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Item
2.01
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Completion
of Acquisition or Disposition of
Assets
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The
Exchange
On
September 29, 2010, we entered into a Share Exchange Agreement (the “Exchange
Agreement”) with The Empire Sports & Entertainment, Co., a privately held
Nevada corporation (“Empire”), and the shareholders of Empire (the “Empire
Shareholders”). Upon closing of the transaction contemplated under the Exchange
Agreement (the “Exchange”), the Empire Shareholders transferred all of the
issued and outstanding capital stock of Empire to the Company in exchange for
shares of common stock of the Company. Such Exchange caused Empire to
become a wholly-owned subsidiary of the Company.
Pursuant
to the terms and conditions of the Exchange Agreement:
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At
the closing of the Exchange, each share of Empire’s common stock issued
and outstanding immediately prior to the closing of the Exchange was
exchanged for the right to receive one share of our common stock.
Accordingly, an aggregate of 19,602,000 shares of our common stock were
issued to the Empire
Shareholders.
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Upon
the closing of the Exchange, Betty Soumekh, Jeremy Vernassal and Delia
Vernassal resigned as our officers and directors, and simultaneously with
the effectiveness of the Exchange a new Board of Directors and new
officers were appointed. Our new Board of Directors consists of
Shelly Finkel, Barry Honig, and Gregory D. Cohen. The new officers consist
of Shelly Finkel, Chairman and Chief Executive Officer, Gregory D. Cohen,
President, Chief Operating Officer and Secretary, and Peter Levy,
Executive Vice President.
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Our
shares of common stock are very thinly traded, only a small percentage of our
common stock is available to be traded and is held by a small number of holders
and the price, if traded, may not reflect our actual or perceived value. At the
closing of the Exchange, our public float was held by approximately 20 persons
and therefore should be considered illiquid. There can be no
assurance that there will be an active market for our shares of common stock
either now or in the future. The market liquidity will be dependent on the
perception of our operating business, among other things. We will
take certain steps including utilizing investor awareness campaigns, press
releases, road shows and conferences to increase awareness of our business and
any steps that we might take to bring us to the awareness of investors that may
require us to compensate consultants with cash and/or stock. It is also possible
that shareholders of ours determine to compensate consultants to perform
investor awareness campaigns and take other steps to seek to enhance the
liquidity of our stock. There can be no assurance that there will be
any awareness generated or the results of any efforts will result in any impact
on our trading volume. Consequently, investors may not be able to liquidate
their investment or liquidate it at a price that reflects the value of the
business and trading may be at an inflated price relative to the performance of
our company due to, among other things, availability of sellers of our shares.
If a market should develop, the price may be highly volatile. Because there may
be a low price for our shares of common stock, many brokerage firms or clearing
firms may not be willing to effect transactions in the securities or accept our
shares for deposit in an account. Even if an investor finds a broker willing to
effect a transaction in the shares of our common stock, the combination of
brokerage commissions, transfer fees, taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of low priced shares of common stock as collateral for any
loans.
The
foregoing description of the Exchange does not purport to be complete and is
qualified in its entirety by reference to the complete text ofthe Exchange
Agreement, which is filed as Exhibit 2.1 hereto, and incorporated herein by
reference.
Following
the closing of the Exchange, there are 39,712,403 shares of our common stock
issued and outstanding. Approximately 49.4% of such issued and
outstanding shares are held by the Empire Shareholders. The foregoing
percentages exclude 2,800,000 shares of common stock reserved for issuance under
our 2010 Equity Incentive Plan (the “2010 Plan”).
We did
not have any outstanding options or warrants to purchase shares of capital stock
immediately prior to the closing of the Exchange. However, prior to the
Exchange, we adopted the 2010 Plan and reserved 2,800,000 shares of common stock
for issuance as awards to officers, directors, employees, consultants and
others. Upon the closing of the Exchange, the Company granted options under the
2010 Plan to purchase an aggregate of 2,800,000 shares of our common stock to a
total of 8 individuals. Each of the options expires 10 years
from the award, vests one-third in each of the first three years and has an
exercise price of $0.60 per share.
The
shares of our common stock issued to the Empire Shareholders in connection with
the Exchange (19,602,000) were not registered under the Securities Act, in
reliance upon an exemption from registration provided by Section 4(2) under the
Securities Act and Regulation D promulgated thereunder. These securities may not
be transferred or sold absent registration under the Securities Act or an
applicable exemption therefrom.
Changes to the Business.
Prior
to the closing of the Exchange, we were a web-based service provider and
consulting company. Empire in engaged in the business of live
entertainment as a promoter, producer and venue operator for music and sporting
events. We intend to carry on the business of Empire as our sole line of
business. Upon closing of the Exchange, we relocated our executive offices to
110 Greene Street, Suite 403, New York, New York 10012 and our telephone number
is (212) 208-4472.
Changes to the Board of Directors and
Executive Officers.
Upon the closing of the Exchange, each of our
directors resigned and Shelly Finkel, Barry Honig, and Gregory D. Cohen were
appointed to our Board of Directors. In addition, upon the closing of the
Exchange, each of our officers resigned and certain officers of Empire prior to
the Exchange were appointed as our officers.
Our
inital Board of Directors consisted of two people. On September 27,
2010, our Board of Directors approved the adoption of Amended and Restated
Bylaws. Pursuant to our Amended and Restated Bylaws, our Board of
Directors must consist of at least one person, fixed from time to time by the
board or our stockholders. A vacancy on our Board of Directors may be
filled by the vote of a majority of the directors holding office. All
directors hold office for one-year terms until the election and qualification of
their successors. Officers are appointed by the Board of Directors
and serve at the discretion of the board.
Accounting Treatment.
The
Exchange is being accounted for as a reverse-merger and recapitalization. Empire
is the acquirer for financial reporting purposes and the Company is the acquired
company. Consequently, the assets and liabilities and the operations that will
be reflected in the historical financial statements prior to the Exchange will
be those of Empire and will be recorded at the historical cost basis of Empire,
and the consolidated financial statements after completion of the Exchange will
include the assets and liabilities of the Company and Empire, historical
operations of Empire and operations of the Company from the closing date of the
Exchange.
Tax Treatment; Small Business Issuer.
The Exchange is intended to constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
“Code”), or such other tax free reorganization exemptions that may be available
under the Code. We have not obtained any opinion concerning the tax
treatment of the Exchange.
Following
the Exchange, the Company will continue to be a “smaller reporting company,” as
defined in Item 10(f)(1) of Regulation S-K, as promulgated by the
SEC.
Description
of Our Company
The
Company was incorporated under the laws of the State of Nevada on August 2, 2007
to be a web-based service provider and consulting company. On November 28, 2007,
the Company entered into a license agreement with Service Technology, Inc., a
non-affiliate. Service Technology granted the Company a license in
perpetuity to the use the customer intelligence application, the Edge, on a
non-exclusive basis. Upon further evaluation of the software, the Company
determined that it was unable to implement the use of this particular software
with its clients. As a result, on December 29, 2009, the parties
entered into a termination agreement. On September 27, 2010, we
amended and restated our Articles of Incorporation in order to, among other
things, change our name to The Empire Sports & Entertainment Holdings
Co.
Empire
began operations in November 2009 as Golden Empire, LLC, a New Jersey limited
liability company, and was incorporated in Nevada in February
2010. Empire is engaged in the business of live entertainment as a
promoter, producer and venue operator for music and sports. To date, Empire has
not generated material revenues or earnings as a result of its activities. As a
result of the Exchange, Empire became a wholly-owned subsidiary of the Company
and the Company succeeded to the business of Empire as its sole line of
business.
Description
of Our Business
As
used in this Current Report on Form 8-K, all references to “we,” “our” and “us”
for periods prior to the closing of the Exchange refer to Empire, as a privately
owned company, and for periods subsequent to the closing of the Exchange refer
to the Company and its subsidiaries (including Empire).
Our
Business – Entertainment
We are
engaged in the business of live entertainment as a promoter, producer and venue
operator for music and sports. Our goal is to become a leader in
integrated promotion, production, venue operation and event management services
for a broad variety of live events. We intend to promote or produce
both live music and entertainment shows and sporting events. We
expect to generate revenue primarily through promoter fees and sharing
arrangements with performers and athletes, production of concerts and events and
venue operations. These revenues are expected to consist primarily of
sponsorship, advertising and concession fees, ticket sales (“gate”), televised
revenue (Pay-Per-View) and media distribution.
As of
July 1, 2010, famed entertainment manager Shelly Finkel joined Empire as its
Chief Executive Officer. Shelly Finkel has, for over 30 years, been involved
with many name brand music entertainers such as The Grateful Dead, The Allman
Brothers, The Doors, The Who, Jimi Hendrix, and Cream. In addition,
he was the organizer of the biggest rock concert of all time, the Watkins Glen
Summer Jam. Mr. Finkel has been a boxing manager since
1980, representing Mike Tyson, Evander Holyfield and Manny
Pacquiao. On June 13, 2010, Mr. Finkel was inducted into the Boxing
Hall of Fame.
We expect
to be a supplier of live music, entertainment and athletic events for domestic
and foreign venues and to the world's leading television networks, including
HBO, Showtime, Fox and ESPN.
Our
business will include creation, distribution (domestically and internationally)
and maintenance of our media holdings, including a media library of videotaped
events and original television programming.
We
anticipate our core business will be the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned, leased and/or operated by us. As a
result of our management’s historically involvement in boxing, our sports
promotion will initially have an emphasis on boxing.
As
promoter, we typically would be providing the following services:
• Book
talent or tours in an individual market;
• Sell
tickets and advertise the event to attract ticket buyers;
• Rent
or otherwise provide event venues;
• Arrange
for local production services, such as stage, set, sound;
• Lighting;
and
• Sell
event sponsorships.
As
producer, we typically would be providing the following services:
• Develop
event content;
• Hire
artistic talent;
• Schedule
performances in select venues;
• Promote
tours; and
• Sell
sponsorships.
Our
Business – Sports Promotion
The
sports promoter is one of the most important figures in sports. The
difference between a skilled unheard of athlete and one of fame and repute is
often a good promoter. A promoter is in charge of setting up and
paying for everything involved and making sure all legal requirements are met.
The promoter assumes all financial risk associated with the event, whether
paying for the event or securing secondary investors to pay or guarantee the
costs. The promoter may be responsible for costs of recruiting,
training, housing and travel as well as everything involved in an event, from
the plastic cups to the chairs for each corner of the boxing ring to the ring
itself, the referee, the ticket sales, advertising, licenses and making sure the
scales used for weigh-in are properly calibrated.
A promoter will often contract out a
lot of the details but the promoter is ultimately responsible if anything
doesn't meet legal requirements or if something goes wrong.
