B2Digital, Inc. - Quarter Report: 2019 December (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Or

Commission File Number: 000-11882

B2Digital, Incorporated

(Exact name of registrant as specified in its charter)

(813) 961-3051

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to section 12(b) of the Act:

The number of shares outstanding of the registrant’s common stock on February 12, 2020, was 539,267,304.

.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Unaudited Consolidated Financial Statements

B2Digital, Incorporated

B2Digital, Incorporated

Consolidated Balance Sheets

See accompanying notes to the unaudited consolidated financial statements.

B2Digital, Incorporated

Consolidated Statements of Operations

  (Unaudited)

See accompanying notes to the unaudited consolidated financial statements.

B2Digital, Incorporated

Consolidated Statement of Changes in Stockholders' Equity (Deficit)

Three, Six and Nine Months Ended December 31, 2019 (Unaudited)

See accompanying notes to the unaudited consolidated financial statements.

B2Digital, Incorporated

Consolidated Statement of Changes in Stockholders' Equity

Three, Six and Nine Months Ended December 31, 2018 (Unaudited)

See accompanying notes to the unaudited consolidated financial statements.

2Digital, Incorporated

Consolidated Statements of Cash Flows

See accompanying notes to the unaudited consolidated financial statements.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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 seven 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, Strike Hard Productions, LLC and B2 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 interim consolidated financial statements are condensed and should be read in conjunction with the Company’s latest annual financial statements; interim disclosures generally do not repeat those in the annual statements. The interim unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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 or $250,000. The Company did not have any cash in excess of FDIC limits at December 31, 2019 and March 31, 2019, respectively.

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. As of December 31, 2019, goodwill was not deemed to be impaired. The initial accounting for the business combinations is not completed and the fair value of the acquired identifiable intangible assets are provisional pending receipt of the final valuations for those assets.

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.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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. The majority of revenues are received from ticket and beverage sales before and during the live events. Sponsorship revenue is also recognized when the live event takes place. Any revenue received for events that have yet to take place are recorded in deferred revenue. 

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 December 31, 2019, the Company has an expected loss. Due to uncertainty of realization for these losses, a full valuation allowance is recorded. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements.

As of March 31, 2019, the Company had not filed tax returns for the tax years ended March 31, 2008 through 2019 and such returns, when filed, potentially will be subject to audit by the taxing authorities for a minimum of three years beyond the filing date under the three-year statute of limitations. The Company has not accrued any potential tax penalties associated with not filing these tax returns. Due to recurring losses, management believes such potential tax penalties, if any, would not be material in amount.

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 December 31, 2019, there were no options outstanding.

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 consolidated financial statements.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Recently Adopted Accounting Pronouncements

In February 2016, FASB issued ASC 842 that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement.

The ASU will be effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted, and is applicable on a modified retrospective basis with various optional practical expedients. The Company has assessed the impact of this standard. The Company’s current leases as of the balance sheet date do not fall under this guidance as they are month-to-month leases.

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 – PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following at December 31, 2019 and March 31, 2019:

Depreciation expense related to these assets for the nine months ended December 31, 2019 and 2018 amounted to $20,245 and $9,990, respectively.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 4 - RELATED PARTY

B2 Management, LLC (“B2 Management”) has as its sole member the Chief Executive Officer and Chairman of B2Digital. During the nine months ended December 31, 2019, B2 Management received $192,245 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. The Company recorded a loss on debt forgiveness in the amount of $27,000 related to this transaction. On December 22, 2019, the Company and B2MG entered into an agreement whereby B2MG agreed to return 21,954,800 shares of the Company’s common stock in exchange for the cancellation of $164,660 owed by B2MG to the Company. At the date of the agreement the shares were valued at $0.005 per share or $109,773. As a result, the Company recorded a loss on settlement of debt in the amount of $54,668. As of December 31, 2019 and March 31, 2019, the Company has an uncollateralized, non-interest-bearing note receivable of $0 and $65,416, respectively, from B2 Management that is due upon demand.

NOTE 5 – 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.

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.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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.

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.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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.

