Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 1. Description of Business and Basis of Presentation
Nature of Business
Alliance MMA, Inc. (“Alliance” or the
“Company”) is a sports media company formed in Delaware in February 2015. The Company completed its
Initial Public Offering (“IPO”) in October 2016 and began to execute its initial business strategy to
acquire regional MMA promotions to form a professional MMA fight league. A total of ten regional MMA promotions were
acquired. Additionally, the Company acquired a ticketing software business focused on the MMA industry, an athlete management
business, and video production and distribution company to compliment the MMA fight league.
Alliance MMA acquired the following businesses to execute
its initial business strategy:
Promotions
|
·
|
CFFC Promotions (“CFFC”);
|
|
·
|
Hoosier Fight Club (“HFC”);
|
|
·
|
COmbat GAmes MMA (“COGA”);
|
|
·
|
Shogun Fights (“Shogun”);
|
|
·
|
V3 Fights (“V3”);
|
|
·
|
Iron Tiger Fight Series (“IT Fight Series” or “ITFS”);
|
|
·
|
Fight Time Promotions (“Fight Time”);
|
|
·
|
National Fighting Championships (“NFC”);
|
|
·
|
Fight Club Orange County (“FCOC” or “Fight Club OC”); and
|
|
·
|
Victory Fighting Championship (“Victory”).
|
Ticketing
Sports Management
|
·
|
SuckerPunch Holdings, Inc. (“SuckerPunch”).
|
Video Production and Distribution
|
·
|
Go Fight Net, Inc. (“GFL”)
|
As an adjunct to the promotion business, Alliance provided video
distribution and media archiving through Alliance Sports Media (“ASM”) formerly GFL.
Change in Management and Cessation of MMA operations
On February 7, 2018, the Company’s Chief
Executive Officer, Paul Danner, resigned his position but remained Chairman of the Board and Director through May 1, 2018.
Also on February 7, 2018, the Company terminated the employment of the Company’s President, Robert Haydak, and its
Chief Marketing Officer, James Byrne and named Robert Mazzeo as the Company’s acting Chief Executive Officer.
Effective May 23, 2018, board of directors member, Renzo Gracie, resigned. On May 24, 2018, Robert Mazzeo resigned as Chief
Executive Officer. On May 25, 2018, management and the Board of Directors, committed the Company to an exit/disposal plan of
the MMA promotion business because it did not believe the MMA business unit could generate sufficient operating cash flows to
fund the ongoing operations. On June 6, 2018, the Company’s board of directors appointed John Price, the
Company’s CFO, Co-President of the Company.
As of the date of this filing, the Company has disposed of the following promotion businesses:
|
·
|
FCOC
|
|
·
|
NFC
|
|
·
|
Fight Time
|
As of the date of this filing, the Company owns the rights
to the Victory Promotion. Refer to
“Note 11 Subsequent Events”.
Alliance MMA, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Liquidity and Going Concern
The Company’s primary need for liquidity is to fund the
working capital needs of the business, and general corporate purposes. The
Company has incurred losses and experienced negative operating cash flows since the inception of operations in October 2016.
In August 2017, the Company completed a capital raise of
$1.5 million through the private placement of 1,500,000 units, which consisted of one share of common stock and a warrant to
purchase one share of common stock at an exercise price of $1.50. The funds were used for operating capital and a
business acquisition.
In October and November 2017, the Company completed a
capital raise of $487,500 through the private placement of 390,000 units, which consisted of one share of common stock
and 0.50 of a warrant to purchase one share common stock at an exercise price of $1.75, (an aggregate of 195,000
warrants). The funds were used for operating capital.
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.
In January 2018, the Company completed a capital raise of $2.15
million gross, through the public placement of 2,150,000 units, which consisted of one share of common stock and .90 of a warrant
to purchase common stock at an exercise price of $1.10, (an aggregate of 1,935,000 warrants). The warrant exercise price ratcheted
down to $0.31 in June 2018 and down to $0.29 in July 2018. The funds were used for operating capital.
In February 2018, the underwriter exercised their
overallotment option resulting in the sale of an additional 50,000 shares for $50,000 and issuance of an additional 272,500
warrants.
In January 2018, the Company paid $345,000 to the promissory
note holder of December 2017 as full payment of principal and interest.
In April 2018, the Company entered into promissory note
agreements with each of Joseph Gamberale and Joel Tracy, board members, for $150,000, respectively, for total borrowings
of $300,000. The funds were used for operating capital.
In May 2018, the Company entered into a promissory note
with an individual for $200,000 of borrowings for operating capital.
In June 2018, the Company entered into a Securities Purchase
Agreement (“SPA”) with SC Worx Acquisition Corp. (n/k/a SCWorx Corp), under which it agreed to sell up to $1 million
in principal amount of convertible notes and warrants to purchase up to 671,142 shares of common stock. The note is convertible
into shares of common stock at a conversion price of $0.3725 and the warrants have an exercise price of $0.3725. On June 29, 2018,
the Company sold SCWorx convertible notes in the principal amount of $500,000 and warrants to purchase 335,570 shares of common
stock, for an aggregate purchase price of $500,000. The Note bears interest at 10% annually and matures on June 27, 2019. SCWorx
has agreed in the SPA to fund (i) a second tranche of $250,000 upon the signing of a merger agreement with the Purchaser and (ii)
a third tranche of $250,000 upon mutual agreement of the Purchaser and Company. Refer to “
Note 11 Subsequent Events”.
The Company currently has virtually no cash on hand, has an
accumulated deficit of approximately $29 million, has consistently experienced quarterly net losses and negative cash flows, and
is operating with negative working capital, all indicating there is substantial doubt with respect to our ability to continue
as a going concern. As of the date of this report, the Company has insufficient cash to support the business for at least one
year from the date of this report. Unless the Company can generate sufficient revenue to cover operating costs, which it has not
been able to do, 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 that it will
be successful in raising capital on commercially reasonable terms or at all.