A promoter is not a manager. The
manager's job is to look out for the interests of the athlete. The promoter's
job is to look out for the interests of the promoter. Sometimes those interests
align with the athlete’s interests, but many times they do not.
Our mission is to endeavor to align our
interests more with the athlete than traditional promoters by creating
incentives for our success that also benefit the athlete. This may be
through equity ownership, incentives and similar arrangements with athletes who
hire us as their promoter.
Since the
promoter is assuming all of the financial risk in setting up an event, it means
the promoter also expects a large portion of the profit from an event. This is
where the promoter's interests traditionally diverge from and become opposed to
the athlete’s interests. The promoter and the athlete's manager, for example,
negotiate the boxer's "purse" for a fight — how much money the boxer takes home
for stepping in the ring. The boxers' respective purses are a cost involved in
setting up the fight, just like supplying an ambulance and food vendors are
costs. The larger the boxer's purse, the smaller the profit the promoter takes
home. So the promoter's financial interests are best served by minimizing the
boxer's purse as much as possible. We seek to realign interests and
reduce those conflicts and align the interests of athletesmore with ours, even
though the promoter has no actual duty to be fair.
We will utilize our executive’s skills
and know-how to market and advertise an event so that it appeals to the broadest
possible demographic and to attract the most paying customers. We
will be responsible for the pay-per-view system and obtaining other revenue
generating activities. We intend to seek relationships with athletes
of various calibers, for boxing from developing young amateurs to heavyweight
champions, and develop new and innovative strategies that enhance our value
while providing an equity interest to the athlete in our company. In this
manner, we seek to be the first choice for athletes to associate with in order
to obtain a promoter that maintains relationships and is operated by people who
know the business of boxing, and other sports which we may in the future
enter.
Boxing is one of the world's most
popular spectator sports and has broad-based international appeal. The sport is
an essential programming asset of many of the major television networks and has
proven to be a powerful vehicle for subscription and pay television in
particular. Domestically, the two leading premium networks, HBO and Showtime,
use boxing as core programming. Boxing is one of the highest rated program
groupings for both of these networks. Boxing also drives the pay per view
("PPV") industry. The top 10 PPV events of all time are professional boxing
matches.
Businss
Growth Strategy
Our
growth plans focus on the following strategies:
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Expanding
our core business, both domestically and
internationally;
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Signing,
developing and acquiring new talent that can achieve marquee or star
status and become premium cable and PPV
attractions;
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Increasing
the sales of media rights, site rights, and sponsorship for existing
series;
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Acquiring
other promotional companies in an effort to increase market
share;
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Extending
our core brand into related merchandising through licensing arrangements
with established merchandisers;
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Creating
and distributing other content;
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Acquiring
video libraries;
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•
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Developing
our presence in other entertainment and sports-driven categories (not
related to boxing) in the areas of merchandising consulting services and
properties;
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•
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Consideration
of corporate acquisitions of companies in the sports marketing, management
(athletes, entertainers, and television production);
and
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•
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Rights-generating
businesses (other event-driven sport/entertainment
products).
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Competition
We
operate in a highly competitive and fragmented industry. Sports and
entertainment competition includes companies such as LiveNation, ClearChannel,
AEG, Ticketmaster, Madison Square Garden and others, each of which has a
long-established reputation with entertainment and sports.
We may
acquire or lease or enter into agreements to operate venues in which our events
will take place. In markets where we will own, lease or operate a
venue, we compete with other venues to serve artists likely to perform in that
general location. In markets where we do not own or operate venues, we compete
with other venues for dates for popular national tours. Consequently, touring
artists have significant alternatives to our venues in scheduling tours. In
addition, in the markets in which we promote musical concerts and events, we
face competition from other promoters, as well as from artists that promote
their own concerts. We believe that barriers to entry into the promotion
services business are low and that local promoters are increasingly expanding
the geographic scope of their operations.
The marketing and athlete
representation industry is highly competitive. Competitors include a
few large companies that operate in the areas in which we operate, as well as
many smaller entities which operate similarly to us.
Professional boxing is dominated by a
small number of promoters who work with and are known to the leading
television networks and venues. There are approximately 10 major boxing
promoters in the world, most of which are based in the United
States. Our major boxing competitors in the U.S. are Don King
Productions, Top Rank Boxing and Golden Boy.
All of
the business development and targeted businesses we may launch are highly
competitive with established companies with significantly greater infrastructure
and financial resources that our company.
Employees
As of
September 30, 2010, we had 5 active full-time employees, and four
consultants. We are not represented by labor unions. We believe that
our relationship with our employees is satisfactory, but there can be no
assurances that we will continue to maintain good relations with our
employees.
Legal
Proceedings
We are
not involved in any pending legal proceeding or litigations and, as far as we
are aware, no governmental authority is contemplating any proceeding to which we
are a party or to which any of our properties is subject, which would reasonably
be likely to have a material adverse effect on the Company.
Forward-Looking
Statements
This
Current Report on Form 8-K and other written and oral statements made from time
to time by us may contain so-called “forward-looking statements,” all of which
are subject to risks and uncertainties. Forward-looking statements
can be identified by the use of words such as “expects,” “plans,” “will,”
“forecasts,” “projects,” “intends,” “estimates,” and other words of similar
meaning. One can identify them by the fact that they do not relate
strictly to historical or current facts. These statements are likely
to address our growth strategy, financial results and product and development
programs. One must carefully consider any such statement and should
understand that many factors could cause actual results to differ from our
forward looking statements. These factors may include inaccurate
assumptions and a broad variety of other risks and uncertainties, including some
that are known and some that are not. No forward looking statement
can be guaranteed and actual future results may vary materially.
Information
regarding market and industry statistics contained in this Report is included
based on information available to us that we believe is accurate. It
is generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. We have not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this
Report. Forecasts and other forward-looking information obtained from
these sources are subject to the same qualifications and the additional
uncertainties accompanying any estimates of future market size, revenue and
market acceptance of products and services. We do not assume any
obligation to update any forward-looking statement. As a result,
investors should not place undue reliance on these forward-looking
statements.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This
discussion should be read in conjunction with the other sections of this Current
Report on Form 8-K, including “Risk Factors,” “Description of Our Business” and
the Financial Statements attached hereto as Item 9.01 and the related
exhibits. The various sections of this discussion contain a number of
forward-looking statements, all of which are based on our current expectations
and could be affected by the uncertainties and risk factors described throughout
this Report as well as other matters over which we have no
control. See “Forward-Looking Statements.” Our actual results may
differ materially.
Recent
Events
We
believe that September 29, 2010, we were a public shell company, as defined
by the Securities and Exchange Commission, without material assets or
activities. As a result, on October 4, 2010, we filed an amendment to our
Quarterly Report on Form 10-Q for the period ended June 30, 2010 in order to
indicate that we were a shell company. On September 29,
2010, we entered into the Exchange Agreement with The Empire Sports &
Entertainment, Co., a privately held Nevada corporation, and the shareholders of
Empire (the “Empire Shareholders”). Upon closing of the transaction contemplated
under the Exchange Agreement (the “Exchange”), the Empire Shareholders
transferred all of the issued and outstanding capital stock of Empire to the
Company in exchange for shares of common stock of the Company. Such
Exchange caused Empire to become a wholly-owned subsidiary of the
Company. The Exchange is being accounted for as a reverse-merger and
recapitalization. Empire is the acquirer for financial reporting purposes and
the Company is the acquired company. Consequently, the assets and liabilities
and the operations that will be reflected in the historical financial statements
prior to the Exchange will be those of Empire and will be recorded at the
historical cost basis of Empire, and the consolidated financial statements after
completion of the Exchange will include the assets and liabilities of the
Company and Empire, historical operations of Empire and operations of the
Company from the closing date of the Exchange.
Overview
Prior to
the Exchange, we were a web-based service provider and consulting
company. Empire is engaged in the business of live entertainment as a
promoter, producer and venue operator for music and sporting events. Our goal is
to become a leader in integrated promotion, production, venue operation and
event management services for a broad variety of live events. We
intend to promote or produce both live music and entertainment shows and
sporting events. We expect to generate revenue primarily through
promoter fees and sharing arrangements with performers and athletes, production
of concerts and events and venue operations. These revenues are
expected to consist primarily of sponsorship, advertising and concession fees,
ticket sales (“gate”), televised revenue (Pay-Per-View) and media
distribution.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
A summary
of significant accounting policies is included in Note 1 to the audited
financial statements included for the period from November 30, 2009 (Inception)
to December 31, 2009 and notes thereto contained in this report as filed with
the Securities and Exchange Commission. Management believes that the application
of these policies on a consistent basis enables us to provide useful and
reliable financial information about the Company’s operating results and
financial condition.
Our financial statements include a summary of the significant accounting
policies and methods used in the preparation of our financial statements.
Management believes the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the financial
statements.
Use of
Estimates - Management’s Discussion and Analysis is based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management evaluates these estimates, including those related to the carrying
value of property and equipment and the assumptions used to calculate fair value
of options issued for services. Management bases these estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Revenue
Recognition - We follow the guidance of the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 605-10-S99 “Revenue
Recognition Overall – SEC Materials”. We record revenue when persuasive evidence
of an arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured.
We earn
revenue primarily from live event ticket sales, sponsorship, advertising,
concession fees, television rights fee and pay per view fees for events
broadcast on television or cable.
The
following policies reflect specific criteria for our various revenues
streams:
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Revenue
from ticket sales are recognized when the event occurs. Advance ticket
sales and event-related revenues for future events are deferred until
earned, which is generally once the events are conducted. The recognition
of event-related expenses is matched with the recognition of event-related
revenues.
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Revenue
from sponsorship, advertising, and television/cable distribution
agreements is recognized in accordance with the contract terms, which are
generally at the time events occur.
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Revenues
from the sale of products are recognized at the point of sale at the live
event concession stands.
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Stock
Based Compensation - Stock based compensation is accounted for based on the
requirements of the Share-Based Payment Topic of ASC 718 which requires
recognition in the financial statements of the cost of employee and director
services received in exchange for an award of equity instruments over the period
the employee or director is required to perform the services in exchange for the
award (presumptively, the vesting period). The FASB ASC also requires
measurement of the cost of employee and director services received in exchange
for an award based on the grant-date fair value of the award.Pursuant to ASC
Topic 505-50, for share-based payments to consultants and other third-parties,
compensation expense is determined at the “measurement date.” The expense is
recognized over the vesting period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. We record
compensation expense based on the fair value of the award at the reporting date.
The awards to consultants and other third-parties are then revalued, or the
total compensation is recalculated based on the then current fair value, at each
subsequent reporting date.
Accounts
Receivable -We have a policy of reserving for questionable accounts based
on its best estimate of the amount of probable credit losses in its existing
accounts receivable. We periodically review our accounts receivable
to determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are
charged to bad debt expense after all means of collection have been exhausted
and the potential for recovery is considered remote.
Property
and equipment are carried at cost. The cost of repairs and maintenance is
expensed as incurred; major replacements and improvements are
capitalized. When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gains
or losses are included in income in the year of disposition. We
examine the possibility of decreases in the value of fixed assets when events or
changes in circumstances reflect the fact that their recorded value may not be
recoverable. Depreciation is calculated on a straight-line basis over the
estimated useful life of the assets, generally one to five
years.
Long-lived
assets - We review for impairment whenever events or circumstances indicate that
the carrying amount of assets may not be recoverable, pursuant to guidance
established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets”.
We recognize an impairment loss when the sum of expected undiscounted future
cash flows is less than the carrying amount of the asset. The amount of
impairment is measured as the difference between the asset’s estimated fair
value and its book value.
Results
of Operations
Our
business began on November 30, 2009. Accordingly, no comparisons
exist for the prior period. We were incorporated in Nevada on February 10, 2010
to succeed to the business of the predecessor company, Golden Empire, LLC
(“Golden Empire”), which was formed and commenced operations on November 30,
2009. We assumed all assets, liabilities and certain promotion rights agreements
entered into by Golden Empire at carrying value which approximated fair value on
February 10, 2010. Golden Empire ceased operations on that date. The
results of operations for the period from January 1, 2010 to February 9, 2010 of
Golden Empire were not material.
For
the Period from February 10, 2010 (Inception) to June 30, 2010
Net
Revenues
Revenue
from live and televised events, consisting primarily of ticket sales, television
rights fee and sponsorship, was $214,584 for the period from February 10, 2010
(Inception) to June 30, 2010.
The
following table provides data regarding the source of our net revenues for the
period from February 10, 2010 (Inception) to June 30, 2010:
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$
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% of Total
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Live
events – ticket sales and related revenues
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$
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80,195
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37
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%
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Television
rights fee
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101,889
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48
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%
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Advertising
- sponsorships
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32,500
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15
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%
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Total
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$
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214,584
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100
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%
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For the
period from February 10, 2010 (Inception) to June 30, 2010, we recognized
revenues from television rights fee of approximately $102,000 from one company
that accounted for 48% of our total net revenues.
Operating
Expenses
Total
operating expenses for the period from February 10, 2010 (Inception)
to June 30, 2010 were $1,008,590 and consisted of the
following:
|
Cost
of revenues
|
|
$
|
135,332
|
|
|
Sales
and marketing
|
|
|
109,685
|
|
|
Live
events expenses
|
|
|
202,366
|
|
|
Compensation
expense and related taxes
|
|
|
120,833
|
|
|
Consulting
fees
|
|
|
265,591
|
|
|
General
and administrative
|
|
|
174,783
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,008,590
|
|
|
|
·
|
Cost of revenue
. Cost of revenue
for live event production was $135,332 for the period from February 10,
2010 (Inception) to June 30, 2010. Live event production costs consist
principally of fighters’ purses, production cost of live events, venue
rental and related expenses. We expect cost of revenue for live events to
increase for the remainder of our current fiscal year as we promote more
events.
|
|
|
|
|
|
|
·
|
Sales and
marketing.
For the period from
February 10, 2010 (Inception) to June 30, 2010, sales and marketing costs
were $109,685. Sales and marketing expenses primarily consist of
marketing, advertising and promotion expenses directly and indirectly
related to live events. Indirect expenses consist of internet and print
advertising.
|
|
|
·
|
Live events
expenses.
For the period from February 10, 2010 (Inception) to June
30, 2010, live events operations expenses were $202,366. Live events
operations expenses consist primarily of wages and consultants’ fees
related to day-to-day administration of the Company’s live events, fighter
recruiting and signing bonuses.
|
|
|
·
|
Compensation expense
and related taxes
. Compensation expense which includes salaries and
stock based compensations to our employees. For the period from February
10, 2010 (Inception) to June 30, 2010, compensation expense and related
taxes were $120,833 and were primarily attributable to contributed
services provided by one of our officers valued at $90,000 and stock-based
compensation expense of $30,833 which is attributable to stock options
granted to our chief executive officer and two directors. We anticipate
that compensation expense will increase during the remainder of our
current fiscal year due to the hiring of two executive employees and three
additional support staff subsequent to June 30,
2010.
|
|
|
·
|
Consulting
fees
.
For the
period from February 10, 2010 (Inception) to June 30, 2010, we incurred
consulting fees of $265,591 which were primarily attributable with the
issuance of our common stock for services rendered to consultants for
investor relations and advisory
services.
|
|
|
·
|
General and
administrative expense
. For the period from February 10, 2010
(Inception) to June 30, 2010, general and administrative expenses were
$174,783. For the period from February 10, 2010 (Inception) to June 30,
2010, general and administrative expenses consisted of the
following:
|
|
Rent
|
|
$
|
5,042
|
|
|
Professional
fees
|
|
|
16,325
|
|
|
Telephone
|
|
|
3,498
|
|
|
Travel/Entertainment
|
|
|
123,862
|
|
|
Depreciation
|
|
|
2,088
|
|
|
Other
general and administrative
|
|
|
23,968
|
|
|
|
|
$
|
174,783
|
|
Loss
from Operations
We
reported a loss from operations of $794,006 for the period from February 10,
2010 (Inception) to June 30, 2010.
Net
Loss
As a
result of these factors, we reported a net loss of $794,006 for the period from
February 10, 2010 (Inception) to June 30, 2010, which translates to basic and
diluted net loss per common share of $0.06.
For
the period from November 30, 2009 (Inception) to December 31, 2009
Net
Revenues
We have
not generated revenues during the period from November 30, 2009 (Inception) to
December 31, 2009.
Operating
Expenses
Total
operating expenses for the period from November 30, 2009 (Inception) to December
31, 2009 were $53,051 and consisted of the following:
|
Live
events expenses
|
|
$
|
2,000
|
|
|
Sales
and marketing
|
|
|
7,800
|
|
|
General
and administrative
|
|
|
43,251
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,051
|
|
|
|
·
|
Live events
expenses.
For the period from November 30, 2009 (Inception) to
December 31, 2009, live events operations expenses were $2,000. Live
events operations expenses consist primarily of wages and consultants’
fees related to day-to-day administration of the Company’s live events,
fighter recruiting and signing
bonuses.
|
|
|
·
|
Sales and
marketing.
For the period from November 30, 2009 (Inception) to
December 31, 2009, sales and marketing costs were $7,800. Sales and
marketing expenses primarily consist of marketing, advertising and
promotion expenses directly and indirectly related to live events.
Indirect expenses consist of internet and print
advertising.
|
|
|
·
|
General and
administrative expenses
. For the period from November 30, 2009
(Inception) to December 31, 2009, general and administrative expenses were
$43,251. General and administrative expenses include consulting, travel
expense, office expense, supplies, telephone and communications expenses,
and other expenses. In addition, this also includes
compensation expense of $22,500 which were primarily attributable to
contributed services provided by one of our officers valued at
$22,500.
|
Loss
from Operations
We
reported a loss from operations of $53,051 for the period from November 30, 2009
(Inception) to December 31, 2009.
Net
Loss
As a
result of these factors, we reported a net loss of $53,051 for the period from
November 30, 2009 (Inception) to December 31, 2009.
Liquidity and Capital
Resources
Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations, and otherwise operate on an ongoing basis.
At June 30, 2010, we had a cash balance of $1,429,409 and a working capital of
$1,313,096. We have been funding our operations though the sale of our common
stock and proceeds from loans payable for operating capital purposes. For the
period from February 10, 2010 (Inception) to June 30, 2010, we sold 2,720,333
shares of common stock for net proceeds of $1,541,230. Our balance
sheet at June 30, 2010 reflects a note payable - related party amounting to
$298,935, which were to mature on the earlier of (i) on demand by the lender
upon thirty (30) days prior written notice to the Company or (ii) the two-year
anniversary of the date of this promissory note. This note bears annual interest
at 5% and is unsecured.
At June
30, 2010, we owed Mr. Gregory D. Cohen, an executive officer of our company,
$89,997 for amounts he has advanced to us for working capital. This
advances are short-term and non-interest bearing. We paid off these advances in
July 2010.
Our net
revenues are not sufficient to fund our operating expenses. At June
30, 2010, we had a cash balance of $1,429,409 and a working capital of
$1,313,096. Between June 2010 and August 2010, we have raised significant
capital to fund our operating expenses, pay our obligations, and grow our
company. We currently have no material commitments for capital expenditures.We
may be required to raise additional funds, particularly if we are unable to
generate positive cash flow as a result of our operations. We
estimate that based on current plans and assumptions, that our available cash
will be sufficient to satisfy our cash requirements under our present operating
expectations, without further financing, for up to 12 months. Other than working
capital, we presently have no other alternative source of working capital. We
may not have sufficient working capital to fund the expansion of our operations
and to provide working capital necessary for our ongoing operations and
obligations. We will need to raise significant additional capital to fund our
operating expenses, pay our obligations, and grow our company. We do not
anticipate we will be profitable in 2010. Therefore our future
operations will be dependent on our ability to secure additional
financing. Financing transactions may include the issuance of equity
or debt securities, obtaining credit facilities, or other financing mechanisms.
However, the trading price of our common stock and a downturn in the U.S. equity
and debt markets could make it more difficult to obtain financing through the
issuance of equity or debt securities. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and expenses, fail
to collect significant amounts owed to us, or experience unexpected cash
requirements that would force us to seek alternative financing. Furthermore, if
we issue additional equity or debt securities, stockholders may experience
additional dilution or the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our common stock. The
inability to obtain additional capital will restrict our ability to grow and may
reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we will likely be required to curtail our
marketing and development plans and possibly cease our
operations.
Operating
activities
Net cash
flows used in operating activities for the period from February 10, 2010
(Inception) to June 30, 2010 amounted to $757,208 and was primarily attributable
to our net losses of $794,006, offset by depreciation of $2,088, amortization
of promotional advances of $14,364, contributed officer services of
$90,000, stock-based compensations of $286,667 and add-back of total changes in
assets and liabilities of $356,321.
Net cash
flows used in operating activities for the period November 30, 2009 (Inception)
to December 31, 2009 amounted to $45,937 and was primarily
attributable to our net loss of $53,051, offset by contributed officer services
of $22,500 and add-back of total changes in assets and liabilities of
$15,386.
Investing
activities
Net cash
used in investing activities for the period from February 10, 2010 (Inception)
to June 30, 2010 was $57,708 and represented investment in note receivable of
$25,000 and the purchase of property and equipment of $32,708. We did not have
such activity during the period from November 30, 2009 (Inception) to December
31, 2009.
