Commitments and Contingencies
|12 Months Ended|
Dec. 31, 2018
|Commitments and Contingencies Disclosure [Abstract]|
|Commitments and Contingencies Disclosure [Text Block]||
Note 8. Commitments and Contingencies
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, 2018and currently is under a month-to-month arrangement.
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. In January 2019, the Company settled the suit and agreed to pay $75,000 and issue warrants having a Black-Scholes value of $50,000. The Company had previously accrued the amount due of
$167,475 as a result of the settlement, the Company realized a gain on the settlement
of $42,475, which is included in the discontinued operations results for the year ended December 31, 2018
With the acquisition of FCOC, the Company originally
assumed a lease for office space in Orange County, California. The lease originally expired 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 net loss from discontinued operations, net of tax.
Each of the acquired businesses operated from home offices or shared office space arrangements.
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 SCWorx. which upon the closingin February 2019, qualified
as a fundamental transaction within the meaning of the warrant agreement. The stock price atthe time of announcement was approximately
$0.20 [$3.80], the Black - Scholes value would approximate$2.68
per share based upon volatility and risk-free interest rate. As of thedate of this report
, there were approximately 1,060,000 [55,790] warrants outstanding which are subject to thisBlack - Scholes
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,
. The complaint was dismissed 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.The Company successfully negotiated a settlement of $75,000 and issuance of a warrant to acquire 384,750 [20,250] shares. The Company originally
recorded $167,000 of expense related to the lease within net loss from discontinued operations, net of tax, for the cost of the remaining payments under the lease agreement.In January 2019, the Company settled the suit by agreeing to pay $75,000 of cash and issue $50,000 (Black-Scholes value) of warrants to acquire common stock
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 accrued the settlement which is included withinnet loss from
discontinued operations, net of tax,
and current liabilities - discontinued operations balance as of December 31, 2018. The Company paid the amount owed during February 2019.
On December 19, 2018, the Company’s former CEO, Robert L. Mazzeo, who resigned on May 25, 2018, served a complaint against the Company in the United States District Court for the Southern District of NY. Mazzeo alleges that he (i) was fraudulently induced to become the CEO of the Company and (ii) entered into an employment contract with the Company and that the Company breached said alleged contract. Mazzeo seeks damages in “excess of $500,000.” The Company believes that the lawsuit is frivolous and violative of Rule 11 of the Federal Rules of Civil Procedure. The Company filed an answer to the complaint on February 5, 2019, and in addition to mounting a vigorous defense, filed counter claims alleging breach of fiduciary duty.
Most Favored Nation Issuance
On October 19, 2018, the Company issued Red Diamond Partners 794,483 [41,815] shares of common stock in consideration of a “most favored nation” clause contained in a common stock subscription agreement. Under a clause in the subscription agreement, if the Company issued lower priced securities subsequent to the sale to the investor, then the Company would be required to re-price the investor’s shares to the lower price and issue additional shares accordingly. In relation to the settlement agreement the parties terminated the original agreement. A non-cash dividend of $200,000 was changed on the consolidated statement of operations for the year ended December 31, 2018, in regards to this re-pricing.
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[19,267] options
with an exercise price of $0.35[$6.65] per option
and Black-Scholes value of $94,000. None of the other businesses met their earn out targets during 2018.
The entire disclosure for commitments and contingencies.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef