NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE
OF BUSINESS
In February 2017, the Board
of Directors of B2Digital, Incorporated ("B2Digital" or the "Company") approved a complete restructuring,
new management team and strategic direction for the Company. Capitalizing on its history in television, video and technology, the
Company is now forging ahead and becoming a full service live event sports company.
B2Digital's first strategy
is to build an integrated live event Minor League for the Mixed Martial Arts (MMA) marketplace. B2Digital will be creating and
developing Minor League champions that will move on to the MMA Major Leagues from the B2 Fighting Series (B2FS). This will be accomplished
by sponsoring operating live events, acquiring existing MMA promotions and then inviting those champions to the B2FS Regional and
National Championship Series. B2Digital will own all media and merchandising rights and digital distribution networks for the
B2FS.
2017 marked the kickoff of the
B2FS by sponsoring and acquiring MMA regional promotion companies for the development of the B2FS. The second strategy is that
the Company plans to add additional sports, leagues, tournaments and special events to its live event business model. This will
enable B2Digital to capitalize on their core technologies and business models that will be key to broadening the revenue base
of the Company's live event core business. B2Digital will also be developing and expanding the B2Digital live event systems and
technologies. These include systems for event management, digital ticketing sales, digital video distribution, digital marketing,
Pay-Per View (PPV), fighter management, merchandise sales, brand management and financial control systems.
Basis of Presentation and
Consolidation
The Company has six wholly-owned
subsidiaries. Hardrock Promotions LLC which owns Hardrock MMA in Kentucky, Colosseum Combat LLC which owns Colosseum Combat MMA
in Indiana and Blue Grass MMA LLC which is a marketing company, United Combat League MMA LLC, Pinnacle Combat LLC, and Strike Hard
Productions, LLC.
The consolidated financial statements,
which include the accounts of the Company and its six wholly-owned subsidiaries, are prepared in conformity with generally accepted
accounting principles in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have
been eliminated. The consolidated financial statements, which include the accounts of the Company and its six wholly-owned subsidiaries,
and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The Financial Statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) and presented in US dollars. The fiscal year end is March 31.
NOTE 2 - ACCOUNTING POLICIES
The significant accounting policies
of the Company are as follows:
Basis of Accounting
The accounts are maintained
and the consolidated financial statements have been prepared using the accrual basis of accounting in accordance with GAAP. The
financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of
management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows
for the interim periods. The results of operations for the three and six months ended September 30, 2019 are not necessarily indicative
of the results to be expected for the year ending March 31, 2020.
Use of Estimates
Management uses estimates and
assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these
estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly
liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains deposits
primarily in four financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit
Insurance Corporation ("FDIC"). The Company has not experienced any losses related to amounts in excess of FDIC limits.
Fair Value of Financial Instruments
The Company’s financial
instruments consist primarily of accounts payable and accrued liabilities. The carrying amounts of such financial instruments approximate
their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
Property and Equipment
Property and equipment are
carried at cost. Depreciation is provided on the straight-line method over the assets’ estimated service lives. Expenditures
for maintenance and repairs are charged to expense in the period in which they are incurred, and betterments are capitalized. The
cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses
are reflected in the accompanying consolidated statement of operations of the respective period. The estimated useful lives range
from 3 to 7 years.
Goodwill
Goodwill represents the cost
in excess of the fair value of net assets acquired in business combinations. The Company tests goodwill for impairment on an annual
basis and when events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is deemed
to be impaired if the carrying amount of goodwill exceeds its estimated fair value.
Revenue Recognition
Revenue is recognized when
a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded
reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step
model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether
the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement
of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance
obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the
five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for
the goods or services it transfers to the customer. Once a contract is determined to be within the scope of Financial Accounting
Standards Board (“ FASB”) Accounting Standards Codification (“ASC”) 606 at contract inception, the Company
reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations
are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance
obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations
are transferred to customers at a point in time, typically upon delivery.