Basis of Presentation and Principles of Consolidation
The accompanying interim unaudited condensed consolidated
financial statements as of June 30, 2018 and December 31, 2017, and for the three and six months ended June 30, 2018 and
2017, have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in
the United States (“U.S.”) for interim financial information. The amounts as of December 31, 2017 have been
derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such
rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements
reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the
Company and its results of operations, changes in stockholders’ equity and cash flows as of and for the periods
presented. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited
financial statements and notes thereto as of and for the year ended December 31, 2017, included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2017, filed on April 16, 2018 (the “Form 10-K”). The results
of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be
expected for the full year ended December 31, 2018 or any future period and the Company makes no representations related
thereto.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Use of Estimates
The preparation of unaudited condensed
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that
affect the amounts reported and disclosed in the unaudited condensed consolidated financial statements and accompanying
notes. These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, the valuation and recognition of stock-based compensation expense, loss contingencies, discontinued
operations and income taxes. Actual results could differ materially from those estimates.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 2. Summary of Significant Accounting Policies
There have been no significant changes in the Company’s significant accounting policies during the
six months ended June 30, 2018, as compared to the Significant accounting policies described in the Form 10-K with the exception
of the revenue recognition policy.
Revenue Recognition
Promotion Revenue
The Company recognized revenue, net of sales tax, when it
satisfies a performance obligation by transferring control over a product or service to a customer. Revenue from admission,
sponsorship, pay per view (“PPV”), apparel, and concession are recognized at a point in time when an event is
exhibited to a customer live or PPV, and when a customer takes possession of apparel or food and beverage offerings.
Promotion revenue is a component of discontinued operations.
Ticket Service Revenue
The Company acts as a ticket agent for third-party and in-house ticket sales
and charges a fee per transaction for collecting the cash on ticket sales and remits the remaining net amount to the
third-party promoter upon completion of the event or request from the promoter. The Company’s ticket service fee is recognized when it satisfies
the performance obligation by transferring control of the purchased ticket to a customer.
Fighter Commission Revenue
The Company recognizes revenue when it satisfies a
performance obligation by transferring control over a product or service to a customer. The Company recognizes commission
revenue upon the completion of a contracted athletes performance.
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 three and six months ended June 30, 2018, the Company
recorded a goodwill impairment charge within the Athlete Management segment of $1.5 million.
Purchased Identified Intangible Assets
Identified finite-lived intangible assets consist of venue relationships,
ticketing software, tradename and brand, 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 Identifiable Intangible Assets.”
During the three and six months ended June 30, 2018, the Company
recorded an intangible impairment charge of $413,583.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 3. Discontinued Operations
On May 25, 2018, the Company commenced
cessation of all the professional MMA promotion operations and supporting functions including ASM and began a plan of
disposition. This action included the termination of all promotion and support employees. As of June 30, 2018, all the MMA
promotions were either disposed or ceased operations.
The Company has reported the results of operations and financial
position of the discontinued professional MMA business in discontinued operations within the condensed consolidated statements
of operations and condensed consolidated balance sheets for all periods presented.
The results from discontinued operations were as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue, net
|
|
$
|
517,106
|
|
|
$
|
755,782
|
|
|
$
|
1,291,290
|
|
|
$
|
1,247,572
|
|
Cost of revenue
|
|
|
356,229
|
|
|
|
446,370
|
|
|
|
962,995
|
|
|
|
793,461
|
|
Gross margin
|
|
|
160,877
|
|
|
|
309,412
|
|
|
|
328,295
|
|
|
|
454,111
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
729,124
|
|
|
|
1,265,836
|
|
|
|
1,600,322
|
|
|
|
2,652,764
|
|
Professional and consulting fees
|
|
|
—
|
|
|
|
—
|
|
|
|
925
|
|
|
|
471
|
|
Other expense
|
|
|
—
|
|
|
|
56
|
|
|
|
—
|
|
|
|
455
|
|
Total operating expenses
|
|
|
729,124
|
|
|
|
1,265,892
|
|
|
|
1,601,247
|
|
|
|
2,653,690
|
|
Loss from operations
|
|
|
(568,247
|
)
|
|
|
(956,480
|
)
|
|
|
(1,272,952
|
)
|
|
|
(2,199,579
|
)
|
Gain on disposal
|
|
|
515,546
|
|
|
|
—
|
|
|
|
515,546
|
|
|
|
—
|
|
Loss on disposal
|
|
|
(4,521,288
|
)
|
|
|
—
|
|
|
|
(7,307,194
|
)
|
|
|
—
|
|
Loss before income tax benefit
|
|
|
(4,573,989
|
)
|
|
|
(956,480
|
)
|
|
|
(8,064,600
|
)
|
|
|
(2,199,579
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
23,943
|
|
|
|
—
|
|
Loss from discontinued operations
|
|
$
|
(4,573,989
|
)
|
|
$
|
(956,480
|
)
|
|
$
|
(8,040,657
|
)
|
|
$
|
(2,199,579
|
)
|
In
May 2018, the Company announced the cessation of the professional MMA promotion business. As part of these actions,
the Company defaulted on the lease obligation for the Cherry Hill, New Jersey office, refer to “Note 7 Commitments and
contingencies”.
As part of the cessation of its professional
MMA promotion business, the Company disposed of all long-lived fixed assets and realized a loss on disposal of approximately $223,000.
The Company sold all the professional MMA promotion businesses,
with the exception of Victory, to the former business owners and terminated/settled existing employment agreements with these former
AMMA employees. In relation to the disposal of HFC, COGA, Shogun, V3, ITFS, and FCOC, the Company disposed of the MMA assets, recorded
a $15,000 receivable related to the sale of a business, incurred approximately $246,000 of additional liabilities related to severance
payments to former employees, settled the $310,000 earn-out liability related to the Shogun acquisition with the issuance of 366,072
common stock options with a Black-Scholes value of $94,000, issued 30,000 common stock options to a promoter as severance, and
agreed to issue 75,000 common stock options to a former employee in connection with termination. The Company realized a gain of
approximately $160,000 related to the settlement of outstanding accounts payable and $273,000 related to settlement with a promoter
of customer payments. Additionally, the Company has abandoned the Cherry Hill, New Jersey promotion office and recorded a $167,500
charge for the remaining contractual lease payments.
