Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.7.0.1
Acquisitions
 12 Months Ended
Dec. 31, 2016
Business Combination Disclosure [Text Block]
Note 5. Acquisitions
 
Initial Business Units and Iron Tiger Fight Series
 
Initial Business Units
 
The Company completed the first tranche of its IPO on September 30, 2016, and closed the acquisitions of the Initial Business Units and the Acquired Assets by making cash payments totaling $1,391,736, net, and issuing 1,377,531 shares of common stock with a deemed fair value equivalent to the IPO price of $4.50 per share or $6,198,889 in aggregate. In October 2016, the Company issued the final payment of $129,500 to Louis Neglia in relation to the acquisition of the previously mentioned media library.
 
Iron Tiger Fight Series
 
In addition to the acquisition of the Initial Business Units, on December 9, 2016, the Company acquired the Ohio-based MMA promotion business of Ohio Fitness and Martial Arts, LLC d/b/a Iron Tiger Fight Series (“IT Fight Series”) for an aggregate consideration of $656,665, of which $150,000 was paid in cash and $506,665 was paid with the issuance of 133,333 shares of the Company’s common stock valued at $3.80 per share, the fair value of Alliance MMA common stock on December 9, 2016. In connection with the acquisition, Scott Sheeley, the sole owner of IT, placed 50,000 shares of the 133,333 shares of common stock issued as part of the purchase price into escrow to guarantee the financial performance of the IT MMA promotion business post-closing. Accordingly, in the event the gross profit of Iron Tiger Fight Series MMA promotion business is less than $107,143 in fiscal year 2017, all 50,000 shares will be forfeited.
 
The acquisitions of the Initial Business Units and Iron Tiger Fight Series have been accounted for as business acquisitions, under the acquisition method of accounting.
 
The following is a description of all the businesses acquired:
 
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 serves 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. V3 Fights 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. V3 Fights 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.
 
Iron Tiger Fight Series
 
Based in Bellfountain, Ohio, IT was founded in 1995 and has promoted 69 professional MMA events in various locations throughout Ohio. IT has sent or promoted 10 fighters to the UFC and several to Bellator. IT’s Scott Sheeley serves as Regional Vice President and Nicole Castillo serves as General Manager of IT.
 
Acquired Assets – Video Libraries
 
The Company also acquired the MMA video libraries of two prominent regional promotions and intellectual property of Alliance MMA.
 
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 additionally secured the media rights to all future Ring of Combat promotions.
 
Acquired Intellectual Property
 
Intellectual property consists of the following:
 
Alliance MMA Intellectual Property
 
In October 2016, the Company entered an Asset Purchase Agreement with Eric Del Fierro to acquire certain intellectual property rights to the Alliance MMA brand for $70,000.Revenue
 
Preliminary Purchase Allocation – Initial Business Units and Acquired Assets
 
As consideration for the acquisitions of the Initial Business Units and the Acquired Assets, the Company delivered the following amounts of cash and shares of common stock, and initially estimated a contingent liability related to the specified earn outs.
 
Initial Business Units and Acquired Assets
 
Cash
 
Shares
 
Consideration
Paid
 
Contingent
Consideration
 
Total
Shares
 
Total
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 Initial Business Units
 
$
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 Acquired 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 number of shares of common stock initially estimated to be paid as contingent consideration was based upon the IPO offering price of $4.50 per share. Subsequent to acquisition of the Initial Business Units, Management reevaluated the financial performance of the Initial Business Units compared to the earn out thresholds as described in the respective Asset Purchase Agreements. Based upon Management’s estimates the initial earn out liability estimated with the IPO on September 30, 2016 was adjusted from $716,394 to $0 at December 31, 2016 and was recorded as a reduction to Goodwill in the 2016 Consolidated Balance Sheets. This reduction to Goodwill was offset by an income tax benefit of $755,647 related to the acquisition of GFL.
 
The following table reflects the preliminary allocation of the purchase price for the Initial Business Units and Acquired Assets to identifiable assets, liabilities assumed and pro forma intangible assets and goodwill:
 
 
 
Initial Business Units
 
Acquired Assets
 
 
 
