our live MMA events and produces live, PPV, and video on demand content. The Ticket Services segment includes the ticketing services
business of CageTix. The Ticketing Services segment provides event ticket services to third parties and AMMA promotions. The Athlete
Management Segment includes the acquired athlete management business of SuckerPunch, which provides athlete management services
to professional MMA fighters.
The following table sets forth the Company’s segment revenue,
operating expenses and operating (loss) for the year ended December 31, 2017.
Year Ended December 31, 2017
|
|
Promotion
|
|
|
Ticket
Service
|
|
|
Athlete
Management
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
3,026,148
|
|
|
$
|
221,183
|
|
|
$
|
934,043
|
|
|
$
|
36,330
|
|
|
$
|
4,217,704
|
|
Operating expenses
|
|
|
8,854,001
|
|
|
|
333,584
|
|
|
|
1,041,002
|
|
|
|
5,262,716
|
|
|
|
15,491,303
|
|
Operating loss
|
|
$
|
(5,827,853
|
)
|
|
$
|
(112,401
|
)
|
|
$
|
(106,959
|
)
|
|
$
|
(5,226,386
|
)
|
|
$
|
(11,273,599
|
)
|
The Company allocated goodwill to the segments as follows: $6,876,230
Promotion, $1,522,605 Athlete Management. During the year ended December 31, 2017, the Company recorded a goodwill impairment change
within the Promotion segment of $2,435,298. As a result, goodwill allocated to the Promotion, net of impairment, totaled $4,440,932.
Revenue is derived from customers within the United States and
it is expected to continue to be a significant portion of revenue in future periods. Operating segments do not record inter-segment
revenue.
As of December 31, 2017, all assets were held in the United
States. The CODM does not evaluate operating segments using discrete asset information and we do not identify or allocate assets
by operating segments.
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. The Company has no material uncertain tax positions for any of the reporting periods
presented.
Alliance
MMA, Inc.
Notes to Financial
Statements
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends
the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts
with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB
also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued
Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations.
The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is
transferred to the customers. The new standard further requires new disclosures about contracts with customers, including the significant
judgments the company has made when applying the guidance. We will adopt the new standard effective January 1, 2018, using the
modified retrospective transition method. We finalized our analysis and the adoption of this guidance will not have a material
impact on our consolidated financial statements and our internal controls over financial reporting.
In February 2016, the FASB issued Accounting Standards
Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally requires companies to recognize operating and financing lease
liabilities and corresponding right-of-use assets on the balance sheet. This guidance will be effective for us in the first quarter
of 2019 on a modified retrospective basis and early adoption is permitted. We will adopt the new standard effective January 1,
2019. While we continue to evaluate the effect of adopting this guidance on our consolidated financial statements and related disclosures,
we expect our operating leases, as disclosed in “Note 7 — Commitments and Contingencies”, will be subject to the new standard.
We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which will
increase our total assets and liabilities.
In November 2016, the FASB issued Accounting Standards
Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts
generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. We will adopt the new standard effective January 1, 2018,
using the retrospective transition approach for all periods presented. We do not expect the adoption of this guidance to have a
material impact on our consolidated financial statements.
In January 2017, the FASB issued Accounting Standards
Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the
definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business.
We will adopt the new standard effective January 1, 2018, on a prospective basis and do not expect the standard to have a material
impact on our consolidated financial statements.
In January 2017, the FASB issued Accounting Standards
Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04), which
eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the
amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting
unit. This guidance will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption is permitted.
We do not expect the standard to have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation
- Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09) which provides guidance about which
changes to the terms or conditions of a share-based payment awarded require an entity to apply modification accounting. The
standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption
permitted. The Company intends to adopt the standard prospectively after the effective date and does not expect adoption of
this standard will have a material impact on its consolidated financial statements.
In July 2017, the FASB issued ASU No. 2017-11,
Earnings per Share (Topic 260); Distinguishing form Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting
for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatory Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception.
Topic 815, Part I of this update addresses the complexity of accounting for certain financial instruments with down round features.
The amendments in Part I of this Update change the classification of certain equity-linked financial instruments (or embedded features)
with down round features. When determining whether certain financial instruments should be classified as equity instruments, a
down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s
own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result
of the existence of a down round feature. For freestanding equity-linked classified financial instruments, the amendments require
entities that present earnings per share in accordance with Topic 260 to recognize the effect of the down round feature when it
is triggered. That effect is treated as a dividend and a reduction of income available to common shareholders in basic earnings
per share.
The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480 that are now presented as pending content in the Codification, to a
scope exception. These amendments do not have an accounting effect.
The Company adopted the provisions of the update
in its December 31, 2017 consolidated financial statements and elected the retrospective transition method.
In March 2018, the FASB updated the Income Taxes Topic of the
Accounting Standards Codification. The amendments were effective upon issuance. The Company does not expect these amendments to
have a material effect on its financial statements.
Alliance
MMA, Inc.
Notes to Financial
Statements
Note 3. Property and Equipment
Property and equipment, net consisted of the following:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Promotion equipment
|
|
$
|
83,185
|
|
|
$
|
31,393
|
|
Production equipment
|
|
|
115,209
|
|
|
|
61,209
|
|
Equipment, furniture and other
|
|
|
223,602
|
|
|
|
42,660
|
|
Total property and equipment
|
|
|
421,996
|
|
|
|
135,262
|
|
Less accumulated depreciation and amortization
|
|
|
(162,533
|
)
|
|
|
(12,950
|
)
|
Total property and equipment, net
|
|
$
|
259,463
|
|
|
$
|
122,312
|
|
Depreciation and amortization expense
for the years ended December 31, 2017 and December 31, 2016 amounted
to $149,583, and $12,950, respectively.
Note 4. Business Combinations
During the years ended December 31, 2017
and 2016, we completed several business acquisitions. We have included the financial results of these business acquisitions
in our consolidated financial statements from their respective dates of acquisition and pro forma financial information of
the Company as if the acquisition occurred January 1, 2016, respectively. Goodwill generated from all
business acquisitions completed during the years ended December 31, 2017 and 2016 were primarily attributable to expected
synergies from future growth and potential monetization opportunities.
All acquisitions have been accounted for
as business acquisitions, under the acquisition method of accounting.
In connection with respective
asset purchase agreements, the Company entered into trademark license agreements, other than CageTix whose trademark was purchased,
to license the trademark used by the underlying MMA business.
The Company completed the following acquisitions during the
year December 31, 2017:
SuckerPunch
On January 4, 2017, Alliance MMA
acquired the stock of Roundtable Creative, Inc., a Virginia corporation d/b/a SuckerPunch Entertainment, a leading fighter
management and marketing company, for an aggregate purchase price of $1,686,347, of which $357,500 was paid in cash and
$1,146,927 was paid with the issuance of 307,487 shares of Alliance MMA common stock valued at $3.73 per share, the fair
value of Alliance MMA common stock on January 4, 2017 and $181,920 was paid with the issuance of a warrant to acquire 93,583
shares of the Company’s common stock.
Fight Time
On January 18, 2017, Alliance MMA
acquired the mixed martial arts promotion business of Fight Time Promotions, LLC (“Fight Time”) for an
aggregate consideration of $371,468, of which $84,000 was paid in cash and $287,468 was paid with the issuance of 74,667
shares of the Alliance MMA’s common stock valued at $3.85 per share, the fair value of Alliance MMA common stock on
January 18, 2017.