Financing
activities
Net cash
flows provided by financing activities was $2,244,325 for the period from
February 10, 2010 (Inception) to June 30, 2010. We received net proceeds from
sale of common stock of $1,541,230, proceeds from issuance of founders’ shares
$100, proceeds from loans and note payable of $628,500, advances from a related
party of $163,364 and offset by payments on related party advances of
$88,869.
Net cash
flows provided by financing activities was $45,937 for the period from November
30, 2009 (Inception) to December 31, 2009. We received net proceeds from loan
payable and advances from a related party of $30,435 and $15,502,
respectively.
Contractual
Obligations
We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash
flows.
The
following tables summarize our contractual obligations as of June 30, 2010, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.
|
|
|
Payments
Due
by
Period
|
|
|
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
5
Years
+
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease
|
|
$
|
325,912
|
|
|
$
|
32,213
|
|
|
$
|
168,405
|
|
|
$
|
125,294
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable – related party
|
|
|
298,935
|
|
|
|
298,935
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Contractual Obligations
|
|
$
|
624,847
|
|
|
$
|
331,148
|
|
|
$
|
168,405
|
|
|
$
|
125,294
|
|
|
$
|
-
|
|
Off-Balance Sheet
Arrangements
Since our
inception, we have not engaged in any off-balance sheet arrangements, including
the use of structured finance, special purpose entities or variable interest
entities.
Recent
Accounting Pronouncements
In June
2009, the FASB issued ASC Topic 810-10, “Amendments to FASB Interpretation No.
46(R)”. This updated guidance requires a qualitative approach to identifying a
controlling financial interest in a variable interest entity (“VIE”), and
requires ongoing assessment of whether an entity is a VIE and whether an
interest in a VIE makes the holder the primary beneficiary of the VIE. It is
effective for annual reporting periods beginning after November 15, 2009. The
adoption of ASC Topic 810-10 did not have a material impact on the results of
operations and financial condition.
In
October 2009, the FASB issued Accounting Standards Updates (“ASU”) No. 2009-13,
“Multiple-Deliverable Revenue Arrangements.” This ASU establishes the accounting
and reporting guidance for arrangements including multiple revenue-generating
activities. This ASU provides amendments to the criteria for separating
deliverables, measuring and allocating arrangement consideration to one or more
units of accounting. The amendments in this ASU also establish a selling price
hierarchy for determining the selling price of a deliverable. Significantly
enhanced disclosures are also required to provide information about a vendor’s
multiple-deliverable revenue arrangements, including information about the
nature and terms, significant deliverables, and its performance within
arrangements. The amendments also require providing information about the
significant judgments made and changes to those judgments and about how the
application of the relative selling-price method affects the timing or amount of
revenue recognition. The amendments in this ASU are effective prospectively for
revenue arrangements entered into or materially modified in the fiscal years
beginning on or after June 15, 2010. The adoption of this standard did not have
a material impact on our financial statements.
In
January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair
Value Measurements” an amendment to ASC Topic 820, “Fair Value Measurements and
Disclosures.” This amendment requires an entity to: (i) disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers and (ii)
present separate information for Level 3 activity pertaining to gross purchases,
sales, issuances, and settlements. ASU No. 2010-06 is effective for our
interim and annual reporting beginning after December 15, 2009, with one new
disclosure effective after December 15, 2010. The adoption of ASU No. 2010-06
did not have a material impact on the results of operations and financial
condition.
In
February 2010, the FASB issued an amendment to the accounting standards related
to the accounting for, and disclosure of, subsequent events in an entity’s
financial statements. This standard amends the authoritative guidance for
subsequent events that was previously issued and among other things exempts
Securities and Exchange Commission registrants from the requirement to disclose
the date through which it has evaluated subsequent events for either original or
restated financial statements. This standard does not apply to subsequent events
or transactions that are within the scope of other applicable GAAP that provides
different guidance on the accounting treatment for subsequent events or
transactions. The adoption of this standard did not have a material impact on
our financial statements.
In July
2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. ASU 2010-20 requires additional disclosures about the credit
quality of a company’s loans and the allowance for loan losses held against
those loans. Companies will need to disaggregate new and existing
disclosures based on how it develops its allowance for loan losses and how it
manages credit exposures. Additional disclosure is also required
about the credit quality indicators of loans by class at the end of the
reporting period, the aging of past due loans, information about troubled debt
restructurings, and significant purchases and sales of loans during the
reporting period by class. The new guidance is effective for interim-
and annual periods beginning after December 15, 2010. We anticipate
that the adoption of these additional disclosures will not have a material
effect on our financial position or results of operations.
Other
accounting standards that have been issued or proposed by the FASB that do not
require adoption until a future date are not expected to have a material impact
on the financial statements upon adoption.
Risk
Factors
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals. If any of these risks actually occur, our
business, financial condition or results of operation may be materially
adversely affected. In such case, the trading price of our common
stock could decline and investors could lose all or part of their
investment.
Risks Relating to Our
Business and Industry
Our
business is highly sensitive to public tastes and dependent on our ability to
secure popular artists and athletes and other events. We may be unable to
anticipate or respond to changes in consumer preferences, which may result in
decreased demand for our services.
Our
ability to generate revenue from music and sports operations is highly sensitive
to rapidly changing public tastes and dependent on the availability of popular
artists, athletes and events. Our success depends in part on our ability to
anticipate the tastes of consumers and to offer events that appeal to them.
Since we rely on unrelated parties to create and perform live content, any
unwillingness to tour or lack of availability of popular artists or athletes
could limit our ability to generate revenue. In particular, there are a limited
number of artists and athletes that can headline a North American or global tour
or event who can sell out larger venues, including many of our anticipated
amphitheaters. If those key artists do not continue to tour, or athletes are not
willing or able to obtain successful matches, or if we are unable to secure the
rights to their future tours or matches, then our business would be adversely
affected.
In
addition, live music is typically booked for music tours from one to four months
in advance of the beginning of the tour and often an agreement to pay an artist
a fixed guaranteed amount is required prior to our receiving any operating
income. Therefore, if the public is not receptive to the tour, or we or a
performer cancel the tour, we may incur a loss for the tour depending on the
amount of the fixed guarantee or incurred costs relative to any revenue earned,
as well as foregone revenue we could have earned at booked venues. We may be
able to secure cancellation insurance policies but such policies to cover a
portion of our losses if a performer cancels a tour may not be sufficient, we
may choose not to procure such policies, and they are subject to deductibles.
Furthermore, consumer preferences change, from time to time, and our failure to
anticipate, identify or react to these changes could result in reduced demand
for our services, which would adversely affect our operating results and
profitability.
We
have incurred net losses and may experience future net losses.
Our
operating results from continuing operations have been adversely affected by,
among other things, event profitability and overhead costs. Many of our
competitors who are significantly larger have incurred significant net losses
despite their larger scale of operations and we may face the same outcome which
may continue or increase as we grow. We may face reduced demand for our events
and other factors that could adversely affect our results of operations in the
future. We cannot predict whether we will achieve profitability in future
periods or at all.
Our
operations are seasonal and our results of operations may vary from quarter to
quarter and year over year, so our financial performance in certain financial
quarters or years may not be indicative of, or comparable to, our financial
performance in subsequent financial quarters or years.
Our
financial results and cash needs will vary from quarter to quarter and year to
year depending on, among other things, the timing of tours and events,
cancellations, capital expenditures, seasonal and other fluctuations in our
operating results, the timing of guaranteed payments and receipt of ticket
sales, financing activities, acquisitions and investments and receivables
management. Because our results will vary significantly from quarter to quarter
and year to year, our financial results for one quarter or year cannot
necessarily be compared to another quarter or year and may not be indicative of
our future financial performance in subsequent quarters or years. Typically, the
financial performance for live entertainment is in the first and fourth quarters
of the calendar year as outdoor venues are primarily used, and festivals
primarily occur, during May through September. In addition, the timing of tours
of top grossing acts can impact comparability of quarterly results year over
year and potentially annual results.
We
may be adversely affected by the current, or any future, general deterioration
in economic conditions, which could affect consumer and corporate spending and,
therefore, significantly adversely impact our operating results.
A decline
in attendance at or reduction in the number of live events may have an adverse
effect on our revenue and operating income. In addition, during past economic
slowdowns and recessions, many consumers reduced their discretionary spending
and advertisers reduced their advertising expenditures. The impact of slowdowns
on our business is difficult to predict, but they may result in reductions in
ticket sales, sponsorship opportunities and our ability to generate revenue. The
risks associated with our businesses may become more acute in periods of a
slowing economy or recession, which may be accompanied by a decrease in
attendance at live events.
Our
business depends on discretionary consumer and corporate spending. Many factors
related to corporate spending and discretionary consumer spending, including
economic conditions affecting disposable consumer income such as employment,
fuel prices, interest and tax rates and inflation which can significantly impact
our operating results. Business conditions, as well as various industry
conditions, including corporate marketing and promotional spending and interest
levels, can also significantly impact our operating results. These factors can
affect attendance at our events, premium seat sales, sponsorship, advertising
and hospitality spending, concession and souvenir sales, as well as the
financial results of sponsors of our venues, events and the industry. Negative
factors such as challenging economic conditions, public concerns over terrorism
and security incidents, particularly when combined, can impact corporate and
consumer spending, and one negative factor can impact our results more than
another. There can be no assurance that consumer and corporate spending will not
be adversely impacted by current economic conditions, or by any further or
future deterioration in economic conditions, thereby possibly impacting our
operating results and growth.
Loss
of our management and other personnel could result in the loss of key events and
negatively impact our business.
The event
business is uniquely dependent upon personal relationships, as promoters and
executives within the company leverage their existing network of relationships
with artists, athletes, agents and managers in order to secure the rights to the
live tours and events which are critical to our success. Due to the importance
of those industry contacts to our business, the loss of any of our officers or
other key personnel could adversely affect our operations.
Our
future success depends, to a significant extent, on the continued services of
our senior management, particularly Shelly Finkel, our Chief Executive Officer.
Moreover, we do not have key-man insurance on Mr. Finkel. We also rely heavily
on the services of Gregory D. Cohen, our President and Chief Operating
Officer. The loss of Mr. Finkel or Mr. Cohen or certain other
employees, would have a material and adverse effect on our business. Competition
for talented personnel throughout our industry is intense and we may be unable
to retain our current key employees or attract, integrate or retain other highly
qualified employees in the future. We have in the past experienced, and we
expect to continue to experience, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business could be adversely affected.
We
face intense competition in live music and entertainment, ticketing and
artist/athlete services industries, and we may not be able to maintain or
increase our current revenue, which could adversely affect our financial
performance.