Total
 
Shogun
 
CageTix
 
CFFC
 
GFL
 
HFC
 
COGA
 
V3 Fights
 
Hoss
 
Louis
Neglia
 
Cash and equivalents
 
$
118,764
 
$
13,131
 
$
48,969
 
$
551
 
$
42,081
 
$
11,194
 
$
2,838
 
$
—
 
$
—
 
$
—
 
Accounts receivable and other current assets, net
 
 
34,599
 
 
20,603
 
 
—
 
 
3,000
 
 
900
 
 
1,096
 
 
9,000
 
 
—
 
 
—
 
 
—
 
Property and equipment, net
 
 
23,661
 
 
—
 
 
—
 
 
4,448
 
 
13,174
 
 
—
 
 
6,039
 
 
—
 
 
—
 
 
—
 
Intangible assets
 
 
5,839,700
 
 
52,500
 
 
360,559
 
 
1,437,000
 
 
2,041,677
 
 
617,880
 
 
431,459
 
 
443,625
 
 
300,000
 
 
155,000
 
Goodwill
 
 
2,878,071
 
 
692,951
 
 
6,540
 
 
937,101
 
 
1,034,911
 
 
—
 
 
—
 
 
206,568
 
 
—
 
 
—
 
Total identifiable assets
 
$
8,894,795
 
$
779,185
 
$
416,068
 
$
2,382,100
 
$
3,132,743
 
$
630,170
 
$
449,336
 
$
650,193
 
$
300,000
 
$
155,000
 
Accounts payable and accrued expenses
 
 
1,055,906
 
 
29,185
 
 
91,068
 
 
32,100
 
 
793,854
 
 
30,170
 
 
29,336
 
 
50,193
 
 
—
 
 
—
 
Total identifiable liabilities
 
$
1,055,906
 
$
29,185
 
$
91,068
 
$
32,100
 
$
793,854
 
$
30,170
 
$
29,336
 
$
50,193
 
$
—
 
$
—
 
Total purchase price
 
$
7,838,889
 
$
750,000
 
$
325,000
 
$
2,350,000
 
$
2,338,889
 
$
600,000
 
$
420,000
 
$
600,000
 
$
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 December 31, 2016.
 
Preliminary Purchase Allocation – Iron Tiger Fight Series
 
As consideration for the acquisitions of Iron Tiger Fight Series, the Company delivered the following amounts of cash and shares of common stock.
 
Target Company
 
Cash
 
Shares
 
Consideration
Paid
 
Iron Tiger Fight Series
 
$
150,000
 
 
133,333
 
$
656,665
 
 
The number of shares of common stock paid as consideration was calculated based on the closing price of Alliance MMA’s stock on December 9, 2016, of $3.80 per share. In connection with the business acquisition, 50,000 shares of the 133,333 shares of common stock issued as part of the purchase price were placed into escrow to guarantee the financial performance of IT post-closing. Accordingly, in the event the gross profit of IT is less than $107,143 during fiscal year 2017, all 50,000 shares held in escrow will be forfeited. 
 
The following table reflects the preliminary allocation of the purchase price for the business of the Iron Tiger Fight Series to identifiable assets and preliminary pro forma intangible assets and goodwill:
 
 
 
IT
 
Cash
 
$
1,716
 
Accounts receivable, net
 
 
6,205
 
Intangible assets
 
 
255,000
 
Goodwill
 
 
393,744
 
Total identifiable assets
 
$
656,665
 
Total identifiable liabilities
 
$
—
 
Total purchase price
 
$
656,665
 
 
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 December 31, 2016.
 
Goodwill and Identifiable Intangible Assets
 
Goodwill
 
The respective asset purchase agreements for the Initial Business Units and Iron Tiger Fight Series, other than GFL, and the agreement and plan of merger for GFL, contemplate the acquisition of certain assets and other than Iron Tiger Fight Series 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 Initial Business Unit and Iron Tiger Fight Series. The goodwill recognized for these acquisitions is related primarily to synergies with the combined businesses and assembled workforce. 
 
The change in the carrying amount of goodwill for the year ended December 31, 2016 is as follows:
 
Balance as of December 31, 2015
 
$
—
 
Goodwill – Initial Business Units
 
 
2,706,374
 
Goodwill – Initial Business Units Balance Sheet adjustments
 
 
12,708
 
Goodwill – Preliminary Purchase Accounting change in estimate
 
 
(596,658)
 
Goodwill – Deferred tax liability from acquisition of GFL
 
 
755,647
 
Goodwill – Iron Tiger Fight Series
 
 
393,744
 
Balance as of December 31, 2016
 
$
3,271,815
 
 
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 Initial Business Units, Iron Tiger Fight Series and intellectual property rights of video libraries of the Acquired Assets and Alliance brand. The acquisitions bring value to the business platform through their reputations as premier MMA promotional companies and their extensive video libraries, ticketing platforms, brands and customer and venue relationships. As such, the intellectual property rights of video libraries, ticketing software, brands 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.
 