National Fighting
Championships
On May 12, 2017, Alliance MMA
acquired the mixed martial arts promotion business of Undisputed Productions, LLC, doing business as National Fighting
Championships or NFC for an aggregate consideration of $506,227, of which $140,000 was paid in cash and $366,227 was paid
with the issuance of 273,304 shares of Alliance MMA common stock valued at $1.34 per share, the fair value of Alliance MMA
common stock on May 12, 2017.
Fight Club
Orange County
On June 14, 2017, Alliance MMA acquired
the mixed martial arts promotion business of The Englebrecht Company, Inc., doing business as Roy Englebrecht Promotions and Fight
Club Orange County for an aggregate consideration of $1,018,710 of which $207,900 was paid in cash and $810,810 was paid with
the issuance of 693,000 shares of the Company’s common stock valued at $1.17 per share, the fair value of Alliance MMA common
stock on June 14, 2017.
Victory
Fighting Championship
On September 28, 2017, Alliance MMA acquired
the mixed martial arts promotion business of Victory Fighting Championship, LLC, doing business as Victory Fighting Championship
for an aggregate consideration of $822,938 of which $180,000 was paid in cash and $642,938 was paid with the issuance of 267,891
shares of the Company’s common stock valued at $2.40 per share, the fair value of Alliance MMA common stock on September
28, 2017.
Alliance MMA, Inc.
Notes to Financial
Statements
Final
Purchase Allocation – SuckerPunch
As consideration for the acquisition of
SuckerPunch, the Company delivered the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Warrant
Grant
|
|
|
Consideration
Paid
|
|
SuckerPunch
|
|
$
|
357,500
|
|
|
|
307,487
|
|
|
|
93,583
|
|
|
$
|
1,686,347
|
|
In connection with the acquisition, 108,289 shares of the 307,487
shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial performance
of SuckerPunch post-closing. Accordingly, in the event the gross profit is less than $265,000 during fiscal year 2017, all 108,289
shares held in escrow will be forfeited.
The following table reflects the final allocation
of the purchase price for SuckerPunch to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair
Value
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
1,525,584
|
|
|
|
(1,315,584
|
)
|
|
|
210,000
|
|
Goodwill
|
|
|
160,763
|
|
|
|
1,361,842
|
|
|
|
1,522,605
|
|
Total identifiable assets
|
|
$
|
1,686,347
|
|
|
$
|
46,258
|
|
|
$
|
1,732,605
|
|
Total identifiable liabilities
|
|
|
—
|
|
|
|
(46,258
|
)
|
|
|
(46,258
|
)
|
Total purchase price
|
|
$
|
1,686,347
|
|
|
$
|
—
|
|
|
$
|
1,686,347
|
|
Revenue from the acquisition of SuckerPunch totaled
$934,000 in 2017.
Final Purchase
Allocation – Fight Time Promotions
As consideration for the acquisition of the
MMA promotion business of Fight Time, the Company delivered the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
Fight
Time
|
|
$
|
84,000
|
|
|
|
74,667
|
|
|
$
|
371,468
|
|
In connection with the business acquisition, 28,000 shares
of the 74,667 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial
performance of Fight Time post-closing. Accordingly, in the event the gross profit of Fight Time is less than $60,000 during fiscal
year 2017, all 28,000 shares held in escrow will be forfeited.
The following table reflects the final
allocation of the purchase price for the business of Fight Time to identifiable assets,
intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accounts receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
48,867
|
|
|
|
91,133
|
|
|
|
140,000
|
|
Goodwill
|
|
|
322,601
|
|
|
|
(91,133
|
)
|
|
|
231,468
|
|
Total identifiable assets
|
|
$
|
371,468
|
|
|
$
|
—
|
|
|
$
|
371,468
|
|
Total identifiable liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total purchase price
|
|
$
|
371,468
|
|
|
$
|
—
|
|
|
$
|
371,468
|
|
Revenue from the acquisition of Fight
Time totaled $121,000 in 2017.
Alliance MMA, Inc.
Notes to Financial
Statements
Final
Purchase Allocation – National Fighting Championships
As consideration for the acquisition of
the MMA promotion business of NFC, the Company delivered the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
NFC
|
|
$
|
140,000
|
|
|
|
273,304
|
|
|
$
|
506,227
|
|
In connection with the business acquisition, 81,991 shares of
the 273,304 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial
performance of NFC post-closing. Accordingly, in the event the gross profit of NFC is less than $100,000 during the 12-month period
following the acquisition, all 81,991 shares held in escrow will be forfeited.
The following table reflects the final
allocation of the purchase price for the business of NFC to identifiable assets, intangible assets,
goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accounts receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fixed assets
|
|
|
20,000
|
|
|
|
—
|
|
|
|
20,000
|
|
Intangible assets
|
|
|
120,000
|
|
|
|
60,000
|
|
|
|
180,000
|
|
Goodwill
|
|
|
366,227
|
|
|
|
(60,000
|
)
|
|
|
306,227
|
|
Total identifiable assets
|
|
$
|
506,227
|
|
|
$
|
—
|
|
|
$
|
506,227
|
|
Total identifiable liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total purchase price
|
|
$
|
506,227
|
|
|
$
|
—
|
|
|
$
|
506,227
|
|
Revenue from the acquisition of NFC totaled
$205,000 in 2017.
Final
Purchase Allocation – Fight Club OC
As consideration for the acquisition
of the MMA promotion business of Fight Club OC, the Company delivered the following amounts of cash and shares of common
stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
Fight Club OC
|
|
$
|
207,900
|
|
|
|
693,000
|
|
|
$
|
1,018,710
|
|
In connection with the business acquisition, 258,818 shares
of the 693,000 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial
performance of Fight Club OC post-closing. Accordingly, in the event the gross profit of Fight Club OC is less than $148,500 during
the 12-month period following the acquisition, all 258,818 shares held in escrow will be forfeited. Among the assets purchased
is a cash balance of $159,000 related to customer deposits on ticket sales for future 2017 MMA promotion events.
The following table reflects the final
allocation of the purchase price for the business of the Fight Club OC to identifiable assets, intangible assets,
goodwill and identifiable liabilities, and preliminary pro forma intangible assets and goodwill:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
159,000
|
|
|
$
|
—
|
|
|
$
|
159,000
|
|
Accounts receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
500,000
|
|
|
|
(230,000
|
)
|
|
|
270,000
|
|
Goodwill
|
|
|
518,710
|
|
|
|
230,000
|
|
|
|
748,710
|
|
Total identifiable assets
|
|
$
|
1,177,710
|
|
|
$
|
—
|
|
|
$
|
1,177,710
|
|
Total identifiable liabilities
|
|
|
(159,000
|
)
|
|
|
—
|
|
|
|
(159,000
|
)
|
Total purchase price
|
|
$
|
1,018,710
|
|
|
$
|
—
|
|
|
$
|
1,018,710
|
|
Revenue from the acquisition of Fight Club OC totaled
$399,000 in 2017.
Final
Purchase Allocation – Victory Fighting Championship
As consideration for the
acquisition of the MMA promotion business of Victory, the Company delivered the following amounts of cash and
shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
Victory
Fighting Championship
|
|
$
|
180,000
|
|
|
|
267,891
|
|
|
$
|
822,938
|
|
In connection with the business acquisition, 121,699 shares
of the 267,891 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial
performance of Victory post-closing. Accordingly, in the event the gross profit of Victory is less than $140,000 during the 12-month
period following the acquisition, all 121,699 shares held in escrow will be forfeited. Additionally, 146,192 shares were placed
into a separate escrow to indemnify the Company for potential additional expenses incurred by Victory prior to the acquisition
and to cover any uncollectible accounts receivable.
