Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.5.0.2
Acquisitions
 9 Months Ended
Sep. 30, 2016
Business Combination Disclosure [Text Block]
Note 5. Acquisitions
 
Target Companies and Target Assets
 
The Company completed the first tranche of its IPO on September 30, 2016, and closed the acquisitions of the businesses of the Target Companies and the Target Assets by making cash payments totaling $1,391,736, Net, and issuing 1,377,531 shares of common stock. In October 2016, the Company issued the final payment of $129,500 to Louis Neglia. The acquisition of the Target Companies has been accounted for as a business acquisition, under the acquisition method of accounting.
 
The Target Companies are as follows:
 
CFFC Promotions, LLC
 
Based in Atlantic City, New Jersey, CFFC was founded in 2011 and has promoted over 58 professional MMA events, primarily in New Jersey and Pennsylvania. Ranked in the top 10 of all regional MMA promotions, CFFC currently airs on the CBS Sports Network as well as www.gfl.tv. and has sent 23 fighters to the UFC. CFFC’s Robert Haydak and Mike Constantino serve as the Company’s President and Director of Business Development, respectively, Devon Mathiesen will serve as General Manager of CFFC.
 
Hoosier Fight Club Promotions, LLC
 
Based in the Chicago metropolitan area, HFC was founded in 2009 and has promoted over 26 events, including the first sanctioned event in Indiana in January, 2010. HFC has sent or promoted eight fighters to the UFC and several to Invicta Fighting Championships. HFC’s Danielle Vale serves as Regional Vice President in the Chicago area market.
 
Punch Drunk, Inc. d/b/a COmbat GAmes MMA
 
Based in Kirkland, Washington, COGA was founded in 2009 and has promoted over 46 shows primarily in Washington State. COGA frequently airs on ROOT Sports Pacific Northwest regional network as well as www.gfl.tv. COGA’s founder Joe DeRobbio serves as Regional Vice President for the Pacific Northwest region.
 
Bang Time Entertainment LLC d/b/a Shogun Fights
 
Based in Baltimore, Maryland, Shogun was founded in 2008 and has promoted 14 fights at the Royal Farms Arena in Baltimore, the same venue that hosted UFC 174 in April of 2014. A premier mid-Atlantic regional MMA promotion, Shogun Fights currently airs on Comcast Sportsnet as well as www.gfl.tv. Shogun’s founder John Rallo serves as our Regional Vice President for the mid-Atlantic region.
 
V3, LLC
 
Based in Memphis, Tennessee, V3 Fights was founded in 2009 and has promoted 45 events primarily at event centers in Memphis, Tennessee and elsewhere in Tennessee, Mississippi and Alabama. V3Fights is the mid-South’s premier MMA promotion and has been broadcast live on Comcast Sports South as well as www.ustream.com, www.YouTube.com. V3Fights founder Nick Harmeier serves as Regional Vice President for the mid-South region.
 
Go Fight Net, Inc.
 
Founded in 2010, Go Fight Net operates “GoFightLive” or “GFL” a sports media and technology platform focusing exclusively on the combat sports marketplace. With a media library containing 11,000 titles comprising approximately 10,000 hours of unique video content, and the addition of approximately 1,200 hours of new original content annually, GFL maintains the largest continuously growing database of MMA events, fighters, and fight videos in the world. The GFL fighter database contains information on over 25,000 professional and amateur combat sports fighters and over 18,000 fights. GFL combines proprietary technology with content production and acquisition to deliver diverse and compelling content to a global audience. GFL’s content is distributed globally in all broadcast media through its proprietary distribution platform via cable/satellite, Internet, IPTV and mobile protocols. The GFL platform utilizes GFL’s proprietary scalable online master control technology that enables viewers using a broad range of devices and formats to obtain large amounts of video and other content. GFL broadcasts an average of 450 live events annually (having broadcast 2,500 events since inception) to viewers in over 175 countries. GFL has produced 150 episodes of the GoFightLiveTM “real fights” series airing weekly on Comcast Sports Net, SNY and other networks globally.
 
Cagetix LLC
 
Founded in 2009 by Jay Schneider, a seasoned MMA event promoter, CageTix is the first group sales service to focus specifically on the MMA industry. CageTix is intended to be complementary to any existing ticket service such as Ticketmaster or box office sales used by a promotion. CageTix presently services the industry’s top international mixed martial arts events including Legacy, RFA, Bellator MMA, King of the Cage, and Glory. Since its inception, CageTix has sold tickets for over 1200 MMA events and currently services 64 MMA promotions operating in 106 cities. In 2014, CageTix sold 15,883 tickets to 6,391 customers. Formerly the founder of Victory Fighting Championships, Jay Schneider is a member of the Nebraska Athletic Commission and was a senior columnist for Ultimate MMA magazine under the pen name ‘Victory Jay’ for over a decade. Jay Schneider serves as Vice President.
 
Acquisition of the Target Assets
 
In addition to the acquisition of the businesses of the Target Companies, the Company also acquired the MMA video libraries of two prominent regional promotions. The fight libraries consist of the following:
 
Hoss Promotions, LLC (“Hoss”)
 
An affiliate of CFFC, Hoss owns the intellectual property rights to approximately 30 MMA events promoted by CFFC. The Company has acquired the exclusive rights to the Hoss fighter library, which covers approximately 100 hours of video content.
 
Ring of Combat, LLC (“Ring of Combat”)
 
Based in Brooklyn, New York, and founded by MMA icon and three-time World Kickboxing Champion Louis Neglia (34-2), Ring of Combat is currently ranked as the No. 4 regional promotion in the world by Sherdog.com, a website devoted to the sport of mixed martial arts that is owned indirectly by Evolve Media, LLC.
 
On September 30, 2016, the Company acquired the exclusive rights to the Ring of Combat fighter library, which includes professional MMA, amateur, and kickboxing events and covers approximately 200 hours of video content. Ring of Combat has sent approximately 90 fighters to the UFC. The Company has also secured the media rights to all future Ring of Combat promotions.
 
Preliminary Purchase Allocation
 
As consideration for the acquisitions of the businesses of the Target Companies and the Target Assets, the Company delivered the following amounts of cash and shares of common stock, and recorded a contingent liability related to the specified earn outs.
 
 
 
 
 
 
 
Consideration
 
Contingent
 
Total
 
Total
 
Target Company
 
Cash
 
Shares
 
Paid
 
Consideration
 
Shares
 
Consideration
 
Shogun
 
$
250,000
 
 
111,111
 
$
750,000
 
$
174,219
 
 
149,826
 
$
924,219
 
CageTix
 
 
150,000
 
 
38,889
 
 
325,000
 
 
75,621
 
 
55,694
 
 
400,621
 
CFFC Promotions
 
 
235,000
 
 
470,000
 
 
2,350,000
 
 
184,632
 
 
511,029
 
 
2,534,632
 
GFL
 
 
450,000
 
 
419,753
 
 
2,338,889
 
 
—
 
 
419,753
 
 
2,338,889
 
HFC
 
 
120,000
 
 
106,667
 
 
600,000
 
 
60,170
 
 
120,038
 
 
660,170
 
COGA
 
 
80,000
 
 
75,556
 
 
420,000
 
 
182,890
 
 
116,198
 
 
602,890
 
V3 Fights
 
 
100,000
 
 
111,111
 
 
600,000
 
 
38,862
 
 
119,747
 
 
638,862
 
Total Target Companies
 
$
1,385,000
 
 
1,333,087
 
$
7,383,889
 
$
716,394
 
 
1,492,285
 
$
8,100,283
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hoss
 
$
100,000
 
 
44,444
 
$
300,000
 
$
—
 
 
44,444
 
$
300,000
 
Louis Neglia
 
 
155,000
 
 
—
 
 
155,000
 
 
—
 
 
—
 
 
155,000
 
Total Target Assets
 
$
255,000
 
 
44,444
 
$
455,000
 
$
-
 
 
44,444
 
$
455,000
 
Total
 
$
1,640,000
 
 
1,377,531
 
$
7,838,889
 
$
716,394
 
 
1,536,729
 
$
8,555,283
 
 
The number of shares of common stock paid as consideration was calculated based on the IPO public offering price of $4.50 per share. 
 