The
industry in which we compete is a rapidly evolving, highly competitive and
fragmented. Sports and entertainment competition includes companies
such as LiveNation, ClearChannel, AEG, Ticketmaster, Madison Square Garden and
others, each of which has a long-established reputation with entertainment and
sports. We expect competition to intensify in the future. There can be no
assurance that we will be able to compete effectively. We believe
that the main competitive factors in the sports, entertainment and media
industries include personal and professional relationships, trust and
access to capital in order to develop a roster of talent and media relationships
that provide returns on the Company’s investments. Many of our
competitors are established, profitable and have strong attributes in many,
most or all of these areas. They may be able to leverage their existing
relationships to offer alternative products or services at more attractive
pricing or with better organizational or financial support. Other companies may
also enter our markets with better athletes, greater financial and human
resources and/or greater brand recognition. Competitors may continue to evolve
and improve or expand current offerings and introduce new talent. We may be
perceived as relatively too small, untested or possessing a poor track record
inasmuch as similar business models developed in the past have failed
to produce successful performance or returns to investors to succeed, which may
be hurtful to our success relative to the competition. To be
competitive, we will have to invest significant resources in
business development, advertising and marketing. We may also have to
rely on strategic partnerships for critical branding and relationship leverage,
which partnerships may or may not be available or sufficient. There are no
assurances that we will have sufficient resources to make these investments or
that we will be able to make the advances necessary to be competitive. Increased
competition may result in price inflation for talent, reduced gross margins
from our media and other relationships and loss of market share. Failure to
compete successfully against current or future competitors could have a material
adverse effect on the Company’s business, operating results and financial
condition.
We
compete in the live music and sports industries and within these industries we
compete with venues to book performers, athletes and events, and, in the markets
in which we promote concerts and events, we face competition from other
promoters and venue operators. Our competitors compete with us for key employees
who have relationships with popular artists and athletes that have a history of
being able to book such artists for concerts and tours or athletes for fights or
other events. These competitors have already and may continue to engage in
extensive development efforts, undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential artists and athletes. Our competitors have already
developed many of the elements that are important to our success, as we are a
newcomer in the industry, andthey may continue to develop services, advertising
options or venues that are equal or superior to those we provide or that achieve
greater market acceptance and brand recognition than we achieve. It is possible
that new competitors may emerge and rapidly acquire significant market
share.
We
compete in the ticketing industry and the intense competition that we face in
the ticketing industry could cause the volume of our ticketing services to
decline, which since we are a new company, is immaterial at present. There can
be no assurance that we will be able to compete successfully in the future with
existing or potential competitors or that competition will not have an adverse
effect on our business and financial condition. We may face direct competition
in the live music industry with our prospective or current primary ticketing
clients, who primarily include live event content providers (such as owners or
operators of live event venues) and face similar competition in the sporting
event industry. This direct competition with our prospective or current primary
ticketing clients could result in a decline in the number of clients we may
obtain and a decline in the volume of our ticketing services business, which
could adversely affect our business and financial condition, although at the
present, our ticketing services business revenue is immaterial.
Other
variables that could adversely affect our financial performance by, among other
things, leading to decreases in overall revenue, the number of sponsors, event
attendance, ticket prices or profit margins include:
|
|
•
|
an
increased level of competition for advertising dollars, which may lead to
lower sponsorships as we attempt to retain advertisers or which may cause
us to lose advertisers to our competitors offering better programs that we
are unable or unwilling to match;
|
|
|
•
|
unfavorable
fluctuations in operating costs, including increased guarantees to
performers and athletes, which we may be unwilling or unable to pass
through to our customers via ticket
prices;
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our
competitors may offer more favorable terms than we do in order to obtain
agreements for new venues or to obtain events for the venues they
operate;
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technological
changes and innovations that we are unable to adopt or are late in
adopting that offer more attractive entertainment alternatives than we
currently offer, which may lead to reduction in attendance at live events,
a loss of ticket sales or to lower ticket
prices;
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other
entertainment options available to our audiences that we do not
offer;
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unfavorable
changes in labor conditions which may require us to spend more to retain
and attract key employees; and
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unfavorable
shifts in population and other demographics which may cause us to lose
audiences as people migrate to markets where we have a smaller presence,
or which may cause sponsors to be unwilling to pay for sponsorship and
advertising opportunities if the general population shifts into a less
desirable age or geographical demographic from an advertising
perspective.
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We
believe that barriers to entry into the live music and into the sports promotion
business are low and that local promoters and others are increasingly expanding
the geographic scope of their operations.
The
speculative nature of the industry may result in our inability to develop
performers or athletes that receive sufficient market acceptance for us to be
successful.
Certain
segments of the entertainment industry are highly speculative and historically
have involved a substantial degree of risk. If we are unable to produce products
or services that receive sufficient market acceptance we may not generate
sufficient revenues to maintain our operations and our business will be
unsuccessful.
We
may not be able to successfully implement our business model which is subject to
inherent uncertainties.
Our
business is predicated on our ability to attract athletes and artists,
advertisers and persons willing to pay subscriptions in order to view our events
in the appropriate medium. We cannot assure that there will be a
large enough audience for our programs or that prospective fans or participants
will agree to pay the prices that we propose to charge. In the event
our customers resist paying the prices we set for our programs, our business,
financial condition, and results of operations will be materially and adversely
affected.
We
must respond to and capitalize on rapid changes in consumer behavior resulting
from new technologies and distribute programs and media content in order to
become and remain competitive and exploit new opportunities.
Technology
in the entertainment and sports arenas is changing rapidly and Internet and
mobile viewership is still relatively new and untested. We must adapt to
advances in technologies, distribution outlets and content transfer and storage
(legally or illegally) to ensure that our programs remain desirable and
widely available to our audiences while protecting our intellectual property
interests. The ability to anticipate and take advantage of new and future
sources of revenue from these technological developments will affect our
ability to continue to increase our revenue and expand our business. If we
cannot ensure that our content is responsive to the lifestyles of our target
audiences and capitalize on technological advances, our revenues will decline
which may cause us to curtail operations or be unable to take advantage of
opportunities.
The
success of ticketing operations depends, in part, on the integrity of systems
and infrastructures. System interruption and the lack of integration and
redundancy in these systems and infrastructures may have an adverse impact on
our business, financial condition and results of
operations.
The
success of ticketing depends, in part, on the ability to maintain the integrity
of systems and infrastructures, both ours and third-parties, including websites,
information and related systems, call centers and distribution and fulfillment
facilities. System interruption and the lack of integration and redundancy in
the information systems and infrastructures of ticketing operations may
adversely affect our ability to operate websites, process and fulfill
transactions, respond to customer inquiries and generally maintain
cost-efficient operations. We and our ticketing partners may experience
occasional system interruptions that make some or all systems or data
unavailable or prevent us from efficiently providing services or fulfilling
orders. We also rely on affiliate and third-party computer systems, broadband
and other communications systems and service providers in connection with the
provision of services generally, as well as to facilitate, process and fulfill
transactions. Any interruptions, outages or delays in the systems and
infrastructures of our business, our affiliates and/or third parties, or
deterioration in the performance of these systems and infrastructures, could
impair the ability of our business to provide services, fulfill orders and/or
process transactions. Fire, flood, power loss, telecommunications failure,
hurricanes, tornadoes, earthquakes, acts of war or terrorism, acts of God and
similar events or disruptions may damage or interrupt computer, broadband or
other communications systems and infrastructures at any time. Any of these
events could cause system interruption, delays and loss of critical data, and
could prevent us from providing services, fulfilling orders and/or processing
transactions. We do not have backup systems for certain aspects of our
operations, these systems are not fully redundant and disaster recovery planning
is not sufficient for all eventualities. In addition, we may not have adequate
insurance coverage to compensate for losses from a major interruption. If any of
these adverse events were to occur, it could adversely affect our business,
financial condition and results of operations.
The
processing, storage, use and disclosure of personal data could give rise to
liabilities as a result of governmental regulation, conflicting legal
requirements or differing views of personal privacy rights.
In the
processing of consumer transactions, we may receive, transmit and store a large
volume of personally identifiable information and other user data. The sharing,
use, disclosure and protection of this information are governed by the
respective privacy and data security policies maintained by our business.
Moreover, there are federal, state and international laws regarding privacy and
the storing, sharing, use, disclosure and protection of personally identifiable
information and user data. Specifically, personally identifiable information is
increasingly subject to legislation and regulations in numerous jurisdictions
around the world, the intent of which is to protect the privacy of personal
information that is collected, processed and transmitted in or from the
governing jurisdiction. We could be adversely affected if legislation or
regulations are expanded to require changes in business practices or privacy
policies, or if governing jurisdictions interpret or implement their legislation
or regulations in ways that negatively affect our business, financial condition
and results of operations.
We may
also become exposed to potential liabilities as a result of differing views on
the privacy of the consumer and other user data collected by our business. The
failure of us and/or the various third-party vendors and service providers with
which we do business, to comply with applicable privacy policies or federal,
state or similar international laws and regulations or any compromise of
security that results in the unauthorized release of personally identifiable
information or other user data could damage the reputation of our business,
discourage potential users from trying the products and services that we offer
and/or result in fines and/or proceedings by governmental agencies and/or
consumers, one or all of which could adversely affect our business, financial
condition and results of operations.
Poor
weather may adversely affect attendance at our events, which could negatively
impact our financial performance from period to period.
We expect
to promote many outdoor events. Weather conditions surrounding these events
affect sales of tickets, concessions and merchandise, among other things. Poor
weather conditions can have a material effect on our results of operations
particularly because we expect to promote a finite number of events. Due to
weather conditions, we may be required to reschedule an event to another
available day or a different venue, which would increase our costs for the event
and could negatively impact the attendance at the event, as well as food,
beverage and merchandise sales. Poor weather can affect current periods as well
as successive events in future periods. If we are unable to reschedule events
due to poor weather, we may be forced to refund the ticket revenue for those
events.
We
may be adversely affected by the occurrence of extraordinary
events.
The
occurrence and threat of extraordinary events, such as terrorist attacks,
intentional or unintentional mass-casualty incidents, natural disasters or
similar events, may substantially decrease the use of and demand for our
services and the attendance at events, which may decrease our revenue or expose
us to substantial liability. The terrorism and security incidents in the past,
military actions in foreign locations, and periodic elevated terrorism alerts
can be expected to negatively impact us, including public concerns regarding air
travel, military actions and additional national or local catastrophic
incidents, causing a nationwide disruption of commercial and leisure
activities.
Following
past extraordinary events, some performers and athletes refused to travel or
book tours or events, which if it were to occur to our performers or athletes,
could adversely affect our business. The occurrence or threat of future
terrorist attacks, military actions by the United States, contagious disease
outbreaks, natural disasters such as earthquakes and severe floods or similar
events cannot be predicted, and their occurrence can be expected to negatively
affect the economies of the United States and other foreign countries where we
expect to do business.