Income Taxes
The Company follows Section
740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets
and liabilities are based on the differences between the consolidated financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the consolidated Statements of Operations in the period that includes the enactment date.
Through September 30, 2019, the Company has an accumulated deficit. Due to uncertainty of realization for these losses, a full
valuation allowance is expected. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated
financial statements.
Stock based compensation
The Company records stock-based compensation
in accordance with the provisions of FASB ASC Topic 718, “Accounting for Stock Compensation,” which establishes accounting
standards for transactions in which an entity exchanges its equity instruments for goods or services. In accordance with guidance
provided under ASC.
Topic 718, the Company recognizes an expense for the fair value of its stock awards at the time of grant and
the fair value of its outstanding stock options as they vest, whether held by employees or others. As of September 30, 2019, there
were no options outstanding.
Recently Adopted Accounting
Pronouncements
On June 20, 2018, the FASB
issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments
to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will
no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity
classified awards at their grant-date under ASC 718 and forgo revaluing the award after this date. The Company adopted ASU 2018-07
on April 1, 2019. The adoption of this standard did not have a material impact on the financial statements.
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements
unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have
been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - RELATED PARTY
B2 Management, LLC (“B2
Management”) has as its sole member the Chief Executive Officer and Chairman of B2Digital. During the six months ended September
30, 2019, B2 Management received $174,245 in advances. On September 27, 2019, the Company and B2 Management Group LLC (“B2MG”)
entered into an agreement whereby B2MG agreed to return 7,500,000 shares of the Company’s common stock in exchange for the
cancellation of $75,000 owed by B2MG to the Company. As of September 30, 2019 and March 31, 2019, the Company has an uncollateralized,
non-interest-bearing note receivable of $164,661 and $65,416, respectively, from B2 Management that is due upon demand.
NOTE 4 – BUSINESS ACQUISITIONS
United Combat League, UCL MMA LLC
Effective May 1, 2019, the Company
completed its previously announced acquisition of 100% of the equity interest in United Combat League, LLC (“UCL”),
in an effort to execute its strategy of developing and building a Premier Development League for the Mixed Martial Arts (“MMA”)
marketplace. The purchase price was $20,000 in cash and 6,000,000 shares of Restricted Common Stock issuable to Michael Davis,
the seller of the equity interest in the acquisition. The Company is required to pay the cash consideration in three payments as
follows: (i) $10,000 on or before 10 calendar days after the execution date of the agreement, (ii) $5,000 on or before 45 calendar
days after the execution date of the agreement, and (iii) $5,000 on or before 90 calendar days after the execution date of the
agreement.
Consideration
|
|
|
|
|
|
|
|
Cash
|
|
$
|
20,000
|
|
6,000,000 shares of common stock issued to the sellers
|
|
|
38,400
|
|
Total consideration
|
|
$
|
58,400
|
|
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired
|
|
|
|
|
|
|
|
|
|
Goodwill resulting from transaction
|
|
$
|
58,400
|
|
Goodwill is calculated as the excess of
the purchase price paid over the net assets recognized. The goodwill recorded as part of the UCL acquisition primarily reflects
the value of adding UCL to B2Digital in order to expand its footprint in the MMA marketplace and execute its strategy of developing and
building a Premier Development League MMA marketplace. Goodwill is not amortizable nor deductible for tax purposes. The Company
analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination.
The initial accounting for this transaction is not completed and the fair value of the acquired identifiable intangible assets
are provisional pending receipt of the final valuations for those assets.
The Company is required to present a pro
forma balance sheet assuming the transaction was consummated on the date of the latest balance sheet included in the filing and
a pro forma statement of operations assuming the transaction was consummated at the beginning of the fiscal year presented and
carried forward through any interim period presented. However, since the initial accounting has not been finalized for the transaction
the Company believes presenting pro forma information is impracticable and plans to present it once the accounting is finalized.