The following table reflects the preliminary allocation of the purchase price for the Target Assets and the businesses of the Target Companies to identifiable assets, liabilities assumed and pro forma intangible assets and goodwill:
 
 
 
Target Companies
 
Target Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Louis
 
 
 
Total
 
Shogun
 
CageTix
 
CFFC
 
GFL
 
HFC
 
COGA
 
V3 Fights
 
Hoss
 
Neglia
 
Cash and equivalents
 
$
118,764
 
$
13,131
 
$
48,969
 
$
551
 
$
42,081
 
$
11,194
 
$
2,838
 
$
—
 
$
—
 
$
—
 
Accounts receivable and other current assets, net
 
 
30,599
 
 
20,603
 
 
—
 
 
3,000
 
 
900
 
 
1,096
 
 
5,000
 
 
—
 
 
—
 
 
—
 
Property and equipment, net
 
 
23,661
 
 
—
 
 
—
 
 
4,448
 
 
13,174
 
 
—
 
 
6,039
 
 
—
 
 
—
 
 
—
 
Intangible assets
 
 
5,963,436
 
 
52,500
 
 
360,559
 
 
1,437,000
 
 
2,041,677
 
 
653,775
 
 
519,300
 
 
443,625
 
 
300,000
 
 
155,000
 
Goodwill
 
 
2,706,374
 
 
867,170
 
 
82,161
 
 
1,113,733
 
 
279,264
 
 
19,567
 
 
99,049
 
 
245,430
 
 
—
 
 
—
 
Total identifiable assets
 
$
8,842,834
 
$
953,404
 
$
491,689
 
$
2,558,732
 
$
2,377,096
 
$
685,632
 
$
632,226
 
$
689,055
 
$
300,000
 
$
155,000
 
Accounts payable and accrued expenses
 
 
287,551
 
 
29,185
 
 
91,068
 
 
24,100
 
 
38,207
 
 
25,462
 
 
29,336
 
 
50,193
 
 
—
 
 
—
 
Total identifiable liabilities
 
$
287,551
 
$
29,185
 
$
91,068
 
$
24,100
 
$
38,207
 
$
25,462
 
$
29,336
 
$
50,193
 
$
—
 
$
—
 
Total purchase price
 
$
8,555,283
 
$
924,219
 
$
400,621
 
$
2,534,632
 
$
2,338,889
 
$
660,170
 
$
602,890
 
$
638,862
 
$
300,000
 
$
155,000
 
 
Under acquisition accounting, assets and liabilities acquired are recorded at their fair value on the acquisition date, with any excess in purchase price over these values being allocated to identifiable intangible assets and goodwill at September 30, 2016.
 
The respective asset purchase agreements for the Target Companies other than GFL, and the agreement and plan of merger for GFL, contemplate the acquisition of certain assets and assume certain liabilities. Due to the short-term nature of many of the assets acquired, their carrying values, as shown in the historical financial statements of the companies, approximate their respective fair values. In addition, value has been assigned to those intangible assets related to intellectual property rights to video libraries, ticketing software and customer and venue relationships of each Target Company. The goodwill recognized for these acquisitions is related primarily to synergies with the combined businesses and assembled workforce.
 
Goodwill and Identifiable Intangible Assets
 
Goodwill
 
The change in the carrying amount of goodwill for the nine months ended September 30, 2016 is as follows:
 
Balance as of December 31, 2015
 
$
-
 
Goodwill acquired
 
 
2,706,374
 
Balance as of September 30, 2016
 
$
2,706,374
 
 
Intangible Assets
 
Management’s preliminary estimates of each intangible asset type/category is based upon the nature of the businesses and the contracts entered into with each of the Target Companies and intellectual property rights of video libraries of the Target Assets. The acquisitions bring value to the business platform through their reputations as premier MMA promotional companies and their extensive video libraries, ticketing platforms, and customer and venue relationships. As such, the intellectual property rights of video libraries, ticketing software, and customer and venue relationships comprise the significant majority of management’s estimate of intangible assets. The preliminary estimated useful lives of intangible assets are based upon each asset’s contribution to the business platform and growth strategy. All estimates are preliminary.
  
 
 
Useful
 
 
 
Sho
 
 
 
 
 
 
 
 
 
 
 
V3
 
 
 
Louis
 
Intangible assets
 
Life
 
Total
 
Gun
 
CageTix
 
CFFC
 
GFL
 
HFC
 
COGA
 
Fights
 
Hoss
 
Neglia
 
Video library, intellectual property
 
5 years
 
$
3,636,477
 
$
52,500
 
$
—
 
$
397,000
 
$
2,041,677
 
$
197,000
 
$
352,300
 
$
141,000
 
$
300,000
 
$
155,000
 
Venue contracts
 
3 years
 
 
1,966,400
 
 
—
 
 
—
 
 
1,040,000
 
 
—
 
 
456,775
 
 
167,000
 
 
302,625
 
 
—
 
 
—
 
Ticketing software
 
3 Years
 
 
360,559
 
 
—
 
 
360,559
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Total intangible assets
 
 
 
$
5,963,436
 
$
52,500
 
$
360,559
 
$
1,437,000
 
$
2,041,677
 
$
653,775
 
$
519,300
 
 
443,625
 
$
300,000
 
$
155,000
 
  
Since the intangible assets were acquired on September 30, 2016, there is no amortization expense for the three or nine months ended September 30, 2016.
 