Costs
associated with, and our ability to obtain adequate insurance could adversely
affect our profitability and financial condition.
Heightened
concerns and challenges regarding property, casualty, liability, business
interruption and other insurance coverage have resulted from terrorist and
related security incidents, as to which there is enhanced risk related to live
events. As a result, we may experience increased difficulty obtaining high
policy limits of coverage at reasonable costs, including coverage for acts of
terrorism. We have a material investment in property and equipment that may be
located at venues, which are generally located near major cities and which hold
events typically attended by a large number of fans.
These
operational, geographical and situational factors, among others, may result in
significant increases in insurance premium costs and difficulties obtaining
sufficiently high policy limits with deductibles that we believe to be
reasonable. We cannot assure that future increases in insurance costs and
difficulties obtaining high policy limits will not adversely impact our
profitability, thereby possibly impacting our operating results and
growth.
In
addition, we enter into various agreements with artists and athletes from time
to time, including long-term artist rights arrangements. The profitability of
those arrangements depends upon those artists’ willingness and ability to
continue performing, and we may not be able to obtain sufficient insurance
coverage at reasonable costs to adequately protect us against the death,
disability or other failure to continue engaging in revenue-generating
activities under those agreements.
We cannot
guarantee that our insurance policy coverage limits, including insurance
coverage for property, casualty, liability, artists and business interruption
losses and acts of terrorism, would be adequate under the circumstances should
one or multiple events occur at or near any of our venues, or that our insurers
would have adequate financial resources to sufficiently or fully pay our related
claims or damages. We cannot guarantee that adequate coverage limits will be
available, offered at reasonable costs, or offered by insurers with sufficient
financial soundness. The occurrence of such an incident or incidents affecting
any one or more of our venues could have a material adverse effect on our
financial position and future results of operations if asset damage and/or
company liability were to exceed insurance coverage limits or if an insurer were
unable to sufficiently or fully pay our related claims or
damages.
There
is the risk of personal injuries and accidents in connection with events, which
could subject us to personal injury or other claims and increase our expenses,
as well as reduce attendance at events, causing a decrease in our
revenue.
There are
inherent risks involved with producing live events. As a result, personal
injuries and accidents have, and may, occur from time to time, which could
subject us to claims and liabilities for personal injuries. Incidents in
connection with our live events at any of our venues or venues that we rent
could also result in claims, reducing operating income or reducing attendance at
our events, causing a decrease in our revenue. While we may maintain insurance
policies that provide coverage within limits that are sufficient, in
management’s judgment there can be no assurance that such insurance will be
adequate at all times and in all circumstances.
We
are subject to extensive governmental regulation, and our failure to comply with
these regulations could adversely affect our business, results of operations and
financial condition.
Our live
music venue operations are subject to federal, state and local laws, both
domestically and internationally, governing matters such as construction,
renovation and operation of our venues, as well as:
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licensing,
permitting and zoning, including noise
ordinances;
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human
health, safety and sanitation
requirements;
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requirements
with respect to the service of food and alcoholic
beverages;
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working
conditions, labor, minimum wage and hour, citizenship and employment
laws;
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compliance
with the ADA and the DDA;
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sales
and other taxes and withholding of
taxes;
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privacy
laws and protection of personally identifiable
information;
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historic
landmark rules; and
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environmental
protection laws.
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We cannot
predict the extent to which any future laws or regulations will impact our
operations. The regulations relating to food service in venues are many and
complex. Although we generally contract with a third-party vendor for these
services, we cannot assure that we or our third-party vendors are in compliance
with all applicable laws and regulations at all times or that we or our
third-party vendors will be able to comply with any future laws and regulations
or that we will not be held liable for violations by third-party vendors.
Furthermore, additional or amended regulations in this area may significantly
increase the cost of compliance.
Alcoholic
beverages will be served at many of our venues during live events and must
comply with applicable licensing laws, as well as state and local service laws,
commonly called dram shop statutes. Dram shop statutes generally prohibit
serving alcoholic beverages to certain persons such as an individual who is
intoxicated or a minor. If we violate dram shop laws, we may be liable to third
parties for the acts of the customer. Although we generally hire outside vendors
to provide these services at our operated venues and regularly sponsor training
programs designed to minimize the likelihood of such a situation, we cannot
guarantee that intoxicated or minor customers will not be served or that
liability for their acts will not be imposed on us. We cannot assure that
additional regulation in this area would not limit our activities in the future
or significantly increase the cost of regulatory compliance. We must also obtain
and comply with the terms of licenses in order to sell alcoholic beverages in
the states in which we serve alcoholic beverages.
From time
to time, governmental bodies have proposed legislation that could have an effect
on our business. For example, some legislatures have proposed laws in the past
that would impose potential liability on us and other promoters and producers of
live events for entertainment taxes and for incidents that occur at our events,
particularly relating to drugs and alcohol.
We and
our venues are subject to extensive environmental laws and regulations relating
to the use, storage, disposal, emission and release of hazardous and
non-hazardous substances, as well as zoning and noise level restrictions which
may affect, among other things, the hours of operations of our venues.
Additionally, certain laws and regulations could provide strict, joint and
several responsibility for the remediation of hazardous substance contamination
at facilities or at third-party waste disposal sites, which could hold us
responsible for any personal or property damage related to any
contamination.
We
depend upon unionized labor for the provision of some services and any work
stoppages or labor disturbances could disrupt our business.
The
stagehands at some venues and other employees are subject to collective
bargaining agreements. Union agreements regularly expire and require
negotiation. Whether or not our employees become subject to
collective bargaining agreements or employees of third parties are subject to
collective bargaining agreements, our operations may be interrupted as a result
of labor disputes or difficulties and delays in the process of renegotiating
collective bargaining agreements. In addition, our business operations at one or
more of our facilities may also be interrupted as a result of labor disputes by
outside unions attempting to unionize. A work stoppage at one or more venues or
at our promoted events could have a material adverse effect on our business,
results of operations and financial condition. We cannot predict the effect that
a potential work stoppage will have.
We
are dependent upon our ability to lease, acquire and develop venues, and if we
are unable to do so on acceptable terms, or at all, our results of operations
could be adversely affected.
We
require access to venues to generate revenue. We may in the future use venues
that we own, but we also expect to operate in a number of venues under various
agreements which include leases with third parties or equity or booking
agreements, which are agreements where we contract to book events at a venue for
a specific period of time. Our long-term success will depend in part on the
availability of venues, our ability to lease venues and our ability to enter
into booking agreements. As many of these agreements are with third parties over
whom we have little or no control, we may be unable to renew agreements or enter
into new agreements on acceptable terms or at all, and may be unable to obtain
favorable agreements with venues. Our ability to renew agreements or obtain new
agreements on favorable terms depends on a number of other factors, many of
which are also beyond our control, such as national and local business
conditions and competition from other promoters. If the cost of renewing
agreements is too high or the terms of any new agreement with a new venue are
unacceptable or incompatible with our existing operations, we may decide to
forego these opportunities. There can be no assurance that we will be able to
renew agreements on acceptable terms or at all, or that we will be able to
obtain attractive agreements with substitute venues, which could have a material
adverse effect on our results of operations.
We plan
to continue to expand our operations through the development of music venues and
the expansion of existing venues, which poses a number of risks,
including:
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construction
of venues may result in cost overruns, delays or unanticipated
expenses;
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desirable
sites for venues may be unavailable or costly;
and
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the
attractiveness of our venue locations may deteriorate over
time.
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Additionally,
the market potential of venue sites cannot be precisely determined, and our
venues may face competition in markets from unexpected sources. Newly
constructed venues may not perform up to our expectations. We face significant
competition for potential venue locations and for opportunities to acquire
existing venues. Because of this competition, we may be unable to obtain or
maintain venues on terms we consider acceptable.
Costs
associated with capital improvements could adversely affect our profitability
and liquidity.
Although
we do not currently own any venues, growth or maintenance of our revenue may
come to depend on consistent investment. Therefore, we expect to continuously
need to make capital improvements in venues to meet long-term increasing demand,
to increase entertainment value and to increase revenue. We may have a number of
capital projects underway simultaneously. Numerous factors, many of which are
beyond our control, may influence the ultimate costs and timing of various
capital improvements at venues, including:
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availability
of financing on favorable terms;
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unforeseen
changes in design;
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increases
in the cost of construction materials and
labor;
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additional
land acquisition costs;
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fluctuations
in foreign exchange rates;
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litigation,
accidents or natural disasters affecting the construction
site;
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national
or regional economic changes;
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environmental
or hazardous conditions; and
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undetected
soil or land conditions.
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The
amount of capital expenditures can vary significantly. In addition, actual costs
could vary materially from our estimates if the factors listed above and our
assumptions about the quality of materials or workmanship required or the cost
of financing such construction were to change. Construction is also subject to
governmental permitting processes which, if changed, could materially affect the
ultimate cost.
Our
revenues, which are presently immaterial, depend in part on the promotional
success of our marketing campaigns, and there can be no assurance that such
advertising, promotional and other marketing campaigns will be successful or
will generate revenue or profits.
We plan
to spend significant amounts on advertising, promotional and other marketing
campaigns for events and other business activities. Such marketing activities
include, among others, promotion of ticket sales, premium seat sales,
hospitality and other services for events and venues and may include advertising
associated with souvenir merchandise and apparel. There can be no
assurance that our advertising, promotional and other marketing campaigns will
be successful or will generate revenue or profits.
If
we are unable to integrate the operations of our various businesses, our overall
business may suffer.
The
acquisition and successful integration of additional entertainment and related
businesses are key elements of our operating strategy. There are many
risks associated with integration of acquired businesses,
including:
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the
distraction of management's attention from other business
concerns;
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our
entry into markets and geographic areas where we have limited or no
experience;
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the
potential loss of key employees or customers of the acquired businesses;
and
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the
potential inability to integrate controls, standards, systems and
personnel.
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We may be
unable to effectively integrate our acquired businesses or those businesses we
expect to acquire in the future without encountering the difficulties described
above. Failure to effectively integrate such businesses could have a material
adverse effect on our business, prospects, results of operations or financial
condition. In addition, the combined companies may not benefit as expected from
the integration.
Promotion
requires significant up front outlays that may not be capable of being
recouped.
We intend
to invest heavily in development and marketing which will require a significant
expenditure of funds for rehearsal, practice, and for athletes, training,
housing, and promotion. As a result, there can be no assurance that
such investments will yield the anticipated returns.
Changes
in technology may reduce the demand for the products or services traditionally
associated with sports and entertainment programs and promotion.