Pinnacle Combat LLC- Acquisition
On July 15, 2019, to be effective June
29, 2019, the Company completed an acquisition of 100% of the equity interest in Pinnacle Combat LLC of Iowa (“Pinnacle”),
in an effort to execute its strategy of developing and building a Premier Development League for the MMA marketplace. The purchase
price was $20,000 in cash and 8,000,000 shares of Restricted Common Stock, 5,000,000 to be issued to Harry Maglaris and 3,000,000
to be issued to Ken Rigdon, collectively the sellers of the equity interest in the acquisition. The Company is required to pay
the cash consideration in three payments as follows: (i) $10,000 on or before 10 calendar days after the execution date of the
agreement, (ii) $5,000 on or before 45 calendar days after the execution date of the agreement, and (iii) $5,000 on or before
90 calendar days after the execution date of the agreement.
Consideration
|
|
|
|
Cash
|
|
$
|
20,000
|
|
8,000,000 shares of common stock issued to the sellers
|
|
|
51,200
|
|
Total consideration
|
|
$
|
71,200
|
|
|
|
|
|
|
Fair values of identifiable net assets:
|
|
|
|
|
Cages
|
|
$
|
54,000
|
|
Event asset (barriers)
|
|
|
6,000
|
|
Truck/trailer
|
|
|
3,000
|
|
Venture lighting system
|
|
|
25,000
|
|
Total identifiable net assets
|
|
|
88,000
|
|
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
|
Credit card liability
|
|
|
25,028
|
|
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired
|
|
|
62,972
|
|
|
|
|
|
|
Goodwill resulting from transaction
|
|
$
|
8,228
|
|
Goodwill is calculated as the excess of
the purchase price paid over the net assets recognized. The goodwill recorded as part of the Pinnacle acquisition primarily reflects
the value of adding Pinnacle to B2Digital in order to expand its footprint in the MMA marketplace and execute its strategy of developing
and building a Premier Development League MMA marketplace. Goodwill is not amortizable nor deductible for tax purposes. The Company
analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination.
The initial accounting for this transaction is not completed and the fair value of the acquired identifiable intangible assets
are provisional pending receipt of the final valuations for those assets.
The Company is required to present a pro
forma balance sheet assuming the transaction was consummated on the date of the latest balance sheet included in the filing and
a pro forma statement of operations assuming the transaction was consummated at the beginning of the fiscal year presented and
carried forward through any interim period presented. However, since the initial accounting has not been finalized for the transaction
the Company believes presenting pro forma information is impracticable and plans to present it once the accounting is finalized.
Strike Hard Productions LLC- Acquisition
On September 1, 2019, the Company
completed an acquisition of 100% of the equity interest in Strike Hard Productions LLC, a fighting promotion business, in an effort
to execute its strategy of developing and building a Premier Development League for the MMA marketplace. The purchase price was
$20,000 in cash and 9,000,000 shares of Restricted Common Stock, 3,000,000 Restricted Shares issued to be issued to David Elder,
3,000,000 Restricted Common Shares to be issued to James Sullivan and 3,000,000 Restricted Common Shares to be issued to Matt Leavell,
collectively the sellers of the equity interest in the acquisition. The Company is required to pay the cash consideration in three
payments as follows: (i) $10,000 on or before 10 calendar days after the execution date of the agreement, (ii) $5,000 on or before
45 calendar days after the execution date of the agreement, and (iii) $5,000 on or before 90 calendar days after the execution
date of the agreement.