The following table reflects the final
allocation of the purchase price for the business of Victory to identifiable assets, intangible assets,
goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accounts receivable
|
|
|
32,180
|
|
|
|
—
|
|
|
|
32,180
|
|
Fixed assets
|
|
|
30,000
|
|
|
|
—
|
|
|
|
30,000
|
|
Intangible assets
|
|
|
600,000
|
|
|
|
(310,000
|
)
|
|
|
290,000
|
|
Goodwill
|
|
|
268,167
|
|
|
|
310,000
|
|
|
|
578,167
|
|
Total identifiable assets
|
|
$
|
930,347
|
|
|
$
|
—
|
|
|
$
|
930,347
|
|
Total identifiable liabilities
|
|
|
(107,409
|
)
|
|
|
—
|
|
|
|
(107,409
|
)
|
Total purchase price
|
|
$
|
822,938
|
|
|
$
|
—
|
|
|
$
|
822,938
|
|
Revenue from the acquisition of Victory totaled $139,000 in
2017.
The Company completed the following acquisitions during the
year December 31, 2016:
CFFC
On September 30, 2016 Alliance MMA
acquired the mixed martial arts promotion business of CFFC Promotions, LLC d/b/a Cage Fury Fighting Championship for an aggregate consideration of $2,350,000, of which $235,000 was paid in cash and $2,115,000 was
paid with the issuance of 470,000 shares of Alliance MMA stock valued at $4.50 per share, the fair value of Alliance MMA
stock on September 30, 2016.
Hoosier Fight Club
On September 30, 2016 Alliance MMA
acquired the mixed martial arts promotion business of Hoosier Fight Club Promotions, LLC d/b/a Hoosier Fight
Club for an aggregate consideration of $600,000, of which $120,000 was paid in cash and $480,000 was paid
with the issuance of 106,667 shares of Alliance MMA stock valued at $4.50 per share, the fair value of Alliance MMA stock on
September 30, 2016.
Combat Games MMA
On September 30, 2016 Alliance MMA acquired
the mixed martial arts promotion business of Punch Drunk, Inc., also known as - Combat Games MMA for an
aggregate consideration of $420,000, of which $80,000 was paid in cash and $340,000 was paid with the issuance of 75,556
shares of Alliance MMA stock valued at $4.50 per share, the fair value of Alliance MMA stock on September 30, 2016.
Shogun Fights
On September 30, 2016 Alliance MMA acquired
the mixed martial arts promotion business of Bang Time Entertainment, LLC d/b/a Shogun Fights for an
aggregate consideration of $750,000, of which $250,000 was paid in cash and $500,000 was paid with the issuance of 111,111
shares of Alliance MMA stock valued at $4.50 per share, the fair value of Alliance MMA stock on September 30, 2016.
Alliance
MMA, Inc.
Notes to Financial
Statements
V3
On September 30, 2016 Alliance MMA acquired
the mixed martial arts business of V3, LLC for an aggregate consideration of $600,000, of which $100,000 was paid in cash and
$500,000 was paid with the issuance of 111,111 shares of Alliance MMA stock valued at $4.50 per share, the fair value
of Alliance MMA stock on September 30, 2016.
CageTix
On September 30, 2016 Alliance MMA acquired
the ticketing business of CageTix LLC for an aggregate consideration of $325,000 of which $150,000
was paid in cash and $175,000 was paid with the issuance of 38,889 shares of Alliance MMA stock valued at $4.50 per share,
the fair value of Alliance MMA stock on September 30, 2016.
GFL
On September 30, 2016 Alliance MMA acquired
the production and video distribution business of Go Fight Net, Inc. for an aggregate consideration of $2,338,889, of which $450,000 was paid in cash and $1,888,889 was paid
with the issuance of 419,753 shares of Alliance MMA stock valued at $4.50 per share, the fair value of Alliance MMA stock
on September 30, 2016.
Iron Tiger Fight Series
On December 9, 2016 Alliance MMA acquired the mixed martial arts business of
Ohio Fitness and Martial Arts, LLC d/b/a Iron Tiger Fight Series for an aggregate consideration of $656,665, of which $150,000 was paid in cash and $506,665
was paid with the issuance of 133,333 shares of Alliance MMA stock valued at $4.50 per share, the fair value of Alliance MMA
stock on December 9, 2016.
Alliance
MMA, Inc.
Notes to Financial
Statements
Final Purchase Allocation – CFFC
As consideration for the acquisition of CFFC, the Company delivered
the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
CFFC
|
|
$
|
235,000
|
|
|
|
470,000
|
|
|
$
|
2,350,000
|
|
The following table reflects the final allocation of the purchase
price for CFFC to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
551
|
|
|
$
|
—
|
|
|
$
|
551
|
|
Accounts receivable, net
|
|
|
3,000
|
|
|
|
—
|
|
|
|
3,000
|
|
Fixed assets
|
|
|
4,448
|
|
|
|
—
|
|
|
|
4,448
|
|
Intangible assets
|
|
|
1,437,000
|
|
|
|
(607,000
|
)
|
|
|
830,000
|
|
Goodwill
|
|
|
937,101
|
|
|
|
607,000
|
|
|
|
1,544,101
|
|
Total identifiable assets
|
|
$
|
2,382,100
|
|
|
$
|
—
|
|
|
$
|
2,382,100
|
|
Total identifiable liabilities
|
|
|
(32,100
|
)
|
|
|
—
|
|
|
|
(32,100
|
)
|
Total purchase price
|
|
$
|
2,350,000
|
|
|
$
|
—
|
|
|
$
|
2,350,000
|
|
Final Purchase Allocation – Hoosier Fight Club
As consideration for the acquisition of HFC, the Company delivered
the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
HFC
|
|
$
|
120,000
|
|
|
|
106,667
|
|
|
$
|
600,000
|
|
The following table reflects the final allocation of the purchase
price for HFC to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
11,194
|
|
|
$
|
—
|
|
|
$
|
11,194
|
|
Accounts receivable, net
|
|
|
1,096
|
|
|
|
—
|
|
|
|
1,096
|
|
Fixed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
617,880
|
|
|
|
(97,880
|
)
|
|
|
520,000
|
|
Goodwill
|
|
|
—
|
|
|
|
97,880
|
|
|
|
97,880
|
|
Total identifiable assets
|
|
$
|
630,170
|
|
|
$
|
—
|
|
|
$
|
630,170
|
|
Total identifiable liabilities
|
|
|
(30,170
|
)
|
|
|
—
|
|
|
|
(30,170
|
)
|
Total purchase price
|
|
$
|
600,000
|
|
|
$
|
—
|
|
|
$
|
600,000
|
|
Alliance
MMA, Inc.