The
current assets, long-term assets, current liabilities and long-term liabilities of discontinued operations were as follows:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Cash
|
|
$
|
—
|
|
|
$
|
90,772
|
|
Accounts receivable,
net
|
|
|
—
|
|
|
|
101,195
|
|
Other
receivables
|
|
|
—
|
|
|
|
7,254
|
|
Current
assets - discontinued operations
|
|
$
|
—
|
|
|
$
|
199,221
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
—
|
|
|
$
|
259,463
|
|
Intangible assets, net
|
|
|
—
|
|
|
|
2,414,844
|
|
Goodwill
|
|
|
—
|
|
|
|
4,440,932
|
|
Long-term assets - discontinued operations
|
|
$
|
—
|
|
|
$
|
7,115,239
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
11,022
|
|
Accrued liabilities
|
|
|
413,766
|
|
|
|
371,680
|
|
Current liabilities - discontinued operations
|
|
$
|
413,766
|
|
|
$
|
382,702
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Long-term deferred tax liability
|
|
$
|
—
|
|
|
$
|
23,943
|
|
Long-term
liabilities - discontinued operations
|
|
$
|
—
|
|
|
$
|
23,943
|
|
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 4. Business Combinations
During 2017, we completed several business
acquisitions. We have included the financial results of these business acquisitions in our unaudited condensed consolidated
financial statements from their respective dates of acquisition. Goodwill generated from all business acquisitions was 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 to license the trademark used by the underlying MMA business.
The Company completed no acquisitions during the six
months ended June 30, 2018.
The following acquisitions were completed during 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, $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 Condensed Consolidated Financial
Statements
(Unaudited)
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, if the gross profit was less than $265,000 during fiscal year 2017, all 108,289 shares
held in escrow will be forfeited. During the first quarter 2018, Management determined the target earn out threshold was
not met and as a result, Management anticipates the shares issued in conjunction with the earn out will be returned to the Company,
subject to the terms of the respective purchase agreement.
The following table reflects the final allocation
of the purchase price for SuckerPunch to identifiable assets, intangible assets, goodwill and identifiable liabilities:
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
Accounts receivable, net
|
|
|
—
|
|
Intangible assets
|
|
|
210,000
|
|
Goodwill
|
|
|
1,522,605
|
|
Total identifiable assets
|
|
$
|
1,732,605
|
|
Total identifiable liabilities
|
|
|
(46,258
|
)
|
Total purchase price
|
|
$
|
1,686,347
|
|
During the three months ended June 30, 2018,
the Company recognized an impairment charge of the net intangible assets and goodwill and fully wrote off these assets.
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. If the gross profit of Fight Time was less than $60,000
during fiscal year 2017, all 28,000 shares held in escrow were to be forfeited. During the first quarter 2018, Management
entered a separation agreement with the former owner of Fight Time and released the shares held under escrow.
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:
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
Accounts receivable
|
|
|
—
|
|
Intangible assets
|
|
|
140,000
|
|
Goodwill
|
|
|
231,468
|
|
Total identifiable assets
|
|
$
|
371,468
|
|
Total identifiable liabilities
|
|
|
—
|
|
Total purchase price
|
|
$
|
371,468
|
|
During the year ended December 31, 2017 the Company
recognized an impairment charge of the intangible assets and goodwill and fully wrote off these assets.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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, if the gross profit of NFC was less than $100,000 during the 12-month
period following the acquisition, all 81,991 shares held in escrow will be forfeited. Management
determined the target earn out threshold was not met and as a result, Management anticipates the shares issued in conjunction
with the earn out will be returned to the Company, subject to the respective purchase agreement.
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:
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
Accounts receivable
|
|
|
—
|
|
Fixed assets
|
|
|
20,000
|
|
Intangible assets
|
|
|
180,000
|
|
Goodwill
|
|
|
306,227
|
|
Total identifiable assets
|
|
$
|
506,227
|
|
Total identifiable liabilities
|
|
|
—
|
|
Total purchase price
|
|
$
|
506,227
|
|
In conjunction with the cessation of
the MMA operations, the Company wrote off the residual intangible and tangible assets which is included as a component of
discontinued operations – loss on disposal.
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. In conjunction with the settlement with the former owner of Fight Club OC, Roy Englebrecht, the shares held in
escrow were released as part of the separation agreement. 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:
|
|
Final Fair Value
|
|
Cash
|
|
$
|
159,000
|
|
Accounts receivable
|
|
|
—
|
|
Intangible assets
|
|
|
270,000
|
|
Goodwill
|
|
|
748,710
|
|
Total identifiable assets
|
|
$
|
1,177,710
|
|
Total identifiable liabilities
|
|
|
(159,000
|
)
|
Total purchase price
|
|
$
|
1,018,710
|
|
In conjunction with the cessation of
the MMA operations, the Company wrote off the residual intangible and tangible assets which is included as a component of
discontinued operations – loss on disposal.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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. Management
determined the target earn out threshold was not met and as a result, management anticipates the shares issued in conjunction
with the earn out will be returned to the Company, subject to the respective purchase agreement.
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:
|
|
Final Fair Value
|
|
Cash
|
|
$
|
—
|
|
Accounts receivable
|
|
|
32,180
|
|
Fixed assets
|
|
|
30,000
|
|
Intangible assets
|
|
|
290,000
|
|
Goodwill
|
|
|
578,167
|
|
Total identifiable assets
|
|
$
|
930,347
|
|
Total identifiable liabilities
|
|
|
(107,409
|
)
|
Total purchase price
|
|
$
|
822,938
|
|
In conjunction with the cessation of
the MMA operations, the Company wrote off the residual intangible and tangible assets which is included as a component of
discontinued operations – loss on disposal.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 5. Goodwill and Purchased Identifiable Intangible
Assets
Goodwill
In May 2018, the Company ceased all professional
MMA promotion operations and committed to an exit/disposal plan of the promotion businesses. In conjuction with the discontinued
operations, $4,440,932 of Goodwill was classified as Long term assets - discontinued operations within the December 31, 2017,
condensed consolidated balance sheet, which was disposed of during the second quarter 2018. Refer to “
Note 3 Discontinued
Operations
".