Intangible assets
 
Useful
Life
 
Total
 
Shogun
 
CageTix
 
CFFC
 
GFL
 
HFC
 
COGA
 
V3
Fights
 
Hoss
 
Louis
Neglia
 
IT
 
Alliance
Brand
 
Video library, intellectual property
 
5 years
 
$
3,512,741
 
$
52,500
 
$
—
 
$
397,000
 
$
2,041,677
 
$
161,105
 
$
264,459
 
$
141,000
 
$
300,000
 
$
155,000
 
 
—
 
—
 
Venue contracts
 
3 years
 
 
1,966,400
 
 
—
 
 
—
 
 
1,040,000
 
 
—
 
 
456,775
 
 
167,000
 
 
302,625
 
 
—
 
 
—
 
 
—
 
—
 
Brand
 
3 years
 
 
325,000
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
255,000
 
70,000
 
Ticketing software
 
3 years
 
 
360,559
 
 
—
 
 
360,559
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
—
 
Total intangible assets
 
 
 
$
6,164,700
 
$
52,500
 
$
360,559
 
$
1,437,000
 
$
2,041,677
 
$
617,880
 
$
431,459
 
 
443,625
 
$
300,000
 
$
155,000
 
$
255,000
 
70,000
 
 
Amortization expense for the year ended December 31, 2016 was $384,487.
 
As of December 31, 2016, estimated amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows:
 
2017
 
$
1,573,201
 
2018
 
 
1,573,201
 
2019
 
 
1,372,205
 
2020
 
 
712,548
 
2021
 
 
536,911
 
Thereafter
 
 
12,147
 
 
 
$
5,780,213
 
 
Supplemental Pro Forma Information (Unaudited)
 
The following unaudited pro forma financial information assumes the Initial Business Units, Iron Tiger Fight Series, and Alliance MMA were combined as of January 1, 2016 and includes the impact of purchase accounting. The unaudited pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information. This is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2016, nor is it necessarily indicative of future results. Consequently, actual results could differ materially from the unaudited pro forma financial information presented below.
 
The following table presents the pro forma operating results as if the acquisitions had been included in the Company's consolidated statements of operations as of January 1, 2016 (unaudited, in thousands except share information):
 
 
 
Initial Business Units and Iron Tiger Fight Series Actual Results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shogun
 
CageTix
 
CFFC
 
GFL
 
HFC
 
COGA
V3
Fights
 
IT
 
Subtotal
 
Alliance
MMA
 
Total
Results
 
Pro
Forma
Adjusting
Entries
 
 
Pro
Forma Results
 
Revenue
 
$
546
 
$
132
 
$
554
 
$
403
 
$
258
 
$
117
 
$
136
 
$
137
 
$
2,283
 
$
—
 
$
2,283
 
$
—
 
$
2,283
 
Cost of revenues
 
 
376
 
 
—
 
 
424
 
 
261
 
 
172
 
 
72
 
 
82
 
 
104
 
 
1,491
 
 
—
 
 
1,491
 
 
—
 
 
1,491
 
Gross profit
 
 
170
 
 
132
 
 
130
 
 
142
 
 
86
 
 
45
 
 
54
 
 
33
 
 
792
 
 
—
 
 
792
 
 
 
 
 
792
 
Operating expenses
 
 
78
 
 
29
 
 
103
 
 
180
 
 
35
 
 
51
 
 
34
 
 
14
 
 
524
 
 
4,214
 
 
4,738
 
 
1,213
(i)
 
5,951
 
Other income (expense)
 
 
—
 
 
—
 
 
(1)
 
 
(1)
 
 
—
 
 
(1)
 
 
—
 
 
—
 
 
3
 
 
—
 
 
3
 
 
—
 
 
(3)
 
Net income (loss)
 
 
92
 
 
103
 
 
26
 
 
(39)
 
 
51
 
 
(7)
 
 
20
 
 
19
 
 
265
 
 
(4,214)
 
 
(3,949)
 
 
(1,213)
 
$
(5,162)
 
Weighted average common shares
outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,355,577
 
Net loss per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.70)
 
   
(i)
Amortization of intangible assets. Intangible assets are amortized over their estimated useful lives. The estimated useful lives of acquired intangible assets are based upon the economic benefit expected to be received and the period during which we expect to receive that benefit. 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, customer and venue relationships and brand 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 the Initial Business Units 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.
 
The unaudited pro forma statement of operations for the year ended December 31, 2016 are based on the historical financial statements of Alliance MMA, Inc. after giving effect to the acquisition of the Acquired Assets and the businesses of the Initial Business Units.