As of September 30, 2016, estimated amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows:
 
The remainder of 2016
 
$
375,737
 
2017
 
 
1,502,948
 
2018
 
 
1,502,948
 
2019
 
 
1,309,035
 
2020
 
 
727,295
 
Thereafter
 
 
545,473
 
 
 
$
5,963,436
 
 
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the nine months ended September 30, 2016
(In thousands, except share information)
 
 
 
Target Companies - Actual Results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Target
 
 
 
 
 
Forma
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
V3
 
Companies
 
Alliance
 
Total
 
Adjusting
 
Pro
 
 
 
Shogun
 
CageTix
 
CFFC
 
GFL
 
HFC
 
COGA
 
Fights
 
Subtotal
 
MMA
 
Results
 
Entries
 
Forma Results
 
Revenue
 
$
302
 
$
106
 
$
432
 
$
340
 
$
193
 
$
90
 
$
97
 
$
1,559
 
$
—
 
$
1,559
 
$
—
 
$
1,559
 
Cost of revenues
 
 
204
 
 
—
 
 
337
 
 
231
 
 
133
 
 
50
 
 
62
 
 
1,016
 
 
—
 
 
1,016
 
 
—
 
 
1,016
 
Gross profit
 
 
98
 
 
106
 
 
95
 
 
109
 
 
60
 
 
40
 
 
35
 
 
543
 
 
—
 
 
543
 
 
 
 
 
543
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
 
 
16
 
 
22
 
 
65
 
 
125
 
 
13
 
 
27
 
 
18
 
 
285
 
 
399
 
 
684
 
 
—
 
 
684
 
Professional and consulting fees
 
 
8
 
 
—
 
 
8
 
 
10
 
 
8
 
 
9
 
 
10
 
 
52
 
 
420
 
 
472
 
 
(311)
(i)
 
161
 
Depreciation
 
 
—
 
 
—
 
 
1
 
 
21
 
 
—
 
 
6
 
 
—
 
 
28
 
 
—
 
 
28
 
 
-
 
 
28
 
Amortization
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
-
 
 
1,127
(ii) 
 
1,127
 
Total operating expenses
 
 
24
 
 
22
 
 
74
 
 
156
 
 
21
 
 
42
 
 
28
 
 
365
 
 
819
 
 
1,184
 
 
975
 
 
2,000
 
Net income (loss)
 
 
74
 
 
84
 
 
21
 
 
(47)
 
 
39
 
 
(2)
 
 
7
 
 
178
 
 
(819)
 
 
(641)
 
 
(975)
 
$
(1,457)
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,888,978
 
Net loss per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.18
 
 
(i)       Professional fees. The Target Companies incurred approximately $311,000 of professional fees directly related to the acquisition of prospective targets. These costs will be non-recurring and have been adjusted from the pro forma results.
 
(ii)      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. A useful life of five years has been assigned to the intellectual property rights of acquired video libraries and three years to the acquired ticketing software and customer and venue relationships based on a number of factors, including contractual agreements, estimated production hours available on video libraries and economic factors pertaining to the combined companies. 
 
The unaudited pro forma financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Target Companies based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.
 
The unaudited pro forma statement of operations for the nine months ended September 30, 2016 are based on the historical financial statements of Alliance MMA, Inc. after giving effect to the acquisition of the Target Assets and the businesses of the Target Companies and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma financial information. 
 
The unaudited pro forma financial information is not intended to represent or be indicative of the results of operations or financial position that would have been reported had the acquisitions been completed as of the date presented, and should not be taken as a representation of potential future results of operations or financial position.  
 
For purposes of these unaudited pro forma statements of operations, the acquisitions of the Target Assets and the businesses of the Target Companies are assumed to have occurred on January 1, 2016, and aggregate the results of Alliance and the Target Companies for the nine months ended September 30, 2016.