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.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 6 - NOTES PAYABLE

The following is a summary of notes payable as of December 31, 2019 and March 31, 2019:

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 7 – CONVERTIBLE NOTE PAYABLE

October 4, 2019 Note – GS Capital Partners, LLC

On October 4, 2019, the Company entered into a Securities Purchase Agreement with GS Capital Partners, LLC, an accredited investor (“GS Capital”), pursuant to which the Company issued to GS Capital a Convertible Promissory Note (“Note 1”) in the aggregate principal amount of $82,000. The Company received net proceeds of $75,000 after a $7,000 original note discount. Note 1 has a maturity date of October 4, 2020 and the Company has agreed to pay interest on the unpaid principal balance of Note 1 at the rate of eight percent (8%) per annum from the date on which Note 1 is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay Note 1, provided it makes a payment to GS Capital as set forth in Note 1.

The outstanding principal amount of Note 1 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months of the term of Note 1. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest trading prices of the Company’s common stock.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Accounting Considerations

The Company has accounted for Note 1 as a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related to the host debt agreement and required bifurcation. The contracts do not permit the Company to settle in registered shares and the contracts also contain make-whole provisions both of which preclude equity classification. Current accounting principles that are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative.

Based on the previous conclusions, the Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host debt contract, as follows:

The net proceeds of $75,000 were allocated to the compound embedded derivative. Note 1 will be amortized up to its face value of $75,000 over the life of Note 1 based on an effective interest rate. Amortization expense for the period amounted to $5,322. As of December 31, 2019, the unamortized discount remaining was $12,103. The carrying value of Note 1 as of December 31, 2019 amounted to $62,897.

October 31, 2019 Note – GS Capital Partners, LLC

On October 31, 2019, the Company entered into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory Note (“Note 2”) in the aggregate principal amount of $208,000. The Company received net proceeds of $202,000 after a $6,000 original note discount. Note 2 has a maturity date of December 15, 2020 and the Company has agreed to pay interest on the unpaid principal balance of Note 2 at the rate of eight percent (8%) per annum from the date on which Note 2 is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay Note 2, provided it makes a payment to GS Capital as set forth in Note 2.

The outstanding principal amount of Note 2 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months of the term of Note 2. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest trading prices of the Company’s common stock.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Accounting Considerations

The Company has accounted for Note 2 as a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related to the host debt agreement and required bifurcation. The contracts do not permit the Company to settle in registered shares and the contracts also contain make-whole provisions both of which preclude equity classification. Current accounting principles that are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative.

Based on the previous conclusions, the Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host debt contract, as follows:

The net proceeds of $202,000 were allocated to the compound embedded derivative. Note 2 will be amortized up to its face value of $208,000 over the life of Note 2 based on an effective interest rate. Amortization expense for the period amounted to $1,032. As of December 31, 2019, the unamortized discount remaining was $1,671. The carrying value of Note 2 as of December 31, 2019 amounted to $200,329.

December 5, 2019 Note – GS Capital Partners, LLC

On December 5, 2019, the Company entered into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory Note (“Note 3”) in the aggregate principal amount of $62,000. The Company received net proceeds of $60,000 after a $2,000 original note discount. Note 3 has a maturity date of December 5, 2020 and the Company has agreed to pay interest on the unpaid principal balance of Note 3 at the rate of eight percent (8%) per annum from the date on which Note 3 is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay Note 3, provided it makes a payment to GS Capital as set forth in Note 3.

The outstanding principal amount of Note 3 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months of the term of Note 3. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest trading prices of the Company’s common stock.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Accounting Considerations

The Company has accounted for Note 3 as a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related to the host debt agreement and required bifurcation. The contracts do not permit the Company to settle in registered shares and the contracts also contain make-whole provisions both of which preclude equity classification. Current accounting principles that are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative.

Based on the previous conclusions, the Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host debt contract, as follows:

The net proceeds of $60,000 were allocated to the compound embedded derivative. Note 3 will be amortized up to its face value of $62,000 over the life of Note 3 based on an effective interest rate. Amortization expense for the period amounted to $209. As of December 31, 2019, the unamortized discount remaining was $566. The carrying value of Note 3 as of December 31, 2019 amounted to $59,434.