Consideration
|
|
|
|
Cash
|
|
$
|
20,000
|
|
9,000,000 shares of common stock issued to the sellers
|
|
|
57,600
|
|
Total consideration
|
|
$
|
77,600
|
|
|
|
|
|
|
Fair values of identifiable net assets:
|
|
|
|
|
Cages
|
|
$
|
22,000
|
|
Event asset (tables)
|
|
|
1,000
|
|
Total fair value of identifiable net assets
|
|
|
23,000
|
|
|
|
|
|
|
Goodwill resulting from transaction
|
|
$
|
54,600
|
|
Goodwill is calculated as the excess of
the purchase price paid over the net assets recognized. The goodwill recorded as part of the Strike Hard acquisition primarily
reflects the value of adding Strike Hard to B2Digital in order to expand its footprint in the MMA marketplace and execute its strategy
of developing and building a Premier Development League MMA marketplace. Goodwill is not amortizable nor deductible for tax purposes.
The Company analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a
business combination. The initial accounting for this transaction is not completed and the fair value of the acquired identifiable
intangible assets are provisional pending receipt of the final valuations for those assets.
The Company is required to present a pro
forma balance sheet assuming the transaction was consummated on the date of the latest balance sheet included in the filing and
a pro forma statement of operations assuming the transaction was consummated at the beginning of the fiscal year presented and
carried forward through any interim period presented. However, since the initial accounting has not been finalized for the transaction
the Company believes presenting pro forma information is impracticable and plans to present it once the accounting is finalized.
NOTE 5 - NOTES PAYABLE
The following is a summary of notes payable as of
September 30, 2019 and March 31, 2019:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
Notes payable - current maturity:
|
|
|
|
|
|
|
|
|
Emry Capital $14,000, 4% loan with principal and interest due April, 2020.
|
|
$
|
14,000
|
|
|
$
|
14,000
|
|
Notes payable – in default:
|
|
|
|
|
|
|
|
|
Good Hunting $15,000, 7.5% loan with principal and interest due March 31, 2019 (In Default)
|
|
|
15,000
|
|
|
|
15,000
|
|
Notes payable – long term:
|
|
|
|
|
|
|
|
|
WLES LP LLC $60,000, 5% loan due January 15, 2022
|
|
|
60,000
|
|
|
|
60,000
|
|
Total
|
|
$
|
89,000
|
|
|
$
|
89,000
|
|
On August 31, 2019, WLES LP LLC agreed to
sign an amendment which extended the maturity date of the note and added conversion option. This amendment gave rise to a modification
because a substantive conversion option was added to the contract. Under ASC 470-50-40-10, when a modification or an exchange
of debt instruments adds a substantive conversion option debt extinguishment accounting is required. As a result, the Company
recorded a loss on modification of debt in the amount of $50,756.
NOTE 6 - EQUITY
Preferred stock
There are 50,000,000 shares
authorized as preferred stock, of which 40,000,000 are designated as Series B and 2,000,000 are designated as Series A. 8,000,000
shares have yet to be designated. All 2,000,000 shares of Series A preferred are issued and outstanding. Each share of Series A
preferred is convertible into 240 shares of common stock. The Series A Preferred Stock votes with the Common Stock on all matters
to be voted on by the common stock on an as-converted basis. On such matters, each holder of Series A Preferred Stock is entitled
to 240 votes for each share of Series A Preferred Stock held by such shareholder.
Common stock
On April 23, 2019 the Company
issued 4,000,000 shares of common stock in exchange for services valued at $25,600 or $0.0064 per share.
On May 14, 2019 the Company sold 1,562,500
shares of common stock for $10,000 or $0.0064 per share.
On May 25, 2019 the Company sold 11,718,750 shares of common stock for
$75,000 or $0.0064 per share.
On June 1, 2019 the Company
issued 67,000,000 shares of common stock in exchange for services valued at $428,800 or $0.0064 per share.
On June 1, 2019 the Company
issued 6,000,000 shares of common stock in exchange for the acquisition of UCL MMA LLC valued at $38,400 or $0.0064 per share.
On July 3, 2019 the Company
issued 6,000,000 shares of common stock in exchange for services valued at $38,400 or $0.0064 per share.