Notes to Financial
Statements
Final Purchase Allocation – Combat Games MMA
As consideration for the acquisition of COGA, the Company delivered
the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
COGA
|
|
$
|
80,000
|
|
|
|
75,556
|
|
|
$
|
420,000
|
|
The following table reflects the final allocation of the purchase
price for COGA to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
2,838
|
|
|
$
|
—
|
|
|
$
|
2,838
|
|
Accounts receivable, net
|
|
|
9,000
|
|
|
|
—
|
|
|
|
9,000
|
|
Fixed assets
|
|
|
6,039
|
|
|
|
—
|
|
|
|
6,039
|
|
Intangible assets
|
|
|
431,459
|
|
|
|
(91,459
|
)
|
|
|
340,000
|
|
Goodwill
|
|
|
—
|
|
|
|
91,459
|
|
|
|
91,459
|
|
Total identifiable assets
|
|
$
|
449,336
|
|
|
$
|
—
|
|
|
$
|
449,336
|
|
Total identifiable liabilities
|
|
|
(29,336
|
)
|
|
|
—
|
|
|
|
(29,336
|
)
|
Total purchase price
|
|
$
|
420,000
|
|
|
$
|
—
|
|
|
$
|
420,000
|
|
Final Purchase Allocation – Shogun Fights
As consideration for the acquisition of Shogun, the Company
delivered the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
Shogun
|
|
$
|
250,000
|
|
|
|
111,111
|
|
|
$
|
750,000
|
|
The following table reflects the final allocation of the purchase
price for Shogun to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
13,131
|
|
|
$
|
—
|
|
|
$
|
13,131
|
|
Accounts receivable, net
|
|
|
20,603
|
|
|
|
—
|
|
|
|
20,603
|
|
Fixed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
52,500
|
|
|
|
497,500
|
|
|
|
550,000
|
|
Goodwill
|
|
|
692,951
|
|
|
|
(497,500
|
)
|
|
|
195,451
|
|
Total identifiable assets
|
|
$
|
779,185
|
|
|
$
|
—
|
|
|
$
|
779,185
|
|
Total identifiable liabilities
|
|
|
(29,185
|
)
|
|
|
—
|
|
|
|
(29,185
|
)
|
Total purchase price
|
|
$
|
750,000
|
|
|
$
|
—
|
|
|
$
|
750,000
|
|
Alliance
MMA, Inc.
Notes to Financial
Statements
Final Purchase Allocation – V3
As consideration for the acquisition of V3, the Company delivered
the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
V3
|
|
$
|
100,000
|
|
|
|
111,111
|
|
|
$
|
600,000
|
|
The following table reflects the final allocation of the purchase
price for V3 to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fixed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
443,625
|
|
|
|
(133,625
|
)
|
|
|
310,000
|
|
Goodwill
|
|
|
206,568
|
|
|
|
133,625
|
|
|
|
340,193
|
|
Total identifiable assets
|
|
$
|
650,193
|
|
|
$
|
—
|
|
|
$
|
650,193
|
|
Total identifiable liabilities
|
|
|
(50,193
|
)
|
|
|
—
|
|
|
|
(50,193
|
)
|
Total purchase price
|
|
$
|
600,000
|
|
|
$
|
—
|
|
|
$
|
600,000
|
|
Final Purchase Allocation – CageTix
As consideration for the acquisition of CageTix, the Company
delivered the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
CageTix
|
|
$
|
150,000
|
|
|
|
38,889
|
|
|
$
|
325,000
|
|
The following table reflects the final allocation of the
purchase price for CageTix to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
48,969
|
|
|
$
|
—
|
|
|
$
|
48,969
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fixed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
360,559
|
|
|
|
6,540
|
|
|
|
367,099
|
|
Goodwill
|
|
|
6,540
|
|
|
|
(6,540
|
)
|
|
|
—
|
|
Total identifiable assets
|
|
$
|
416,068
|
|
|
$
|
—
|
|
|
$
|
416,068
|
|
Total identifiable liabilities
|
|
|
(91,068
|
)
|
|
|
—
|
|
|
|
(91,068
|
)
|
Total purchase price
|
|
$
|
325,000
|
|
|
$
|
—
|
|
|
$
|
325,000
|
|
Alliance
MMA, Inc.
Notes to Financial
Statements
Final Purchase Allocation – GFL
As consideration for the acquisition of GFL, the Company delivered
the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
GFL
|
|
$
|
450,000
|
|
|
|
419,753
|
|
|
$
|
2,338,889
|
|
The following table reflects the final allocation of purchase
price for GFL to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
42,081
|
|
|
$
|
—
|
|
|
$
|
42,081
|
|
Accounts receivable, net
|
|
|
900
|
|
|
|
—
|
|
|
|
900
|
|
Fixed assets
|
|
|
13,174
|
|
|
|
—
|
|
|
|
13,174
|
|
Intangible assets
|
|
|
2,041,677
|
|
|
|
(1,871,677
|
)
|
|
|
170,000
|
|
Goodwill
|
|
|
1,034,911
|
|
|
|
1,168,919
|
|
|
|
2,203,830
|
|
Total identifiable assets
|
|
$
|
3,132,743
|
|
|
$
|
(702,758
|
)
|
|
$
|
2,429,985
|
|
Total identifiable liabilities
|
|
|
(793,854
|
)
|
|
|
702,758
|
|
|
|
(91,096
|
)
|
Total purchase price
|
|
$
|
2,338,889
|
|
|
$
|
—
|
|
|
$
|
2,338,889
|
|
Final Purchase Allocation – ITFS
As consideration for the acquisition of ITFS, the Company delivered
the following amounts of cash and shares of common stock.
|
|
Cash
|
|
|
Shares
|
|
|
Consideration
Paid
|
|
ITFS
|
|
$
|
150,000
|
|
|
|
133,333
|
|
|
$
|
656,665
|
|
The following table reflects the final allocation of purchase
price for ITFS to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Preliminary
Fair Value
|
|
|
Measurement
Period
Adjustments
|
|
|
Final Fair Value
|
|
Cash
|
|
$
|
1,716
|
|
|
$
|
—
|
|
|
$
|
1,716
|
|
Accounts receivable, net
|
|
|
6,205
|
|
|
|
—
|
|
|
|
6,205
|
|
Fixed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible assets
|
|
|
255,000
|
|
|
|
(145,000
|
)
|
|
|
110,000
|
|
Goodwill
|
|
|
393,744
|
|
|
|
145,000
|
|
|
|
538,744
|
|
Total identifiable assets
|
|
$
|
656,665
|
|
|
$
|
—
|
|
|
$
|
656,665
|
|
Total identifiable liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total purchase price
|
|
$
|
656,665
|
|
|
$
|
—
|
|
|
$
|
656,665
|
|
Alliance
MMA, Inc.
Notes
to Financial Statements
Supplemental Pro Forma Information (Unaudited)
The following unaudited pro forma financial
information assumes CFFC, HFC, COGA, Shogun, V3, IT Fight Series, CageTix, GFL, SuckerPunch, Fight Time, NFC, FCOC, Victory,
and Alliance MMA were combined as of January 1, 2016 and includes the impact of purchase accounting. The unaudited pro forma
financial information as presented below is for informational purposes only and is based on estimates and assumptions that
have been made solely for purposes of developing such pro forma information. This is not necessarily indicative of the
results of operations that would have been achieved if the acquisition had taken place at the beginning of 2016, nor is it
necessarily indicative of future results. Consequently, actual results could differ materially from the unaudited pro forma
financial information presented below.
The following table presents the pro forma operating results
as if the acquisitions had been included in the Company’s consolidated statements of operations as of January 1, 2016 (unaudited,
in thousands):
|
|
Revenue
|
|
|
Earnings
(Loss)
|
|
Actual for the year ended December 31, 2016
|
|
$
|
591
|
|
|
$
|
(4,912
|
)
|
Actual for the year ended December 31, 2017
|
|
$
|
4,218
|
|
|
$
|
(11,274
|
)
|
Supplemental pro forma for the year ended December 31, 2016
|
|
$
|
5,111
|
|
|
$
|
(6,102
|
)
|
Supplemental pro forma for the year ended December 31, 2017
|
|
$
|
5,238
|
|
|
$
|
(12,279
|
)
|
|
(i)
|
Amortization of intangible assets
.
Intangible assets are amortized over their estimated useful lives. The estimated useful lives of acquired intangible assets
are based upon the economic benefit expected to be received and the period during which we expect to receive that
benefit.