December 31, 2019 Note – GS Capital Partners, LLC

On December 31, 2019, the Company entered into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory Note (“Note 4”) in the aggregate principal amount of $62,000. The Company received net proceeds of $60,000 after a $2,000 original note discount. Note 4 has a maturity date of December 5, 2020 and the Company has agreed to pay interest on the unpaid principal balance of Note 4 at the rate of eight percent (8%) per annum from the date on which Note 4 is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay Note 4, provided it makes a payment to GS Capital as set forth in Note 4.

The outstanding principal amount of Note 4 is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months of the term of Note 4. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest trading prices of the Company’s common stock.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Accounting Considerations

The Company has accounted for Note 4 as a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion option and default puts. The contracts do not permit the Company to settle in registered shares and the contracts also contain make-whole provisions both of which preclude equity classification. The conversion option and default puts bear risks of equity which were not clearly and closely related to the host debt agreement and required bifurcation. Current accounting principles that are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative.

Based on the previous conclusions, the Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host debt contract, as follows:

The net proceeds of $60,000 were allocated to the compound embedded derivative. Note 4 will be amortized up to its face value of $62,000 over the life of Note 4 based on an effective interest rate. Amortization expense for the period amounted to $208. As of December 31, 2019, the unamortized discount remaining was $555. The carrying value of Note 4 as of December 31, 2019 amounted to $59,445.

NOTE 8 –DERIVATIVE FINANCIAL INSTRUMENTS

The following tables summarize the components of the Company’s derivative liabilities and linked common shares as of December 31, 2019:

The following table summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for the nine months ended December 31, 2019:

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

The Company’s Convertible Promissory Notes issued on October 4, 2019, October 31, 2019, December 5, 2019, and December 31, 2019, respectively, gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.

Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.

Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the embedded derivatives that have been bifurcated from the Convertible Notes and classified in liabilities:

The following table reflects the issuances of compound embedded derivatives and detachable warrants and changes in fair value inputs and assumptions related to the compound embedded derivatives during the period ended December 31, 2019.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

NOTE 9 - 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

2018 Common Stock Issuances

On April 19, 2018, the Company issued 3,478,000 shares of common stock in exchange for the conversion of a Note in the amount of $38,020.

On April 25, 2018, the Company issued 35,000,000 shares of common stock in exchange for services valued at $350 or $0.00001 per share.

On April 25, 2018, the Company sold 30,000,000 shares of common stock for $300 or $0.00001 per share.

On September 10, 2018, the Company issued 9,000,000 shares of common stock in exchange for services valued at $90 or $0.00001 per share.

On December 10, 2018, the Company sold 6,250,000 shares of common stock for $50,000 or $0.008 per share.

2019 Common Stock Issuances

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.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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 shares of the outstanding stock, valued at $48,000 in exchange for the cancellation of $75,000 in Notes Receivable.

On November 27, 2019, the Company issued 9,000,000 shares of common stock valued at $57,600 or $0.0064 per share in exchange for the acquisition of Strike Hard Productions LLC.

On December 3, 2019, the Company purchased 14,062,500 shares of stock back from GS Capital in exchange for the payment of $101,250 in cash.

On December 22, 2019, B2MG returned 21,954,800 shares of the Company’s common stock, valued at $109,773 in exchange for the cancellation of $164,441 owed by B2MG to the Company.

NOTE 10 – 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 December 31, 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.

B2DIGITAL, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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 11 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis. For the nine months ended December 31, 2019 the Company had a net loss of $1,179,481, had net cash used in operating activities of $347,368, and had negative working capital of $482,515. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 12 - SUBSEQUENT EVENTS

Business Acquisition  

On January 6, 2020, the Company completed an acquisition of 100% of the equity interest in One More Gym LLC (“1MG”), a gym. The purchase price was $30,000 in cash and 6,000,000 shares of Restricted Common Stock (valued at $31,800 or $0.0053 per share), 6,000,000 shares to be issued to BHC Management LLC, the seller of the equity interest in the acquisition. The initial accounting for this acquisition is not completed.

Convertible Promissory Note

On January 27, 2020, the Company entered into a Securities Purchase Agreement with GS Capital pursuant to which the Company issued to GS Capital a Convertible Promissory Note in the aggregate principal amount of $184,000. The Company received net proceeds of $178,500 after a $5,500 original note discount. The note has a maturity date of December 5, 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, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the note, provided it makes a payment to GS Capital as set forth in the note.