Online
digital media may present a challenge to our expected sources of revenue from
pay per view and other media relations. Cable, satellite and
broadcast television are substantially affected by rapid and significant changes
in technology, including the increasing use and access to the Internet for media
and entertainment, and the increasing use and access to technologies that may
defeat copyright protections, reducing our income. These changes may reduce the
demand for certain existing services and technologies used in these industries
or render them obsolete. We cannot assure you that the technologies used by or
relied upon or produced by our business While many attempt to adapt
and apply the services provided by the target business to newer technologies, we
cannot assure you that we will have sufficient resources to fund these changes
or that these changes will ultimately prove successful or produce revenue. If we
are unable to respond quickly to changes in technology, our business could
fail.
A
decline in media or advertising expenditures could cause our revenues and
operating results to decline significantly in any given period or in specific
markets.
We
anticipate deriving a portion of our revenues from the sale of media content
which is dependent on advertising. A decline in advertising expenditures
generally or in specific markets could significantly adversely affect our
revenues and operating results in any given period. Declines can be caused
by the economic conditions and sentiment, prospects of advertisers or the
economy in general could alter current or prospective media consumer or
advertisers’ spending priorities. Disasters, acts of terrorism,
political uncertainty or hostilities could lead to a reduction in media
advertising expenditures as a result of economic uncertainty. Our
advertising revenues may also be adversely affected by changes in audience
traffic, which advertisers rely upon in making decisions to purchase
advertising. A decrease in our media or in advertising revenues will
adversely impact our results of operations.
If
we are unable to obtain additional funding, our business operations will be
harmed and if we do obtain additional financing, our then existing shareholders
may suffer substantial dilution.
There is
no assurance that we will not incur debt in the future, that we will have
sufficient funds to repay any indebtedness or that we will not default on our
debt obligations, jeopardizing our business viability. Furthermore,
we may not be able to borrow or raise additional capital in the future to meet
our needs or to otherwise provide the capital necessary to conduct our business.
There can be no assurance that financing will be available in amounts or on
terms acceptable to us, if at all. The inability to obtain additional capital
will restrict our ability to grow and may reduce our ability to continue to
conduct business operations. If we are unable to obtain additional financing, we
will likely be required to curtail our marketing and development plans and
possibly cease our operations. Any additional equity financing may involve
substantial dilution to our then existing shareholders.
We
may incur liabilities that we might be unable to repay in the
future.
We may
incur liabilities with affiliated or unaffiliated lenders. These
liabilities would represent fixed costs which would be required to be paid
regardless of the level of our business or profitability. There is no
assurance that we will be able to pay all of our
liabilities. Furthermore, we are always subject to the risk of
litigation from customers, suppliers, employees, and others because of the
nature of our business, including but not limited to consumer
lawsuits. Litigation can cause us to incur substantial expenses and,
if cases are lost, judgments, and awards can add to our costs. An increase in
our costs may cause us to increase the prices at which we charge our customers
which may lead to our customers to seek alternatives to our products. In such
event, our revenues will decrease and we may be forced to curtail our
operations.
We
may incur unanticipated cost overruns which may significantly affect our
operations.
We may
incur substantial cost overruns in the acquisition, development and enhancement
of our talent. Management is not obligated to contribute capital to
us. Unanticipated costs may force us to obtain additional capital or
financing from other sources if we are unable to obtain the additional funds
necessary to implement our business plan. There is no assurance that we will be
able to obtain sufficient capital to implement our business plan
successfully. If a greater investment is required in the business,
the probability of earning a profit or a return of the stockholders’ investment
will be diminished.
Because
our operating results are difficult to predict, our operating results may fall
below the expectations of securities analysts and investors. If this happens,
the trading price of our common stock may fall significantly. Factors that
affect our quarterly and annual operating results include, among other things,
the following:
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our
ability to establish and strengthen brand
awareness;
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our
success in promoting our performers and
events;
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the
amount and timing of costs relating to our marketing efforts or other
initiatives;
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our
ability to enter into favorable contracts with entertainers, athletes and
venues, content distributors, developers, and other
parties;
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acquisition-related
costs;
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our
ability to compete in a highly competitive market;
and
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economic
trends specifically affecting the entertainment and sports business, as
well as general economic conditions in the markets we
serve.
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If
we do not manage our growth efficiently, we may not be able to operate our
business effectively.
We expect
to expand our operations and we will seek additional financing to fund such
expansion. If we expand our operations, we may strain our management,
operations, systems and financial resources. To manage our future growth, we
must improve and effectively utilize our existing operational, management,
marketing and financial systems, successfully recruit, hire and manage personnel
and maintain close coordination among our performers, and athletes, technical,
finance, marketing, sales and production staffs. We may need to hire additional
personnel in all areas of our business during 2010. In addition, we may also
need to improve our accounting systems, internal control procedures, and
computer software and hardware systems in order to operate our business more
effectively and manage our expansion. We also will need to manage an increasing
number of complex relationships with performers and athletes, strategic
partners, advertisers and other third parties. Our failure to effectively manage
our growth could disrupt our operations and ultimately prevent us from
generating the revenues we anticipate.
Many
of our agreements may be short-term and we face the risk of losing relationships
to competitors with greater resources.
We
believe that our future success depends in large part upon our ability to
maintain our existing relationships. Our agreements that are for a fixed term
have the option for a party electing whether or not to renew their
contracts upon expiration. If we become unable to provide valuable services, or
if we otherwise fail to maintain good relations or are in breach of our
agreements, our performers or athletes may elect to terminate or fail to renew
their agreements with us. In addition, if we cannot provide adequate
incentives to remain with us, our efforts to sign new performer or athletes may
be impaired. Furthermore, historically, when performers or athletes have
achieved substantial commercial success they have sought to renegotiate the
terms of their agreements. This may adversely affect our future
profitability.
We
are dependent on our entertainers and athletes.
Our
success depends, in large part, upon our ability to recruit and retain
entertainers and athletic talent. There can be no assurance that we will be able
to continue to identify and retain such talent in the future. Additionally, we
cannot assure you that we will be able to retain our current talent when their
contracts expire. Our failure to attract and retain key talent, or a serious or
untimely injury to, or the death of, any of our key talent, would likely lead to
a decline in the appeal of our events, which would adversely affect our ability
to generate revenues.
We
partially depend upon our existing performers and athletes to attract new
performers and athletes.
In order
for us to sign new performers and athletes, our principal existing or
prospective performers and athletes must remain with us and sustain their
success and popularity. Our business would be adversely affected
by:
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our
inability to recruit new performers and athletes with commercial promise
and to enter into production and promotional agreements with
them;
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the
loss of talent and/or popularity of our existing performers and
athletes;
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increased
competition to maintain relationships with existing performers and
athletes;
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non-renewals
of current agreements with existing performers and athletes;
and
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poor
performance or negative publicity of existing performers and
athletes.
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We
may be unsuccessful in our future acquisition endeavors, if any, which may have
an adverse effect on our business. Our compliance with antitrust, competition
and other regulations may limit our operations and future
acquisitions.
Our
future growth depends in part on our selective acquisition of additional
businesses. We may be unable to identify other suitable targets for further
acquisition or make further acquisitions at favorable prices. If we identify a
suitable acquisition candidate, our ability to successfully implement the
acquisition would depend on a variety of factors, including our ability to
obtain financing on acceptable terms and requisite government approvals.
Acquisitions involve risks, including those associated with:
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integrating
the operations, financial reporting, technologies and personnel of
acquired companies;
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managing
geographically dispersed
operations;
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the
diversion of management’s attention from other business
concerns;
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the
inherent risks in entering markets or lines of business in which we have
either limited or no direct experience;
and
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the
potential loss of key employees, customers and strategic partners of
acquired companies.
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We may
not successfully integrate any businesses we may acquire in the future and may
not achieve anticipated revenue and cost benefits. Acquisitions may be
expensive, time consuming and may strain our resources. Acquisitions may not be
accretive to our earnings and may negatively impact our results of operations as
a result of, among other things, expenses to pursue the acquisition, the
incurrence of debt, one-time write-offs of goodwill and amortization expenses of
other intangible assets. In addition, future acquisitions that we may pursue
could result in dilutive issuances of equity securities.
We are
also subject to laws and regulations, including those relating to antitrust,
that could significantly affect our ability to expand our business through
acquisitions. For example, the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice with respect to our domestic
acquisitions have the authority to challenge our acquisitions on antitrust
grounds before or after the acquisitions are completed. State agencies may also
have standing to challenge these acquisitions under state or federal antitrust
law. Comparable authorities in other jurisdictions also have the ability to
challenge our foreign acquisitions. Our failure to comply with all applicable
laws and regulations could result in, among other things, regulatory actions or
legal proceedings against us, the imposition of fines, penalties or judgments
against us or significant limitations on our activities. In addition, the
regulatory environment in which we operate is subject to change. New or revised
requirements imposed by governmental regulatory authorities could have adverse
effects on us, including increased costs of compliance. We also may be adversely
affected by changes in the interpretation or enforcement of existing laws and
regulations by these governmental authorities.
In
addition, credit agreements and the terms of any preferred stock we may issue
may restrict our ability to make acquisitions.
Future
acquisitions or expansions may disrupt our business or distract our
management.
Our
operations have consisted of marketing, promoting and distributing our live and
televised events. Our current strategic objectives include not only further
developing and enhancing our existing business, but also entering into new or
complementary businesses, such as the creation of new forms of entertainment and
brands, the development of new programming and the development of branded,
location-based entertainment businesses. The following risks are associated with
expanding into new or complementary businesses by acquisition, strategic
alliance, investment, licensing or other arrangements:
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potential
diversion of management's attention and resources from our existing
business and an inability to recruit or develop the necessary management
resources to manage new businesses;
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unanticipated
liabilities or contingencies from new or complementary businesses or
ventures;
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reduced
earnings due to increased goodwill amortization, increased interest costs
and additional costs related to the integration of
acquisitions;
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potential
reallocation of resources due to the growing complexity of our business
and strategy;
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competition
from companies then engaged in the new or complementary businesses that we
are entering;
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possible
additional regulatory requirements and compliance
costs;
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dilution
of our stockholders' percentage ownership and/or an increase of our
leverage when issuing equity or convertible debt securities or incurring
debt; and
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potential
unavailability of acceptable terms, or at all, of additional financing
necessary for expansion.
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Because
a substantial portion of our revenues will be derived from the sale of license
rights and/or advertising of our events and programs, an economic downturn that
results in a reduction in discretionary spending by consumers on entertainment
could adversely affect our business.
A
substantial portion of our revenues will be derived from, and our future success
will be dependent upon sales of license rights, advertising and other
merchandise. If the economy suffers a recession or other long-term disruption,
and consumers reduce their discretionary spending on entertainment-related
products and services, it is likely that we would experience a decline in
revenues, which would materially harm our profits, results of operations,
financial condition and future prospects.
Unless
we develop a strong brand identity, our business may not continue to grow and
our financial results may suffer.