For the periods presented amortization expense was approximately $956,000.
|
Alliance
MMA, Inc.
Notes to Financial
Statements
Acquired Assets – Video Libraries
The Company also acquired the MMA video libraries of three regional
promotions.
Sheffield Recordings Limited (“Sheffield”)
The Company acquired the
exclusive rights to the Sheffield fight library for $25,000 in cash and 5,556 shares of Alliance MMA common stock valued at
$8,500 in aggregate.
Hoss Promotions, LLC (“Hoss”)
An affiliate of CFFC, Hoss owned the
intellectual property rights to approximately 30 MMA events promoted by CFFC. On September 30, 2016 the Company acquired
the exclusive rights to the Hoss fighter library, which covers approximately 100 hours of video content for $300,000.
Ring of Combat, LLC (“Ring of Combat”)
On September 30, 2016, the Company
acquired the exclusive rights to the Ring of Combat fight library, which includes professional and amateur MMA and kickboxing
events and covers approximately 200 hours of video content for $155,000. The Company additionally secured the media rights to all
future Ring of Combat promotions.
During the year ended December 31, 2017, the
Company impaired all acquired video library intangible assets. See “Note 5 - Goodwill and Purchased Identifiable
Intangible Assets” for more information.
Acquired Assets-Intellectual Property
Intellectual property consists of the following:
Alliance MMA Intellectual Property
In October 2016, the Company entered an Asset
Purchase Agreement with Eric Del Fierro to acquire certain intellectual property rights to the Alliance MMA brand for $70,000.
Alliance MMA, Inc.
Notes to Financial
Statements
Note 5. Goodwill and Purchased Identifiable Intangible Assets
Impairment
During the year ended December 31, 2017, the Company recorded
a goodwill impairment charge of $2.4 million within the promotion segment in relation to the GFL and Fight Time reporting units.
The impairment was identified as part of management’s review of impairment indicators during the fourth quarter. Accordingly,
it was determined that the recoverable value of the reporting units was less than the carrying value and therefore, an impairment
loss was recorded.
Additionally, the Company recorded a $893,000 impairment expense
related to the write down of all video library intangible assets acquired to date, mainly in relation to the GFL acquisition as
well as the venue relationship and trade name intangible assets associated with the acquisition of Fight Time.
Goodwill
The change in the carrying amount of goodwill for the years
ended December 31, 2017 and 2016 is as follows:
Balance as of December 31, 2015
|
|
$
|
—
|
|
Goodwill acquired
|
|
|
2,516,168
|
|
Deferred tax
|
|
|
755,647
|
|
Balance as of December 31, 2016
|
|
$
|
3,271,815
|
|
Goodwill acquired
|
|
|
3,490,552
|
|
Final purchase accounting - measurement period adjustments
|
|
|
1,636,468
|
|
Impairment
|
|
|
(2,435,298
|
)
|
Balance as of December 31, 2017
|
|
$
|
5,963,537
|
|
Intangible Assets
The change in the carrying amount of intangible
assets for the year ended December 31, 2017 and 2016 is as follows:
Balance as of December 31, 2015
|
|
$
|
—
|
|
Intangible assets acquired
|
|
|
6,164,700
|
|
Amortization
|
|
|
(384,487
|
)
|
Balance as of December 31, 2016
|
|
$
|
5,780,213
|
|
Intangible assets acquired
|
|
|
2,827,951
|
|
Final purchase accounting measurement period adjustment
|
|
|
(4,147,052
|
)
|
Impairment of intangible assets
|
|
|
(1,298,500
|
)
|
Accumulated amortization related to impaired intangible assets
|
|
|
405,017
|
|
Amortization
|
|
|
(680,535
|
)
|
Balance as of December 31,2017
|
|
$
|
2,887,094
|
|
Identified intangible assets consist of
the following:
|
|
|
December 31, 2017
|
|
Intangible assets
|
|
Useful
Life
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Video library
|
|
4 years
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Venue relationships
|
|
7 years
|
|
|
2,410,000
|
|
|
|
(363,767
|
)
|
|
|
2,046,233
|
|
Ticketing software
|
|
3 years
|
|
|
90,000
|
|
|
|
(37,500
|
)
|
|
|
52,500
|
|
Trademark and brand
|
|
3 years
|
|
|
610,000
|
|
|
|
(208,056
|
)
|
|
|
401,944
|
|
Fighter contracts
|
|
3 years
|
|
|
140,000
|
|
|
|
(14,000
|
)
|
|
|
126,000
|
|
Promoter relationships
|
|
6 years
|
|
|
277
,099
|
|
|
|
(
31,682
|
)
|
|
|
245,417
|
|
Sponsor relationships
|
|
|
|
|
20,000
|
|
|
|
(5,000
|
)
|
|
|
15,000
|
|
Total intangible assets, gross
|
|
|
|
$
|
3,547,099
|
|
|
$
|
(660,005
|
)
|
|
$
|
2,887,094
|
|
During the year ended December 31, 2017, the Company completed
the final purchase accounting of all acquisitions, resulting in a reallocation of intangible assets and goodwill.
During the year
ended December 31, 2017, the Company recorded impairment charges of approximately $800,000 related to all video library, and
93,000 related to the Fight Time venue relationship and trade name intangible assets.
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
Useful
Life
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
Video library
|
|
4 years
|
|
$
|
3,512,741
|
|
|
$
|
(181,824
|
)
|
|
$
|
3,330,917
|
|
|
|
|
|
|
|
|
|
Venue relationships
|
|
7 years
|
|
|
1,966,400
|
|
|
|
(163,867
|
)
|
|
|
1,802,533
|
|
|
|
|
|
|
|
|
|
Ticketing software
|
|
3 years
|
|
|
360,559
|
|
|
|
(30,047
|
)
|
|
|
330,512
|
|
|
|
|
|
|
|
|
|
Trademark and brand
|
|
3 years
|
|
|
325,000
|
|
|
|
(8,749
|
)
|
|
|
316,251
|
|
|
|
|
|
|
|
|
|
Fighter contracts
|
|
3 years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Promoter relationships
|
|
6 years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total intangible assets, gross
|
|
|
|
$
|
6,164,700
|
|
|
$
|
(384,487
|
)
|
|
$
|
5,780,213
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended
December 31, 2017 and 2016, was $680,535 and $384,487, respectively.
As of December 31, 2017, estimated
amortization expense for the unamortized acquired intangible assets over the next five years and thereafter is as
follows:
2018
|
|
$
|
647,257
|
|
|
2019
|
|
|
609,119
|
|
|
2020
|
|
|
441,897
|
|
|
2021
|
|
|
409,952
|
|
|
2022
|
|
|
397,036
|
|
|
Thereafter
|
|
|
381,833
|
|
|
|
|
$
|
2,887,094
|
|
|
Alliance
MMA, Inc.
Notes
to Financial Statements
Note 6. Debt
Note Payable
In December 2017, the Company entered into a promissory note
with an individual for $300,000 of borrowings for operating capital leading up to our public offering in January 2018. The note
had a maturity of 30 days and was paid in full at maturity in January 2018 including interest of $45,000. The note was personally
guaranteed by Joseph Gamberale, one of our board members.
Note Payable – Related Party
In February 2015, the Company entered into a loan agreement
with Ivy Equity Investors, LLC for up to $500,000 of borrowings for startup expenses, including professional fees related to the
Company’s initial public offering and expenses incident to the acquisition of the Target Assets and businesses of the
Target Companies. On March 1, 2015, 5,289,136 shares were issued to Ivy Equity Investors, LLC reducing the note
payable and accrued interest balance by $5,289 which represents the par value of the shares issued. Ivy Equity Investors, LLC is
an affiliate of the Company’s founder and current board member, Mr. Gamberale who at the time was the Company’s
sole director.