The outstanding principal amount of the note is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months of the term of the note. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest trading prices of the Company’s common stock. The initial accounting for this note is not completed.

Share Repurchase Agreement

On January 28, 2020, the Company purchased 11,718,750 shares of stock back from GS Capital in exchange for the payment of $87,891 in cash.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the section titled “Risk Factors” of our post-qualification amendment to Form 1-A filed qualified on October 9, 2019. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements

Basis of Presentation

We have seven wholly-owned subsidiaries. Hardrock Promotions LLC which owns Hardrock MMA in Kentucky, Colosseum Combat LLC which owns Colosseum Combat MMA in Indiana, Blue Grass MMA LLC which is a marketing company, United Combat League MMA LLC, Pinnacle Combat LLC, Strike Hard Productions, LLC, and B2 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.

Forward-Looking Statements

Some of the statements under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” and “would” or the negatives of these terms or other comparable terminology.

You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Quarterly Report on Form 10-Q identify important factors, which you should consider in evaluating our forward-looking statements. These factors include, among other things:

Although the forward-looking statements in this Quarterly Report on Form 10-Q are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as maybe be required by law, to update this Quarterly Report on Form 10-Q or otherwise make public statements updating our forward-looking statements.

Critical Accounting Policies

Basis of Accounting

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 nine months ended December 31, 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

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. We maintain 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”). We have 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 three to seven 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. As of December 31, 2019, goodwill was not deemed to be impaired. The initial accounting for the business combinations is not completed and the fair value of the acquired identifiable intangible assets are provisional pending receipt of the final valuations for those assets.

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 we expect to receive in exchange for those goods. We apply 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) we satisfy 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. The majority of revenues are received from ticket and beverage sales before and during the live events. Sponsorship revenue is also recognized when the live event takes place. Any revenue received for events that have yet to take place are recorded in deferred revenue. 

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 expected loss. Due to uncertainty of realization for these losses, a full valuation allowance is recorded. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements.

As of March 31, 2019, the Company had not filed tax returns for the tax years ending March 31, 2008 through 2019 and such returns, when filed, potentially will be subject to audit by the taxing authorities for a minimum of three years beyond the filing date under the three-year statute of limitations. The Company has not accrued any potential tax penalties associated with not filing these tax returns. Due to recurring losses, management believes such potential tax penalties, if any, would not be material in amount.

Stock-Based Compensation

We record 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, we recognize 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 December 31, 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.

We have 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 we do 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.

Organization and Nature of Business

In February 2017, the Board of Directors of B2Digital, Incorporated, a Delaware corporation (“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, we are now forging ahead and becoming a full-service live event sports company.

Our Chairman and CEO is now Greg P. Bell. Mr. Bell has over 30 years of global experience developing more than 20 companies in the sports, television, entertainment, digital distribution and banking transaction industries. Capitalizing on the combination of his expertise, relationships and experience as well as his involvement with more than 40,000 live events over his career for major sports leagues and entertainment venues, we are in the process of developing and acquiring companies to become a premier vertically integrated live event sports company.

Our first strategy is to build an integrated live event minor league for the mixed martial arts (“MMA”) marketplace, which is a billion-dollar industry. We are 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. We own all media and merchandising rights and digital distribution networks for the B2FS. This concept was developed and test marketed for two years by Mr. Bell’s B2 Management Group, LLC.

2017 marked the kickoff of the B2FS by sponsoring and acquiring MMA regional promotion companies for the development of the B2FS. Our second strategy is to add additional sports, leagues, tournaments and special events to our live event business model. This will enable us to capitalize on our core technologies and business models that will be key to broadening the revenue base of our live event core business. We 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.

Historically, we had been a provider of in-room, on-demand video entertainment and satellite services to the domestic lodging industry. In the past, we had provided video services to over 50,000 hotel rooms in the lodging industry. PPV lost a great deal of market share due to the increased internet use by hotel guests. With this loss, our Board of Directors agreed to dissolve Hotel Movie Network on March 11, 2010.

Business of the Company

The Company has eight wholly-owned subsidiaries. Hardrock Promotions LLC which owns Hardrock MMA in Kentucky, Colosseum Combat LLC which owns Colosseum Combat MMA in Indiana, Blue Grass MMA LLC which is a marketing company, United Combat League MMA LLC, Pinnacle Combat LLC, Strike Hard Productions, LLC, ONE More Gym, and B2 Productions LLC.