During the three and six months ended June 30, 2018, the Company
recorded a goodwill impairment of $1.5 million within the Athlete Management Segment. The impairment was identified as part of
Management’s review of impairment indicators. Accordingly, it was determined that the recoverable value of the reporting
unit was less than the carrying value and therefore, an impairment loss was recorded.
Goodwill
The change in the carrying amount of goodwill for the six
months ended June 30, 2018 is as follows:
Balance as of December 31, 2017
|
|
$
|
1,522,605
|
|
Impairment – goodwill
|
|
|
(1,522,605
|
)
|
Balance as of June 30, 2018
|
|
$
|
—
|
|
Intangible Assets
During the three and six months ended June 30, 2018, the Company
recorded an intangible impairment charge of $413,583 related to the write down of the ticketing software, trademark and brand,
fighter contracts, promoter relationships and sponsor relationships acquired intangible assets from the CageTix and SuckerPunch
business acquisitions.
The change in the carrying amounts of intangible assets
for the six months ended June 30, 2018 is as follows:
Balance as of December 31, 2017
|
|
$
|
472,250
|
|
Amortization
|
|
|
58,667
|
|
Impairment – intangibles
|
|
|
413,583
|
|
Balance as of June 30, 2018
|
|
$
|
—
|
|
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Identified intangible assets consist of the following:
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Intangible assets
|
|
Useful Life
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Impairment
|
|
|
Net
|
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Ticketing software
|
|
3 years
|
|
$
|
90,000
|
|
|
$
|
(52,500
|
)
|
|
$
|
37,500
|
|
|
$
|
—
|
|
|
$
|
90,000
|
|
|
$
|
(37,500
|
)
|
|
$
|
52,500
|
|
Trademark and brand
|
|
3 years
|
|
|
50,000
|
|
|
|
(25,000
|
)
|
|
|
25,000
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
(16,667
|
)
|
|
|
33,333
|
|
Fighter contracts
|
|
3 years
|
|
|
140,000
|
|
|
|
(21,000
|
)
|
|
|
119,000
|
|
|
|
—
|
|
|
|
140,000
|
|
|
|
(14,000
|
)
|
|
|
126,000
|
|
Promoter relationships
|
|
6 years
|
|
|
277,099
|
|
|
|
(57,516
|
)
|
|
|
219,583
|
|
|
|
—
|
|
|
|
277,099
|
|
|
|
(31,682
|
)
|
|
|
245,417
|
|
Sponsor relationships
|
|
4 years
|
|
|
20,000
|
|
|
|
(7,500
|
)
|
|
|
12,500
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
(5,000
|
)
|
|
|
15,000
|
|
Total intangible assets, gross
|
|
|
|
$
|
577,099
|
|
|
$
|
(163,516
|
)
|
|
$
|
413,583
|
|
|
$
|
—
|
|
|
$
|
577,099
|
|
|
$
|
(104,849
|
)
|
|
$
|
472,250
|
|
Amortization expense for the three months ended June 30,
2018 and 2017, was $29,333 and $29,333, respectively.
Amortization expense for the six months
ended June 30, 2018 and 2017, was $58,667 and
$58,667, respectively.
In May 2018, the Company ceased all professional MMA
promotion operations and committed to an exit/disposal plan of the promotion business. In conjunction with the discontinued
operations, $2.4 million of intangible assets, net, were classified as long term assets - discontinued operations within the
December 31, 2017, condensed consolidated balance sheet, which were disposed of during the second quarter 2018.
As
of June 30, 2018, the balance of intangible assets was $0.
Note 6. Debt
Notes Payable
In December 2017, the Company issued a promissory
note to 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.
In May 2018, the Company issued a promissory note to an individual
for $90,000 of borrowings for operating capital. The note had a maturity of June 30, 2018 and was paid in full in June 2018, including
interest of $625. The note was secured by our common shares in Round Table Creative, Inc., (d/b/a “SuckerPunch Entertainment”).
On May 9, 2018, the Company borrowed $200,000 from an
individual pursuant to a promissory note. The note bears interest at 40% annually and initially matured on June 25, 2018. In
June 2018, the note holder agreed to extend the maturity to December 31, 2018. Mr. Gamberale personally guaranteed the
note and Mr. Gamberale and Mr. Tracy agreed to subordinate their existing notes to the repayment of this note.
On June 28, 2018, the Company entered into
a Securities Purchase Agreement (“SPA”) with SCWorx Acquisition Corp. (“Purchaser”), under which the Company
agreed to sell up to $1M in principal amount of convertible notes and Warrants to purchase up to 671,142 shares of common stock.
The Note is convertible into shares of common stock at a conversion price of $0.3725 and the Warrants are exercisable for shares
of common stock at an exercise price of $0.3725.
On June 29, 2018, the Company sold the Purchaser
convertible notes in the principal amount of $500,000 and warrants to purchase 335,570 shares of common stock, for an aggregate
purchase price of $500,000. The Note bears interest at 10% annually and matures on June 27, 2019. The Purchaser has agreed in
the SPA to fund (i) a second tranche of $250,000 upon the signing of a merger agreement with the Purchaser and (ii) a third tranche
of $250,000 upon mutual agreement of the Purchaser and Company. Refer to Note 11
- Subsequent Events.
Repayment of the note is subject to acceleration in certain
circumstances. In the event of a default under the Note, the Company is required to pay an amount equal to 110% of all
amounts due under the Note. Negative covenants in the Note include restrictions on incurring additional indebtedness and
sales of assets without approval of the outside directors. The note may be prepaid at any time following issuance, subject to
payment of a variable premium ranging between 10% (redemption within 90 days of issuance) and 20% (redemption after 90 days).
If the Company enters into a merger/acquisition transaction or change of control transaction with a party other than the
Purchaser, then the Purchaser shall have the option to have the outstanding Notes and Warrants redeemed for an amount of cash
equal to their “Black Scholes Value.”