In May 2016, the loan agreement was amended
to permit up to $600,000 of aggregate borrowings for startup expenses.
In July 2016, the loan agreement was amended
to permit up to $1,000,000 of aggregate borrowings for startup expenses.
Upon the completion of the IPO on September 30, 2016, a portion
of the proceeds were utilized to pay the balance of all amounts due under the loan, or $877,000. As of December 31, 2017 and December 31,
2016, the outstanding borrowings under the loan were $0 and $0, respectively. The loan bore interest at 6% per annum and matured
on the earlier of the closing of the IPO, or January 1, 2017.
Note 7. Commitments and Contingencies
Operating Leases
The Company does not own any real property. The Company’s
principal executive offices are located at an office complex in New York, New York, which includes approximately twenty thousand
square feet of shared office space and services that we are leasing. The lease had an original one-year term that commenced
on December 1, 2015, which was renewed until November 30, 2018. The lease allows for the limited use of private offices, conference
rooms, mail handling, videoconferencing, and certain other business services.
In November 2016, the Company entered
a sublease agreement for office and video production space in Cherry Hill, New Jersey. The lease expires on June 30,
2019.
With the acquisition of FCOC, the Company assumed a lease for office space in Orange County, California. The lease expires in September 2018.
Each of the acquired business operate from home offices or shared office space arrangements.
Rent expense was $124,629 and $10,389 for
the year ended December 31, 2017 and 2016, respectively.
As of December 31, 2017, the
aggregate minimum lease payments for the years ending December 31, 2018 and 2019 were:
|
|
Lease
Obligation
|
|
2018
|
|
$
|
151,296
|
|
2019
|
|
|
66,990
|
|
|
|
$
|
218,286
|
|
Contingencies
Legal Proceedings
In the normal course of business
or otherwise, we may become involved in legal proceedings. We will accrue a liability for such matters when it is probable that
a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established,
the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within
the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example,
estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
In April and May 2017, two purported securities class action
complaints—
Shapiro v. Alliance MMA, Inc.
, No. 1:17-cv-2583 (D.N.J.), and
Shulman v. Alliance MMA, Inc.
, No.
1:17-cv-3282 (S.D.N.Y.)—were filed against the Company and certain of its officers in the United States District Court for
the District of New Jersey and the United States District Court for the Southern District of New York, respectively. The complaints
alleged that the defendants violated certain provisions of the federal securities laws, and purported to seek damages in an amount
to be alleged on behalf of a class of shareholders who purchased the Company’s common stock pursuant or traceable to the
Company’s initial public offering. In July 2017, the plaintiffs in the New York action voluntarily dismissed their claim
and, on March 8, 2018, the parties reached a settlement to the New Jersey action in which the insurance carrier for our directors
and officers liability insurance policy has agreed to cover Alliance’s financial obligations under the settlement arrangement,
less a deductible of $250,000.
Earn Out
Management evaluated the financial performance of CFFC, COGA,
HFC, Shogun, V3, CageTix, and SuckerPunch in 2017 compared to the earn out thresholds as described in the respective Asset Purchase
Agreements. Based upon management’s estimates, the Company recorded an earn out liability during 2017 of approximately $310,000
related to Shogun’s financial results. This estimated amount is subject to revisions as provided in the related Asset Purchase
Agreement.
Subsequent to year end, the company determined the target
earn out threshold of IT Fight Series, SuckerPunch and Fight Time were not met and as a result management anticipates
the shares issued in conjunction with the earn out to be returned to the Company, subject to the terms of the respective asset
purchase agreements.
Alliance
MMA, Inc.
Notes to Financial
Statements
Note 8. Stockholders’ Equity
Common Stock Private Placements
In July 2017, the board of directors approved
the issuance of up to $2.5 million of our common stock in one or more private placements.
In July 2017, Board members and an employee
executed subscription agreements for 513,761 units at a purchase price of $1.09 per unit. In August 2017, the Company determined
that the amount raised through such sales was insufficient to meet its current needs, and accordingly solicited subscription agreements
from third parties for 965,000 units at $1.00 per unit. Each unit sold in these placements consists of one restricted share of
AMMA common stock and a warrant to acquire one share of common stock at an exercise price of $1.50 per share. The Company issued
all 1,478,761 shares of common stock sold in these placements on August 29, 2017.
In October and November 2017,
the Company solicited subscription agreements from third parties for 390,000 units at $1.25 per unit. Each unit sold in the
placement consists of one restricted share of AMMA common stock and a warrant to acquire one share of common stock at an
exercise price of $1.75 per share.
Common Stock Grant
In February 2017, the Company entered a consulting arrangement
with DC Consulting for management consulting services with a term of one year and included the grant of 150,000 shares subject
to board of director approval. In July 2017, the Company issued the 150,000 restricted shares to DC Consulting under the arrangement
and recognized stock-based compensation of approximately $148,000, the fair value of the shares on the date of issuance, in relation
to the common stock grant.
Option Grants
In August 2016, the Company entered
into an employment agreement with John Price as the Company’s Chief Financial Officer. In connection with
Mr. Price’s employment he was awarded a stock option grant to acquire 200,000 shares of the Company’s common
stock. The Stock option has a term of 10 years, an exercise price of $4.50, and a grant date fair value of $364,326, and
vests one third of the shares on the one year anniversary of the grant date and one third annually thereafter.
Stock Option Plan
On December 19, 2016, the Board of Directors
of the Company awarded stock option grants under the 2016 Equity Incentive Plan to four employees to acquire an aggregate of 200,000
shares of the Company’s common stock. The stock options have a term of 10 years and an exercise price of $3.56 per share,
vest annually over three years in three equal tranches and have a grant date fair value of $497,840. The Company determined the
fair value of the stock options using the Black-Scholes model. Each award was accepted by the recipient during the first quarter
2017 at which point the Company began to recognize stock-based compensation expense.
On February 1, 2017,
the Company entered into an employment agreement with James Byrne as the Company’s Chief Marketing Officer. In connection
with Mr. Byrne’s employment he was awarded a stock option grant to acquire 100,000 shares of the Company’s common
stock. The stock option has a term of 5 years, an exercise price of $3.55, and a grant date fair value of $247,882, and was fully-vested
upon grant. The Company determined the fair value of the stock option using the Black-Scholes model.
On May
15, 2017, the Company entered into an employment agreement with Ira Rainess as the Company’s EVP of Business Affairs.
In connection with Mr. Rainess’ employment, in September 2017, he was awarded a stock option grant to acquire 100,000
shares of the Company’s common stock. The stock option has a term of 3 years, an exercise price of $1.30, and a grant
date fair value of $53,306, and vests one half of the shares on the one year anniversary of the grant date and one half on the
second anniversary. The Company determined the fair value of the stock option using the Black-Scholes model.
On December 17,
2017, the Company awarded Robert Mazzeo, the Company’s external General Counsel at that time, a stock option grant to
acquire 125,000 shares of the Company’s common stock. The option has a term of three years, an exercise price of $1.50,
and a grant date fair value of $77,500, and was fully-vested upon grant. The Company determined the fair value of the stock
option using the Black-Scholes model.