Results of Operations

The following information represents our results of operations for three months ended December 31, 2019 compared to December 31, 2018.

Revenue

We had revenues of $169,363 for the three months ended December 31, 2019 versus revenues of $66,413 for the three months ended December 31, 2018. The increase of $102,950 is due to increased live events from new business acquisitions.

Live Event Expenses

We incurred live event expenses of $126,737 for the three months ended December 31, 2019 versus live event expenses of $111,835 for the three months ended December 31, 2018. The increase of $14,902 is due to increased live events from new business acquisitions.

Live Event income (loss) - net

We had live event income of $42,626 for the three months ended December 31, 2019 versus live event loss of $45,422 for the three months ended December 31, 2018. The increase of $88,048 is due to increased live events from new business acquisitions.

Operating Expenses

General & Administrative Expenses

General and administrative expenses include professional fees, all costs associated with marketing, press releases, public relations, rent, sponsorships and other expenses. We incurred general and administrative expenses of $256,889 for the three months ended December 31, 2019 versus general and administrative expenses of $(1,326) for the three months ended December 31, 2018. The increase of $258,215 was primarily due to increased operations associated with new business acquisitions.

Depreciation Expense

We incurred depreciation expense of $10,192 for the three months ended December 31, 2019 versus depreciation expense of $5,676 for the three months ended December 31, 2018. The increase of $4,516 was due to the purchase of assets related to a business acquisition.

Other Income (Expense)

Other Expense

Our other income and expenses include interest expense, loss on forgiveness of notes receivable, and a loss on modification of debt. We incurred interest expense of $12,572 for the three months ended December 31, 2019 versus interest expenses of $1,124 for the three months ended December 31, 2018. We recorded a loss on forgiveness of notes receivable in the amount of $54,887 and derivative income in the amount of $17,360 for the three months ended December 31, 2019.

Net Losses

We incurred a net loss of $274,554 for the three months ended December 31, 2019 versus a net loss of $50,896 for the three months ended December 31, 2018. The increase of $223,658 was primarily due to increased operations from acquisitions.

Results of Operations

The following information represents our results of operations for nine months ended December 31, 2019 compared to December 31, 2018.

Nine Months Ended December 31, 2019 Compared to the Nine Months Ended December 31, 2018

Revenue

We had revenues of $351,274 for the nine months ended December 31, 2019 versus revenues of $239,008 for the nine months ended December 31, 2018. The increase of $112,266 is due to increased live events from new business acquisitions.

Live Event Expenses

We incurred live event expenses of $262,277 for the nine months ended December 31, 2019 versus live event expenses of $254,811 for the nine months ended December 31, 2018. The increase of $7,466 is due to changes in cost of different cities of fight venues.

Live Event income (loss) - net

We had live event income of $88,997 for the nine months ended December 31, 2019 versus a live event loss of $15,803 for the nine months ended December 31, 2018. The increase of $104,800 is due to increased live events from new business acquisitions.

Operating Expenses

General & Administrative Expenses

General and administrative expenses include professional fees, all costs associated with marketing, press releases, public relations, rent, sponsorships and other expenses. We incurred general and administrative expenses of $1,116,699 for the nine months ended December 31, 2019 versus general and administrative expenses of $73,499 for the nine months ended December 31, 2018. The increase of $1,043,200 was primarily due stock compensation expense in the amount of $688,000 for the nine months ended December 31, 2019 for common stock issued for services.

Depreciation Expense

We incurred depreciation expense of $20,245 for the nine months ended December 31, 2019 versus depreciation expense of $9,990 for the nine months ended December 31, 2018. The increase of $10,255 was due to the purchase of assets during the nine months ended December 31, 2019 related to a business acquisition.

Other Income (Expense)

Other Expense

Our other income and expenses include interest expense, loss on forgiveness of notes receivable, and a loss on modification of debt. We incurred interest expense of $16,251 for the nine months ended December 31, 2019 versus interest expenses of $3,231 for the nine months ended December 31, 2018. We recorded a loss on forgiveness of notes receivable in the amount of $81,887, a loss on the modification of debt in the amount of $50,756, and derivative income in the amount of $17,360 for the nine months ended December 31, 2019.