The
Company applied
a portion of the proceeds of the $500,000 note to repay the
aforementioned $90,000 promissory note. Accordingly,
the lien on the capital stock of SuckerPunch Entertainment has been released and the Company now owns that capital stock free and
clear of all liens.
As of June 30, 2018, the Company received
$554,375 under the agreement, of which $54,375 was remitted back to the purchaser in July 2018 as it was erroneously funded.
Related Party Promissory Notes
On April 10, 2018, the Company borrowed a total of $300,000
from two of its board members, Joseph Gamberale and Joel Tracy, pursuant to promissory notes of $150,000, respectively. The notes
bear interest at 12% annually and mature May 21, 2018. Mr. Gamberale personally guaranteed Mr. Tracy’s Note.
On May 21, 2018 Mr. Gamberale agreed to extend the
maturity to August 31, 2018. The repayment of this note is subordinate to the $200,000 promissory note of May 9, 2018. In
July 2018, Mr. Gamberale agreed to convert his note to common shares (at a rate of $.3725 per share) and warrants (25%
warrant coverage with an exercise price of $.3725 per share) (same terms as the SCWorx investment).
On May 21, 2018 Mr. Tracy agreed to extend the maturity to December
31, 2018.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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, comprised of 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 originally expired on June 30, 2019. In June 2018,
the Company abandoned the facility and on June 21, 2018 the sub-landlord filed suit against the Company for non-payment of rent.
Currently the Company is in negotiations to settle the remaining payments due under the leases and has accrued the remaining amount
due of $167,475, at June 30, 2018, within current liabilities - discontinued operations of the condensed consolidated balance
sheet.
With the acquisition of FCOC, the Company assumed a lease
for office space in Orange County, California. The lease originally expires in September 2018. In conjunction with the
discontinued operations the Company agreed to sell Fight Club OC to the former owner Roy Englebrecht which included the
Orange County, California office lease.
Lease expense for the Cherry Hill, New Jersey and Orange
County, CA facilities is included as a component of discontinued operation - general and administrative expense.
Each of the acquired businesses operated from home offices or shared
office space arrangements.
Warrants
In conjunction with the stock offering completed in January
2018, the Company issued warrants with a provision requiring the Company to pay the warrant holder the Black - Scholes value of
the warrant upon a fundamental transaction. On August 20, 2018, the Company entered into a stock Exchange Agreement with SC Work
Corp. which upon closing will qualify as a fundamental transaction within the warrant agreement. For illustration purposes only,
if the stock price at closing was $0.67, the Black - Scholes value world approximate $0.53 per share based upon todays volatility
and risk-free interest rate. As of August 30, 2018, there were 1,742,250 warrants outstanding which are subject to this Black
– Scholes payout provision.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Contingencies
Legal Proceedings
In conducting our business, 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, respectively, 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 carrier for our directors and
officers liability insurance policy has agreed to cover Alliance’s financial obligations, including legal fees, under the
settlement arrangement, subject to our payment of a deductible of $250,000, of which approximately $103,000 is included within
accounts payable. The complaint is scheduled for final dismissal in October 2018.
In October 2017, a shareholder derivative claim based on the
same facts that were alleged in the class action complaints was filed against the directors of the Company in the District
Court for the District New Jersey; however, a complaint was not served on the defendants and, on February 2, 2018 the claim
was dismissed by the District Court.
In June 2018, the landlord of our Cherry Hill, New Jersey
office filed suit against the Company for non-payment of rent. Currently the Company is in negotiations to settle
the remaining payments due under the lease. The Company recorded $167,000 of expense related to the lease within
discontinued operations - general and administrative for the cost of the remaining payments under the lease agreement. This
amount is accrued for at June 30, 2018 within the current liabilities - discontinued operations balance.
In June 2018, the Company’s former President, Robert
Haydak, filed suit against the Company. The Company and Mr. Haydak resolved the suit effective July 2018 with the Company
agreeing on a cash settlement of $50,000, and delivery of certain MMA promotion fixed assets. The Company has accrued the
settlement as of June 30, 2018 which is included within discontinued operations - general and administrative expense
and current liabilities - discontinued operations balance.
Earn Out
Management evaluated the financial performance of CFFC,
COGA, HFC, Shogun, V3, CageTix, and IT Fight Series 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 in
2017 of approximately $310,000 related to Shogun’s financial results. In conjunction with the cessation of the
professional MMA promotions, the Company sold the Shogun promotion to the former owner and settled the earn out liability
with the issuance of 366,072 options with an exercise price of $0.35 per option and Black-Scholes value of $94,000.
Note 8. Stockholders’ Equity
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 secondary 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 original exercise price of
$1.10 per share.
The warrants have a price provision (“ratchet”)
in cases where the Company sells common stock or settles liabilities with equity. During June, July and August, the Company completed
qualifying transactions under the SCWorx note resulting in the warrant exercise price being adjusted to $0.31 in June and $0.29,
the floor exercise price, in July. Based upon ASU 2017-11, the decrease in the exercise price of the warrant has been fair valued
at approximately $190,000 and accounted for as a non-cash dividend within the condensed consolidated balance sheet. The warrant
also has a provision requiring the Company to pay the warrant holders the Black-Scholes value of the warrant upon consummation
of a fundamental transaction. On August 20, 2018, the Company entered a stock exchange agreement with SCWorx which, upon closing,
meets this definition.
The Offering price was $1.00 per share of Common Stock and related Warrant and
the Underwriter had 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 underwriter exercised this option is February 2018 resulting in an additional $50,000 from the
sale and issuance of 50,000 shares and 272,500 warrants. 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 and overallotment
were approximately $2.2 million before underwriting discounts and commissions and other 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.
One of our board members, Joseph Gamberale, participated in
the offering and acquired 25,000 units which included 22,500 warrants.
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 half a share of common stock, 195,000
shares in total, at an exercise price of $1.75 per share.
The warrant issued with the October common stock placement included
a ratchet provision for cases where the Company sells common stock or settles liabilities with equity. The Company completed a
transaction which resulted in the warrant exercise price being adjusted to $1.10. Based upon ASU 2017-11, the decrease in the exercise
price of the warrant has been fair valued at approximately $10,000 and accounted for as a non-cash dividend within the condensed
consolidated balance sheet.
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.
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 had a term
of ten years, an exercise price of $4.50, and a grant date fair value of $364,326, and vested one third of the shares on the
one year anniversary of the grant date and one third annually thereafter. The Company recognized $61,000 of stock-based
compensation expense during the six months ended June 30, 2018. On June 6, 2018, the Company cancelled the original stock
option grant and issued a new stock option grant to acquire 200,000 shares of the Company’s common stock. The stock
option has a term of five years, an exercise price of $0.36, was vested upon grant, and had a grant date fair value of
$42,000. The Company determined the fair value of the stock option using the Black - Scholes model.
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. In February 2018, Mr. Byrne was terminated, and in May 2018,
the Company entered a separation agreement for $25,000 and agreed to cancel Mr. Byrne’s existing stock option grant and
issue a new award. On June 27, 2018, the Company issued a stock option grant outside the 2016 Equity Incentive Plan to acquire
100,000 shares of the Company’s common stock. The stock option has a term of 5 years, an exercise price of $0.31 per share,
was vested upon grant, and had a grant date fair value of $17,000. The Company determined the fair value of the stock option using
the Black- Scholes model.
On May 25, 2018, the Company commenced the cessation of the
professional MMA promotion business. In relation to the disposal of the Iron Tiger Fight Series promotion, the Company awarded
the former owner, Scott Sheeley, a stock option grant to acquire 30,000 shares of the Company’s common stock. The stock option
has a term of five years, and on exercise price of $0.35 and a Black - scholes value of $7,674, which is included as a component
of discontinued operations - general and administrative expense.
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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. In
May 2018, in conjunction with the cessation of the professional MMA business, three of the employees were terminated, and
100,000 unvested options were returned to the plan. The Company recognized $21,000 and $62,000 of stock-based
compensation expense during the six months ended June 30, 2018 and 2017, respectively. The Company recognized a net benefit
of ($10,400) from the forfeiture of stock options during the three months ended June 30, 2018 and $31,100 of expense for the
three months ended June 30, 2017.
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.
In March 2018, the Board of Directors authorized a
stock option grant to Robert Mazzeo, CEO and Ira Rainess EVP of Business Affairs. Mr. Mazzeo’s award was for 250,000
shares 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. As of the date of this report the option agreements had not been issued.
On May 25, 2018, the Company commenced cessation of the
professional MMA promotion business. In relation to the disposal of the Shogun promotion, the Company awarded the former
owner, John Rallo, a stock option grant to acquire 366,072 shares of the Company’s common stock. The stock option was
vested upon grant, has a term of five years, an exercise price of $0.35 and a Black-Scholes value of $94,000. The
option award was issued as settlement of the $310,000 earn-out, the Company realized a gain of $216,000, which is included as
a component of discontinued operations - general and administrative expense.
On June 6, 2018, the Company awarded Joe Gamberale, the
Company’s board member, a stock option grant to acquire 150,000 shares of the Company’s common
stock. The option has a term of five years, an exercise price of $0.36, and a grant date fair value of $38,000, and was fully-vested
upon grant. The Company determined the fair value of the stock option using the Black-Scholes model.
On June 6, 2018, the Company awarded Joel Tracy, the
Company’s board member, a stock option grant to acquire 150,000 shares of the Company’s common
stock. The option has a term of five years, an exercise price of $0.36, and a grant date fair value of $38,000, and was fully-vested
upon grant. The Company determined the fair value of the stock option using the Black-Scholes model.
On June 6, 2018, the Company awarded Burt Watson, the
Company’s board member, a stock option grant to acquire 150,000 shares of the Company’s
common stock. The option has a term of five years, an exercise price of $0.36, and a grant date fair value of $38,000, and
was fully-vested upon grant. The Company determined the fair value of the stock option using the Black-Scholes model.
On June 6, 2018, the Company awarded Burt Watson, the
Company’s Vice President of Operations, a stock option grant to acquire 75,000 shares of the Company’s
common stock. The option has a term of five years, an exercise price of $.036, and a grant date fair value of $19,100, 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.
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. The Company determined the fair value of the warrant to be $169,000 which was expensed in the
second quarter 2017. The Company determined the fair value of the warrant using the Black-Scholes model.
On January 12, 2018, the Company entered into a service agreement
with National Services, LLC (“National”), and issued a warrant to acquire 100,000 shares of the Company’s common
stock. The warrant has an exercise price of $1.10, term of five years and was vested upon grant. The service agreement
allowed National to earn up to 300,000 additional warrants, each with an exercise price of $1.10 and five-year term, based upon
achieving certain designated milestones. The Company is in negotiations to terminate the agreement. The Company determined the fair value of the warrant to be $38,000 which was expensed in the first quarter
2018. The Company determined the fair value of the warrant using the Black-Scholes model.
On April 11, 2018, the Company entered into a
service agreement with a consultant, and issued a warrant to acquire 100,000 shares of the Company’s common stock. The
warrant has an exercise price of $1.10, term of five years and was vested upon grant. The Company determined the fair value
of the warrant using the Black-Scholes model and determined the value to be $25,580, which was expensed during the second
quarter 2018.
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 June 30, 2018 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, 2017
|
|
|
2,239,574
|
|
|
$
|
2.54
|
|
|
|
725,000
|
|
|
$
|
3.15
|
|
Granted
|
|
|
2,742,820
|
|
|
|
0.38
|
|
|
|
1,221,072
|
|
|
|
0.35
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled/Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(400,000
|
)
|
|
|
4.03
|
|
Balance at June 30, 2018
|
|
|
4,982,394
|
|
|
$
|
1.33
|
|
|
|
1,546,072
|
|
|
$
|
0.71
|
|
Exercisable at June 30, 2018
|
|
|
4,982,394
|
|
|
$
|
1.33
|
|
|
|
1,462,739
|
|
|
$
|
0.38
|
|
As of June 30, 2018 and 2017, the total
unrecognized expense for unvested stock options, net of expected forfeitures, was approximately $220,000 and $668,000,
respectively. None of the unrecognized expense is related to our discontinued operations.