Warrant Grants
On January 4, 2017, in
connection with the acquisition of SuckerPunch, the Company entered an employment agreement with Bryan Hamper as Managing
Director. Mr. Hamper was awarded a warrant to acquire 93,583 shares of the Company’s common stock. The warrant has a
term of 5 years, an exercise price of $3.74, and a grant date fair value of $181,920, and was fully-vested upon grant and is
included as a component of the SuckerPunch purchase price. The Company determined the fair value of the
warrant using the Black-Scholes model.
Alliance
MMA, Inc.
Notes to Financial
Statements
On March 10, 2017, the
Company entered into a service agreement with World Wide Holdings and issued a warrant to acquire 250,000 shares of
the Company’s common stock. The warrant has an exercise price of $4.50, term of three years and vest in equal one
third increments on April 1, July 1 and October 1, 2017. During the year ended December 31, 2017, the Company recognized
stock-based compensation expense of $169,401.
The number of shares of the Company’s common stock that
are issuable pursuant to warrant and stock option grants with time-based vesting as of December 31, 2017 are:
|
|
Warrant
Grants
|
|
|
Stock Option
Grants
|
|
|
|
Number
of Shares
Subject to Warrants
|
|
|
Weighted-Average
Exercise Price Per Share
|
|
|
Number
of Shares Subject
to Options
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
Balance at December 31, 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
222,230
|
|
|
$
|
7.43
|
|
|
|
200,000
|
|
|
$
|
4.50
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2016
|
|
|
222,230
|
|
|
$
|
7.43
|
|
|
|
200,000
|
|
|
$
|
4.50
|
|
Granted
|
|
|
2,017,344
|
|
|
|
2.00
|
|
|
|
525,000
|
|
|
|
2.64
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2017
|
|
|
2,239,574
|
|
|
$
|
2.54
|
|
|
|
725,000
|
|
|
$
|
3.15
|
|
Exercisable at
December 31, 2017
|
|
|
565,813
|
|
|
$
|
5.53
|
|
|
|
358,333
|
|
|
$
|
3.01
|
|
As of December 31, 2017 and 2016,
the total unrecognized expense for unvested stock options, net of expected forfeitures, was approximately $564,184 and $313,753,
respectively.
Stock-based compensation expense for
the year ended December 31, 2017 and 2016 is as follows:
|
|
Year Ended
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
General and administrative expense
|
|
$
|
943,998
|
|
|
$
|
2,645,573
|
|
|
Stock-based compensation expense
categorized by the equity components for the year ended December 31, 2017 and 2016 is as follows:
|
|
Year Ended
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Employee stock options
|
|
$
|
626,097
|
|
|
$
|
50,573
|
|
Warrants
|
|
|
169,401
|
|
|
|
—
|
|
Common stock
|
|
|
148,500
|
|
|
|
2,595,000
|
|
|
|
$
|
943,998
|
|
|
$
|
2,645,573
|
|
Alliance
MMA, Inc.
Notes to Financial
Statements
Note 9. Net Loss per Share
Basic net loss per share is computed by dividing net
loss for the period by the weighted average shares of common stock outstanding during each period. Diluted net loss per share
is computed by dividing net loss for the period by the weighted average shares of common stock, common stock equivalents and potentially
dilutive securities outstanding during each period. The Company uses the treasury stock method to determine whether there is a
dilutive effect of outstanding option grants.
The following table sets forth the computation of
the Company’s basic and diluted net loss per share for the periods presented:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net loss
|
|
$
|
(11,978,563
|
)
|
|
$
|
(4,159,394
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares used in computing net loss per share, basic and diluted
|
|
|
10,679,989
|
|
|
|
5,520,801
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(1.12
|
)
|
|
$
|
(0.75
|
)
|
The following securities were excluded from the computation
of diluted net loss per share for the periods presented because including them would have been antidilutive:
|
|
As of December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options (exercise price
- $1.30 to $4.50 per share)
|
|
|
725,000
|
|
|
|
200,000
|
|
Warrants (exercise
price - $1.50 to $7.43 per share)
|
|
|
2,239,574
|
|
|
|
222,230
|
|
Total common stock
equivalents
|
|
|
2,964,574
|
|
|
|
422,230
|
|
Note 10. Income Taxes
The components of Loss before benefit from income taxes
for the years ended December 31, 2017 and 2016 are as follows:
|
|
Years ended December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Domestic
|
|
$
|
(11,290,457
|
)
|
|
$
|
(4,915,041)
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
Loss before benefit from income taxes
|
|
$
|
(11,290,457
|
)
|
|
$
|
(4,915,041)
|
|
The Company incurred income tax expense of $688,073 and income tax benefit $755,647 for the
years ended December 31, 2017 and 2016, respectively. The income tax expense (benefit) for the year ended December 31, 2017 and
2016 includes the following:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current income tax expense:
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. State
|
|
|
7,696
|
|
|
|
—
|
|
Total current
|
|
|
7,696
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
617,310
|
|
|
|
(647,889
|
)
|
U.S. State
|
|
|
63,100
|
|
|
|
(107,758
|
)
|
Total deferred
|
|
|
680,410
|
|
|
|
(755,647
|
)
|
|
|
|
|
|
|
|
|
|
Total expense (benefit) from income taxes
|
|
$
|
688,106
|
|
|
$
|
(755,647
|
)
|
Alliance
MMA, Inc.
Notes to Financial
Statements
The income tax expense (benefit) differs from those computed
using the statutory federal tax rate of 34% due to the following:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Expected provision at statutory federal rate
|
|
$
|
(3,838,755
|
)
|
|
$
|
(1,671,113
|
)
|
State tax-net of federal benefit
|
|
|
70,763
|
|
|
|
(71,120
|
)
|
Change in valuation allowance
|
|
|
2,161,264
|
|
|
|
915,172
|
|
IPO related costs
|
|
|
—
|
|
|
|
54,313
|
|
Rate change
|
|
|
1,434,079
|
|
|
|
—
|
|
Goodwill impairment
|
|
|
751,433
|
|
|
|
—
|
|
Other
|
|
|
109,290
|
|
|
|
17,101
|
|
|
|
$
|
688,074
|
|
|
$
|
(755,647
|
)
|
The effect of temporary differences that gave rise to significant portions of
deferred tax assets as of December 31, 2017 and 2016, are as follows:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
2,145,809
|
|
|
$
|
456,551
|
|
Accruals
|
|
|
—
|
|
|
|
16,587
|
|
Share based compensation
|
|
|
272,645
|
|
|
|
19,913
|
|
Start-up costs
|
|
|
248,348
|
|
|
|
382,648
|
|
Fixed assets
|
|
|
8,206
|
|
|
|
—
|
|
Intangibles
|
|
|
370,681
|
|
|
|
—
|
|
Other
|
|
|
32
|
|
|
|
51
|
|
Gross deferred tax assets
|
|
|
3,045,721
|
|
|
|
875,750
|
|
Valuation allowance
|
|
|
(3,045,721
|
)
|
|
|
(175,644
|
)
|
Net deferred tax assets
|
|
|
—
|
|
|
|
700,106
|
|
Fixed assets
|
|
|
—
|
|
|
|
(9,352
|
)
|
Intangibles
|
|
|
—
|
|
|
|
(690,754
|
)
|
Other
|
|
|
(23,942
|
)
|
|
|
—
|
|
Deferred tax liability
|
|
|
(23,942
|
)
|
|
|
(700,106
|
)
|
Net deferred tax liability
|
|
$
|
(23,942
|
)
|
|
$
|
—
|
|
As of December 31, 2017, the Company has a federal net operating
loss carry-forward of $7.8 million available to offset future taxable income. The Company has state loss carry-forwards of $6.9
million. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the
Internal Revenue Code of 1986, as amended (the “Code”). These net operating loss carry-forwards have expiration dates
starting in 2031 through 2037.