Net Losses

We incurred a net loss of $1,179,481 for the nine months ended December 31, 2019 versus a net loss of $102,523 for the nine months ended December 31, 2018. The increase of $1,076,958 was primarily due to increased operations from acquisitions and stock-based compensation expense.

Current Liquidity and Capital Resources for the nine months ended December 31, 2019 compared to the nine months ended December 31, 2018

Operating Activities

Cash used in operations of $347,368 during the nine months ended December 31, 2019 was primarily a result of our $1,179,481 net loss reconciled with our net non-cash expenses relating to stock compensation, depreciation expense, inventory, prepaid expenses, accounts payable, accrued liabilities and deferred compensation. Cash used in operations of $77,535 during the nine months ended December 31, 2018 was primarily a result of our $102,523 net loss reconciled with our net non-cash expenses relating to stock compensation, depreciation expense, inventory, prepaid expenses, accounts payable, accrued liabilities and deferred compensation.

Investing Activities

Net cash used in investing activities for the nine months ended December 31, 2019 of $307,856 resulted from the from the business acquisitions in the amount of $55,000, payments to related parties in the amount of $174,244 and capital expenditures in the amount of $78,612. Net cash used in investing activities for the nine months ended December 31, 2018 of $2,695 resulted from capital expenditures.

Financing Activities

Net cash provided by financing activities was $702,662 for nine months ended December 31, 2019, which consisted of $397,000 from proceeds from the issuance of convertible notes payable, $14,912 in proceeds from notes payable, $8,000 payment on notes payable, $101,250 for the purchase of treasury stock and $400,000 in proceeds from the issuance of common stock. Net cash provided by financing activities was $70,306 for nine months ended December 31, 2018, which consisted of $89,171 in proceeds from the issuance of common stock and $18,865 in payments on notes payable.

Future Capital Requirements

Our current available cash and cash equivalents are insufficient to satisfy our liquidity requirements. Our capital requirements for fiscal year 2020 will depend on numerous factors, including management’s evaluation of the timing of projects to pursue. Subject to our ability to generate revenues and cash flow from operations and our ability to raise additional capital (including through possible joint ventures and/or partnerships), we expect to incur substantial expenditures to carry out our business plan, as well as costs associated with our capital raising efforts and being a public company.

Our plans to finance our operations include seeking equity and debt financing, alliances or other partnership agreements, or other business transactions, that would generate sufficient resources to ensure continuation of our operations.

The sale of additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned activities and limit our operations which could have a material adverse effect on our business, financial condition and results of operations.

Inflation

The amounts presented in our consolidated financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Going Concern

The accompanying financial statements have been prepared on a going concern basis. For the nine months ended December 31, 2019 we had a net loss of $1,179,481, had net cash used in operating activities of $347,368, and had negative working capital of $482,515. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Quantitative and Qualitative Disclosures about Market Risk

In the ordinary course of our business, we are not exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that may otherwise arise from transactions in derivatives.

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant estimates and assumptions include the fair value of our common stock, stock-based compensation, the recoverability and useful lives of long-lived assets, and the valuation allowance relating to our deferred tax assets.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. Our management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.

Disclosure Controls and Procedures

The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated to the Company’s Chief Executive Officer, Greg P. Bell, who serves as our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Bell, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of December 31, 2019. Based on his evaluation, Mr. Bell concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s most recent fiscal quarter ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Shares Sold for Acquisitions

On November 27, 2019, we issued 9,000,000 shares of Common Stock in exchange for the acquisition of Strike Hard Productions LLC.

These sales were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

On December 2, 2019, our Board of Directors approved the Company entering into a Repurchase of Shares Agreement dated November 22, 2019 with GS Capital Partners LLC (“GS”) pursuant to which we agreed to repurchase 14,062,500 shares of our Common Stock previously purchased by GS (the “Shares”). The Shares were repurchased by us at a purchase price of $0.0072 per Share for an aggregate purchase price of $101,250.

On December 22, 2019, B2MG returned 21,954,800 shares of our Common Stock, valued at $0.0075 per share ($164,441) in exchange for the cancellation of $164,441 owed by B2MG to us.

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*Filed with this Report.

**Furnished with this Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.