Stock-based compensation expense for the three and six
months ended June 30, 2018 and 2017 is as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
General and administrative expense
|
|
$
|
228,161
|
|
|
$
|
230,877
|
|
|
$
|
334,299
|
|
|
$
|
292,353
|
|
Stock-based compensation expense included in discontinued
operations for the three and six months ended June 30, 2018 and 2017 is as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
General and administrative expense
|
|
$
|
107,759
|
|
|
$
|
10,372
|
|
|
$
|
118,130
|
|
|
$
|
268,625
|
|
Stock-based compensation expense categorized by the equity components
for the three months ended June 30, 2018 and 2017 is as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Employee stock options
|
|
$
|
202,581
|
|
|
$
|
61,476
|
|
|
$
|
270,719
|
|
|
$
|
122,952
|
|
Warrants
|
|
|
25,580
|
|
|
|
169,401
|
|
|
|
63,580
|
|
|
|
169,401
|
|
Common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
228,161
|
|
|
$
|
230,877
|
|
|
$
|
334,299
|
|
|
$
|
292,353
|
|
Alliance MMA, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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 from continuing operations per share and net loss per share
for the periods presented:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net loss from
continuing operations
|
|
$
|
(3,354,612
|
)
|
|
$
|
(1,347,595
|
)
|
|
$
|
(4,391,864
|
)
|
|
$
|
(2,474,329
|
)
|
Non-cash dividend
|
|
|
200,000
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
—
|
|
Adjusted net
loss from continuing operations for common shareholders
|
|
$
|
(3,554,612
|
)
|
|
$
|
(1,347,595
|
)
|
|
$
|
(4,591,864
|
)
|
|
$
|
(2,474,329
|
)
|
Weighted-average common shares used in computing net loss per share, basic and diluted
|
|
|
14,862,974
|
|
|
|
9,510,460
|
|
|
|
14,729,825
|
|
|
|
9,400,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.24
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.26
|
)
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net loss
|
|
$
|
(7,928,601
|
)
|
|
$
|
(2,304,075
|
)
|
|
$
|
(12,432,521
|
)
|
|
$
|
(4,673,908
|
)
|
Non-cash dividend
|
|
|
200,000
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
—
|
|
Adjusted net
loss for common shareholders
|
|
$
|
(8,128,601
|
)
|
|
$
|
(2,304,075
|
)
|
|
$
|
(12,632,521
|
)
|
|
$
|
(4,673,908
|
)
|
Weighted-average common shares used in computing net loss per share, basic and diluted
|
|
|
14,862,974
|
|
|
|
9,510,460
|
|
|
|
14,729,825
|
|
|
|
9,400,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.55
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(0.50
|
)
|
The following securities were excluded
from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Stock
options (exercise price $0.31 - $4.50 per share)
|
|
|
1,546,072
|
|
|
|
500,000
|
|
|
|
1,546,072
|
|
|
|
500,000
|
|
Warrants
(exercise price $0.31 - $7.43)
|
|
|
4,646,824
|
|
|
|
565,813
|
|
|
|
4,646,824
|
|
|
|
565,813
|
|
Total
common stock equivalents
|
|
|
6,192,896
|
|
|
|
1,065,813
|
|
|
|
6,192,896
|
|
|
|
1,065,813
|
|
Note 10. Segments
Beginning in the fourth quarter of 2017, the Company began
reporting its financial results within two reportable segments: (1) Ticket Services and (2) 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 Financial Officer
is the Chief Operating Decision Maker (“CODM”) as defined by the authoritative guidance on segment reporting. The
Ticket Services segment includes the ticketing services business of CageTix. The Ticketing Services segment provides event
ticket services to third parties 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) / income for the periods indicated:
|
|
Three Months, Ended June 30, 2018
|
|
|
|
Ticket Service
|
|
|
Athlete Management
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
24,807
|
|
|
$
|
155,850
|
|
|
$
|
—
|
|
|
$
|
180,657
|
|
Operating expenses
|
|
|
37,575
|
|
|
|
176,274
|
|
|
|
3,321,420
|
|
|
|
3,535,269
|
|
Operating (loss)
|
|
$
|
(12,768
|
)
|
|
$
|
(20,424
|
)
|
|
$
|
(3,321,420
|
)
|
|
$
|
(3,354,612
|
)
|
|
|
Six Months, Ended June 30, 2018
|
|
|
|
Ticket Service
|
|
|
Athlete Management
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
116,140
|
|
|
$
|
347,092
|
|
|
$
|
25,000
|
|
|
$
|
488,232
|
|
Operating expenses
|
|
|
78,553
|
|
|
|
302,143
|
|
|
|
4,499,400
|
|
|
|
4,880,096
|
|
Operating (loss)/income
|
|
$
|
37,587
|
|
|
$
|
44,949
|
|
|
$
|
(4,474,400
|
)
|
|
$
|
(4,391,864
|
)
|
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 June 30, 2018, 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.
Note 11. Subsequent Events
Legal Settlement – Robert Haydak
In June 2018, the Company’s former President, Robert Haydak,
filed suit against the Company. The Company and Mr. Haydak resolved the suit effective July 2018 with the Company agreeing on a
cash settlement of $50,000 and delivery of certain MMA promotion fixed assets. The Company has accrued the settlement as of June
30, 2018 which is included within discontinued operations - general and administrative expense.
Related Party Note Payable
On July 5, 2018, Joe Gamberale, a director of the Company, agreed
to convert $150,000 of Company debt into 402,685 shares of common stock and warrants to purchase 100,671 shares of common stock
at an exercise price of $0.3725 (the same basic terms as the SCWorx investment outlined above (a conversion rate and exercise price
of $0.3725, with the same warrant coverage).