The valuation allowance as of December 31, 2017 was $3.0 million.
The net change in valuation allowance for the year ended December 31, 2017 was an increase of $1.8 million. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income
tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based
on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred
income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2017.
As of December 31, 2016, the Company has a federal net operating
loss carry-forward of $1.2 million available to offset future taxable income. The Company has state loss carry-forwards of $1.2
million. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the
Internal Revenue Code of 1986, as amended (the “Code”). These net operating loss carry-forwards have expiration dates
starting in 2031 through 2036.
The valuation allowance as of December 31, 2016 was $175,644. The
net change in valuation allowance for the year ended December 31, 2016 was an increase of $40,384. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income
tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based
on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred
income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2016.
The Company has no unrecognized tax benefits during the periods
presented within. By statute, all tax years are open to examination by the major taxing jurisdictions to which the Company is subject.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs
Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal
income tax rate from 35% to 21% effective January 1, 2018. For the year ended December 31, 2017, the Company recognized a provision
for income tax of $0.7 million, of which $1.4 million was considered a provisional estimate under the U.S. Securities and Exchange
Commission Staff Accounting Bulletin No. 118. The Company’s provisional estimate of $1.4 million relates to the impact of
remeasuring the Company’s deferred tax balances to reflect the new tax rate.
Alliance
MMA, Inc.
Notes to Financial
Statements
Note 11. Related Party
Note Payable
In December 2017, leading up to our offering of units in January
2018, the Company entered into a short-term promissory note with an individual for $300,000 which was personally guaranteed by
Joseph Gamberale, one of our board members.
Notes Payable – Related Party
In February 2015, the Company obtained a loan from Ivy Equity
Investors, LLC, which is an affiliate of the Company’s founder and current board member, Mr. Gamberale, who
at the time was the Company’s sole director. On September 30, 2016 the Company completed its initial public offering,
and the outstanding balance of the loan, $877,000, was repaid to Ivy Equity Investors, LLC. See Note 6 Debt, for additional information.
Note 12. Subsequent Events
Stock Offering
On January 9, 2018, the Company
entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, acting as sole book-running
manager (the “Underwriter”), for a public offering (the “Offering”) of a combination of 2,150,000 shares
of common stock, par value $0.001 per share (the “Common Stock”) of the Company, and 1,935,000 warrants to purchase
1,935,000 shares of Common Stock (the “Warrants”). Each share of Common Stock was sold in combination with a Warrant
to purchase 0.90 shares of Common Stock. The Warrants have a five-year term and an exercise price of $1.10 per share. The Offering
price was $1.00 per share of Common Stock and related Warrant and the Underwriter has agreed to purchase the shares of Common Stock
and related Warrants from the Company at a 7.0% discount to the Offering price. In addition, the Company granted to the Underwriter
a 45-day option to purchase up to an additional 322,500 shares of Common Stock and/or 290,250 Warrants to purchase 290,250 shares
of Common Stock at the same price to cover over-allotments, if any. The Underwriting Agreement contains customary representations,
warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriter,
including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions.
The gross proceeds to the
Company from the Offering were approximately $2,150,000 before underwriting discounts and commissions and other estimated offering
expenses.
The Offering was made pursuant to an effective shelf registration
statement on Form S-3 that was declared effective by the Securities and Exchange Commission on December 1, 2017 and a prospectus
supplement, dated January 9, 2018, together with the accompanying base prospectus.
Management Change
On February 7, 2018, Alliance
MMA announced that its Chief Executive Officer, Paul K. Danner III, resigned as an officer of the Company, effective immediately.
Mr. Danner will stay on as Chairman of the Company’s Board of Directors through May 1, 2018. The Company also terminated
the employment of the Company’s President, Robert Haydak, and its Chief Marketing Officer, James Byrne.
Robert L. Mazzeo will serve as the Company’s acting Chief
Executive Officer effective immediately. Mr. Mazzeo, age 64, has served as the Company’s corporate counsel since 2016. Mr.
Mazzeo was a partner in the law firm of Mazzeo Song P.C. from 2005 through February 2018, where his practice is primarily
involved in securities transactions and mergers and acquisitions. Mr. Mazzeo has also served as Chief Executive Officer of Enclave
Capital LLC, a brokerage and investment banking firm registered with the Securities and Exchange Commission. Mr. Mazzeo is a graduate
of Brown University and Yale Law School.
The terms of Mr. Mazzeo’s
compensation have not yet been determined.
February 15, 2018, Alliance MMA
announced it appointed Ira S. Rainess as the Company’s President.
Mr. Rainess, age 51, has served
as the Company’s Executive Vice President, Business Affairs since May 2017 and, prior to that, acted as a consultant to the
Company. Mr. Rainess has served as the head of the Sports & Entertainment Law practice at Silverman, Thompson, Slutkin &
White for the past 13 years. A member of the Maryland Bar, he is a graduate of the University of Maryland’s Robert H. Smith
School of Business and the University of Baltimore School of Law.
The terms of Mr. Rainess’s
compensation have not yet been determined.
NASDAQ Notice
On February 22, 2018, Alliance
MMA received a letter (the “
Notification Letter
”) from The NASDAQ Stock Market LLC (“
Nasdaq
”)
notifying the Company that it is not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2)
for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum
bid price of $1.00 per share. Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement
exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s
common stock for the 30 consecutive business days prior to the date of the Notification Letter, the Company no longer meets the
minimum bid price requirement.
The Notification Letter does not impact
the Company’s listing on the Nasdaq Capital Market at this time. In accordance with Nasdaq Listing Rule 5810(c)(3) (A),
the Company has been provided 180 calendar days, or until August 21, 2018, to regain compliance with Nasdaq Listing Rule
5550(a)(2). To regain compliance, the Company’s common stock must have a closing bid price of at least $1.00 for a
minimum of 10 consecutive business days. In the event the Company does not regain compliance by August 21, 2018, the Company
may be eligible for an additional period of 180 days within which to regain compliance.
Stock Option
Award
In March 2018, the Board
of Directors approved a stock option grant to Robert Mazzeo, CEO and Ira Rainess. Mr. Mazzeo’s award was for 250,000
options with an exercise price of $0.53 and vests upon grant. Mr. Rainess’ award
was for 250,000 shares with an exercise price of $0.53
and vests upon grant.
Litigation Settlement
On March 8, 2018, Alliance MMA entered into a binding term sheet
to settle a stockholder class action lawsuit initially filed in April 2017 against the Company, certain of its current and former
officers and directors, and the underwriter in the Company’s initial public offering. The litigation is pending in the United
States District Court for the District of New Jersey. Pursuant to the term sheet and subject to certain conditions, including the
approval of the settlement terms by the District Court, the settling parties have agreed to submit a formal, binding stipulation
of settlement to the District Court to resolve all claims brought against the defendants. The settlement will provide for a payment
to the class of $1,550,000, of which the insurer will pay $1,520,000 and the underwriter in the IPO will contribute $30,000. The
Company will be obligated to pay a deductible of $250,000, of which the Company has paid $137,761 in the form of legal fees and
expenses incurred in connection with defending the lawsuit.
Note Payable-Related Party
On April 10, 2018, the Company borrowed a total of $300,000
from two of its board members, Joseph Gamberale and Joey Tracy, pursuant to promissory notes of $150,000, respectively. The notes
bear interest at 12% annually and mature May 21, 2018. Joseph Gamberale personally guaranteed Mr. Tracy’s note.