On July 8, 2019, the Company
entered into a Subscription Agreement with a holder for the sale of 14,062,500 shares of common stock at $0.0064 per share, or
$90,000.
On July 15, 2019 the Company
issued 30,500,000 shares of common stock in exchange for services valued at $195,200 or $0.0064 per share.
On July 15, 2019 the Company
issued 8,000,000 shares of common stock in exchange for the acquisition of Pinnacle Combat LLC valued at $51,200 or $0.0064 per
share.
On August 30, 2019 the Company sold 15,625,000
shares of common stock for $100,000 or $0.0064 per share.
On September 7, 2019 the Company sold 7,812,500
shares of common stock for $50,000 or $0.0064 per share.
On September 19, 2019 the Company sold 11,718,750
shares of common stock for $75,000 or $0.0064 per share.
On September 27, 2019, the Company canceled
7,500,000 in exchange for the cancellation of $75,000 in Notes Receivable.
As part of the Strike Hard Productions LLC acquisition,
the Company issued 9,000,000 shares of common stock valued at $57,600 or $0.0064 per share.
NOTE 7 – COMMITMENTS AND
CONTINGENCIES
During the normal course of
business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits
of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal
or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is
probable and can be reasonably estimated, it establishes the necessary accruals. As of September 30, 2019, the Company is not aware
of any contingent liabilities that should be reflected in the consolidated financial statements.
The Company entered into employment
agreements with its Chief Executive Officer and Executive Vice President as of November 24, 2017. Under the terms of these agreements
the Company will be liable for severance and other payments under certain conditions. The employment agreement for the Executive
Vice President is for a period of 36 months and renews for a successive two years unless written notice is provided by either party
under the terms of the agreement. The employment agreement for the Chief Executive Officer can be terminated by the Chief Executive
Officer upon three months written notice. Termination of the Chief Executive Officer requires 80% of the votes of all stockholders
of the Company.
Each of the acquisition agreements contain
a Management Services Agreement (“MSA”) whereby the Company agrees to pay a management fee based on certain performance
targets. The MSA agreements expire 10 years from the acquisition agreement dates.
NOTE 8 – GOING CONCERN
The Company's financial statements
are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. At September
30, 2019 and March 31, 2019, the Company had $36,407 and $27,579 in cash and $49,497 in working capital and $85,372 in negative
working capital, respectively. For the six months ended September 30, 2019 and 2018, the Company had a net loss of $904,927
and $51,627, respectively. For the three months ended September 30, 2019 and 2018, the Company had a net loss of $413,415
and $17,114, respectively. Continued losses may adversely affect the liquidity of the Company in the future. In view of
the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's
ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not
include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
As a going concern, Management’s
plan moving forward is to improve operating results through the live event sports businesses. Management believes these will operate
with positive cash flows and facilitate acquisition of additional Sports related businesses. Management plans to finance the growth
of the company and cover operating shortfalls by securing convertible loans and selling common stock.
NOTE 9 - SUBSEQUENT EVENTS
Formation of wholly-owned subsidiary
On October 1, 2019, the Company
formed a wholly-owned subsidiary called B2 Productions LLC. B2 Productions is an entity that supplies all the TV, PPV and media
for B2 Fighting Series LIVE Events.
Securities purchase agreement
On October 4, 2019, the Company
entered into a Securities Purchase Agreement with GS Capital Partners, LLC, whereby the Company agreed to issue an $82,000 face
value, 8% convertible note.
Convertible promissory note
On October 31, 2019, the Company
issued a face value $208,000 Convertible Promissory Note to GS Capital Partners, LLC. The Note has a maturity date
of December 15, 2020 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of eight
percent (8%) per annum from the date on which the Note is issued until the same becomes due and payable. The Note contains a $6,000
original issue discount.
The outstanding principal amount
of the Note is convertible into common stock at the lender’s option at $0.01 per share for the first six months. After the
six-month anniversary, the conversion price is 63% of the average of the three lowest trading prices of the Common Stock.