Consulting Agreement
In July 2018, the Company engaged a valuation expert to complete
valuation procedures of behalf of management and the Board with a cost of $100,000.
Employee Settlement
In July 2018, the Company entered a settlement
agreement, effective as of May 31, 2018, with a former employee, in relation to the termination of his employment. The Company
agreed to pay the former employee $129,800 and issue a fully vested stock option grant dated July 30, 2018 for 75,000 common shares
with a life of 5 years and exercise price of $0.20.
SCWorx Transactions
Pursuant to the SCWorx SPA, on July 31, 2018, the Company sold
the Purchaser convertible notes in the principal amount of $60,000 and warrants to purchase 40,269 shares of common stock, for
an aggregate purchase price of $60,000. The Note bears interest at 10% annually and matures on July 31, 2019. The warrant has an
exercise price of $0.37525, term of five years and was vested upon grant.
On August 20, 2018, the Company entered into the Stock Exchange
Agreement (SEA) with SCWorx Corp., a software as services (SAAS) company servicing the healthcare industry. Under the Agreement,
the Company agreed to purchase from the SCWorx shareholders all the issued and outstanding capital stock of SCWorx, in exchange
for which the Company agreed to issue at the closing that number of shares of Company common stock equal to the quotient of $50,000,000
divided by the closing price of the Company’s common stock upon the completion of the acquisition (subject to a cap of $0.67
per share).
Pursuant to the SCWorx SPA, on August 21, 2018, SCWorx
funded $160,000 of the remaining $190,000 of the $250,000 tranche which was due upon execution of the Stock Exchange
Agreement with SCWorx and issued warrants to purchase 127,517 shares of common stock. SCWorx has to date funded $720,000 of
the aggregate $1 million contemplated by the SCWorx SPA. The warrant has an exercise price of $.3725, term of five years,
and was vested upon grant.
Consummation of the transactions contemplated by the SEA is
subject to satisfaction of a variety of conditions, including approval by the Company and SCWorx’ shareholders and the combined
company meeting the listing qualifications for initial inclusion on the Nasdaq Stock Market.
Consequently, there is no assurance that the Company will be
able to consummate the transactions contemplated by the SEA. If the Company completes the planned acquisition, management may dispose
of the fighter management and ticketing businesses and focus on the SCWorx SAAS business, which is focused on streamlining the
three core healthcare provider systems; Supply Chain, Financial and Clinical (EMR) enabling providers’ enterprise systems
to work as one automated and seamless business management system.
SCWorx offers an advanced software solution
for the management of health care providers’ foundational business applications, empowering its customers to significantly
reduce costs, drive better clinical outcomes and enhance their revenue. SCWorx supports the interrelationship between the three
core healthcare provider systems: Supply Chain, Financial and Clinical. This solution moves data from one application to another
to drive supply cost reductions, optimize contracts, increase supply chain management (SCM) cost visibility and control rebates
and contract administration fees.
Employee Separation
In August 2018, the Company entered a separation agreement with
a former employee in relation to an employment agreement. The Company agreed to pay the former employee $50,000 in exchange for
terminating the employment agreement.
Warrant Exercise
Subsequent to the announcement of the SCWorx
acquisition, as of August 31, 2018 the Company has received warrant exercise notices resulting in the issuance of 465,000
shares and gross proceeds of approximately $135,000.
NASDAQ Notice
As previously reported, the Company has not been in compliance
with Nasdaq’s minimum bid price requirement of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2), for continued
listing on Nasdaq. On August 29, 2018, the Nasdaq officially notified the Company that it (i) did not meet the Nasdaq’s
stockholder equity requirement of $2.5 million for continued listing, as set forth in Nasdaq Listing Rule 5550(b)(1), (ii) continues
to not meet the Nasdaq’s minimum bid price requirement of $1.00 per share, for continued listing, as set forth in Nasdaq
Listing Rule 5550(a)(2), and (iii) did not meet the Nasdaq periodic reporting requirement set forth in Nasdaq Listing Rule 5250(c)(1)
because the Company had not as of August 29, 2018, filed this Quarterly Report on Form 10Q for the quarter ended June 30 ,2018.
As a result, per the Nasdaq Notice, the Company’s
securities will be scheduled for delisting from The Nasdaq Capital Market and will be suspended at the opening of business on
September 7, 2018, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which
will remove the Company’s securities from listing and registration on The Nasdaq Stock Market, unless the Company
requests an appeal of the Nasdaq’s determination, which the Company intends to request. On August 30, 2018, the Company
requested a hearing to appeal the Nasdaq’s delisting determination, which had the effect of staying the delisting
during the pendency of the appeal.
However, since one of the bases for delisting set forth in the
Nasdaq Notice is a delinquent periodic report, the request for an appeal stays the suspension of trading on Nasdaq for only 15
days, but the filing of the delinquent periodic report (this Quarterly Report on Form 10Q) cures this delinquency, with the effect
being that the Company’s common stock should trade on Nasdaq and the delisting will be stayed during the pendency of the
Company’s appeal to Nasdaq. Nevertheless, the Company also filed a request for an extended stay which, if granted, would
stay the suspension of trading during the pendency of the appeal.
As noted above, the Company has noticed an appeal of the delisting
determination to the Nasdaq and, in connection with such appeal, the Company intends to present to the Nasdaq the Company’s
plan for meeting the Nasdaq’s original listing qualifications, in connection with the closing of the business combination
of SCWorx. In order for the Company’s common stock to qualify for listing on the Nasdaq Stock Market following completion
of the acquisition, the Company will be required to meet the Nasdaq’s listing standards for original listing (including among
others its minimum bid price of $4 per share and minimum $5 million of stockholders’ equity).
The Company expects that, on a combined basis with SCWorx,
it should be able to meet the Nasdaq’s requirements for original listing. If the Company does not prevail on appeal, the
Company’s common stock would be delisted from the Nasdaq Stock Market, which would result in the failure of a closing condition
to the SCWorx business combination, which, if not waived by SCWorx, would result in the termination of such transaction, which
would have a material adverse effect on the Company.