We
believe that historical growth and brand recognition are important factors not
only in persuading performers and athletes to choose us as their promoter, but
also in our ability to effectively utilize the dominant marketing resources in
the entertainment and sports industry (television, radio, Internet, public
relations, trade publications, etc.). We believe that continuing to strengthen
our brand will be critical to attracting performers and athletes. However, brand
promotion activities may not yield increased revenues, and even if they do, any
increased revenues may not offset the expenses we incur in building our
brand.
Our
sports entertainment offerings may not be commercially successful.
We expect
a significant amount of our revenue to come from the production and distribution
of our events and programs, as well as the use of our events in televised
programs. The success of these offerings depends primarily upon their acceptance
by the public, which is difficult to predict. The commercial success of an event
or program depends on the quality and acceptance of competing offerings released
into the marketplace at or near the same time, the availability of alternative
forms of entertainment and leisure-time activities, general economic conditions
and other tangible and intangible factors, all of which can change quickly.
Because we expect the popularity of our offerings to be a significant factor
driving the growth of our company, our failure to produce events and programs
with broad consumer appeal could materially harm our business and prospects for
growth.
Our
failure to continue to create popular events and programs would likely lead to a
decline in our ability to generate revenues.
The
creation, marketing and distribution of our live and televised entertainment,
including pay-per-view events, are the core of our business and are critical to
our ability to generate revenues. Our failure to continue to create popular live
events and televised programming would likely lead to a decline in our
television ratings and attendance at our live events. Such a decline would
adversely affect our ability to generate revenues.
We
compete for attendance, broadcast audiences and advertising
revenue.
We
compete for entertainment and advertising dollars with professional and college
sports and with other entertainment and leisure activities. We face competition
from professional and college baseball, basketball, hockey and/or football,
among other activities, in most cities in which we hold live events. We also
compete for attendance, broadcast audiences and advertising revenue with a wide
range of alternative entertainment and leisure activities.
This
competition could result in a significant loss of viewers, venues, distribution
channels or performers and fewer entertainment and advertising dollars spent on
our form of sports entertainment, any of which could have a material adverse
effect on our revenues, profits, results of operations, financial condition and
future prospects.
We
may be liable to third parties for certain license rights and other content that
we produce and distribute.
We may be
liable to third parties for certain license rights and other content that we
produce and distribute. We attempt to minimize these types of liabilities by
requiring representations and warranties relating to our ownership of and rights
to use and distribute such material. However, alleged liability could harm our
business by damaging our reputation, requiring us to incur legal costs in
defense, exposing us to awards of damages and costs and diverting management's
attention away from our business.
We
rely on intellectual and other property rights.
We regard
the protection of our copyrights, trademarks and service marks as critical to
our future success, and, in particular, to our ability to create and exploit
boxing-related content. We rely on federal and international copyright and
trademark statutes, as well as contractual restrictions, to establish and
protect our intellectual property and other proprietary rights in products and
services. However, there can be no assurance that these contractual arrangements
or the other steps taken by us to protect our intellectual property and
proprietary rights will prove sufficient to prevent misappropriation of them, or
to deter independent third-party development of similar rights which may infer
upon ours. We plan to pursue the registration of its trademarks, service marks
and copyrights in the United States and internationally to the extent feasible,
however, effective trademark and copyright protection may not be economically
viable, and even if it is, we may not have the financial capacity in the future
to protect, enforce and defend our rights against competitors with greater
resources.
It is
possible that in the future, we may license some of our proprietary rights, such
as trademarks or copyrighted material, to third parties. While we will attempt
to ensure that the quality of our brand is maintained by such licensees, there
can be no assurance that such licensees will not take actions that might
materially adversely affect the value of our proprietary rights or reputation,
which could have a materially adverse effect on our revenues, profits, results
of operations, financial condition and future prospects.
To date,
we have not been notified that our intellectual properties infringe on the
proprietary rights of any third party, but there can be no assurance that third
parties will not claim infringement by us with respect to the past, current or
future use of these assets. Any such claim, whether meritorious or not, could be
time-consuming, result in costly legal proceedings and/or settlement
arrangements, or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements may not be available on terms acceptable to us,
or at all. As a result, any such claim can have a materially adverse effect upon
our revenues, profits, results of operations, financial condition and future
prospects.
Our
operations are affected by general economic conditions and public
tastes.
Our
operations are affected by general economic conditions and, therefore, our
future success is unpredictable. The demand for entertainment and leisure
activities tends to be highly sensitive to consumers' disposable incomes, and
thus a decline in general economic conditions could result in our fans or
potential fans having less discretionary income to spend on our live and
televised entertainment and branded merchandise, which could have an adverse
effect on our business and/or prospects. Public tastes are unpredictable and
subject to change and may be affected by changes in the country's political and
social climate. A change in public tastes or decline in general economic
conditions may adversely affect our future success.
The
physical nature of our events and extensive travel exposes us to
risks.
Our
liability resulting from any accident or injury not covered by our insurance
could have a material adverse effect on our revenues, profits, results of
operations, financial condition and future prospects.
We
rely on certain licenses to operate.
In
various states in the United States and some foreign countries, athletic
commissions and other applicable regulatory agencies require us to obtain
promoters licenses, performers’ licenses, medical licenses and/or event permits
in order for us to promote and conduct our live events. In the event that we
fail to comply with the regulations of a particular jurisdiction, we may be
prohibited from promoting and conducting our live events in that jurisdiction.
The inability to present our live events over an extended period of time or in a
number of jurisdictions would lead to a decline in the various revenue streams
generated from our live events, which could have an adverse effect on our
profits, results of operations, financial condition and future
prospects.
Risks Relating to Our
Organization and Common Stock
Our
principal stockholders, officers and directors own a significant interest in our
voting stock and investors will not have any voice in our
management.
Our
principal stockholders, officers and directors, in the aggregate, beneficially
own in excess of approximately 20% of our outstanding common
stock. As a result, our principal stockholders, officers and
directors, acting together, have the ability to significantly
influence all matters submitted to our stockholders for approval,
including:
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election
of our Board of Directors;
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removal
of any of our directors;
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amendment
of our certificate of incorporation or bylaws;
and
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adoption
of measures that could delay or prevent a change in control or impede a
merger, takeover or other business
combination.
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As a
result of their ownership and positions, our principal stockholders, directors
and executive officers collectively are able to influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our principal stockholders, directors and executive officers, or
the prospect of these sales, could adversely affect the market price of our
common stock. Their stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which in
turn could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
We
may need to raise additional capital, which may not be available on acceptable
terms or at all.
We may be
required to raise additional funds, particularly if we are unable to generate
positive cash flow as a result of our operations. We estimate
that based on current plans and assumptions, that our available cash will be
sufficient to satisfy our cash requirements under our present operating
expectations, without further financing, for up to 12 months. There can be no
assurance that financing will be available in amounts or on terms acceptable to
us, if at all. The inability to obtain additional capital may reduce
our ability to continue to conduct business operations. If we are
unable to obtain additional financing, we will likely be required to curtail our
plans and business. Any additional equity financing may involve
substantial dilution to our existing shareholders.
We
have a limited operating history upon which to base an investment decision in
the Company.
Empire
was formed under the laws of the State of Nevada on February 10, 2010. Until
June 2010, Empire was principally involved in the business of boxing promotion
since we succeeded to the business known as Golden Empire that was owned
exclusively by our President and Chief Operating Officer Gregory D.
Cohen.
Our
operating results may prove unpredictable, and our share price may decrease or
fluctuate significantly.
Our
operating results may prove unpredictable, and our common stock price may
decrease or fluctuate significantly. Our operating results are likely to
fluctuate significantly in the future due to a variety of factors, many of which
are outside of our control.
Investor
Relations Activities, Nominal “Float” and Supply and Demand Factors May Affect
the Price of our Stock.
We expect
to utilize various techniques such as non-deal road shows and investor relations
campaigns in order to create investor awareness for our
Company. These campaigns may include personal, video and telephone
conferences with investors and prospective investors in which our business
practices are described. We may directly provide, or others may
provide, compensation to investor relations firms and pay for newsletters,
websites, mailings and email campaigns that are produced by third-parties based
upon publicly-available information concerning our Company. We will
not be responsible for the content of analyst reports and other writings and
communications by investor relations firms not authored by us or from publicly
available information. We do not intend to review or approve the
content of such analysts’ reports or other materials based upon analysts’ own
research or methods and as a result the dissemination of inaccurate or
misleading information may require us to comment or issue a corrective
announcement. Investor relations firms should generally disclose when
they are compensated for their efforts, but whether such disclosure is made or
complete is not under our control. In addition to public relations
costs,we may issue shares of restricted stock, and budget cash compensation to
consultants and advisors for these activities, and such amounts may be increased
in the future. In addition, investors in our Company may be willing,
from time to time, to encourage investor awareness through similar activities,
including payment of cash or stock compensation. Investor awareness
activities may also be suspended or discontinued which may impact the trading
market in our Common Stock.
The SEC
and FINRA enforce various statutes and regulations intended to prevent
manipulative or deceptive devices in connection with the purchase or sale of any
security and carefully scrutinize trading patterns and company news and other
communications for false or misleading information, particularly in cases where
the hallmarks of improper activities may exist, such as rapid share price
increases or decreases. As a small public company with a public
market established through a a reverse merger, it is likely our activities, and
our shareholders’ activities, will be subjected to enhanced regulatory scrutiny
due regulatory skepticism and potential bias against this manner of becoming
publicly traded. These factors, as well as because of the small
number of holders who initially own the registered shares of our Common Stock
publicly available for resale, and the limited trading markets in which such
shares may be offered or sold (which markets have historically been associated
by regulatory bodies with improper activities concerning penny-stocks, such as
the OTC Bulletin Board (“OTCBB”)or the OTCQB Marketplace (Pink OTC), may lead to
regulatory and investor perceptions that are unfavorable.
During
2010, Empire conducted a private placement (the “Offering”) which, following
acquisition by our Company, resulted in 7,112,000 shares of our Common Stock
being issued to purchasers in the Offering. Until such time as the
Empire shares sold in the Offering are registered or available for resale under
Rule 144, there will continue to be a small number and percentage of our shares
(2,513,800 or approximately 6.3%) held by a small number of investors, many of
whom acquired such shares in privately negotiated purchase and sale
transactions, that will constitute the entire available trading
market.
The
United States Supreme Court has stated that manipulative action is a “term of
art” connoting intentional or willful conduct designed to deceive or defraud
investors by controlling or artificially affecting the price of
securities. Often times, manipulation is associated by regulators and
the courts with forces that upset the supply and demand factors that would
normally determine trading prices. As described above, a small number
and percentage of our outstanding common stock will initially be available for
trading, held by a small number of individuals or
entities. Accordingly, the supply of our common stock for resale will
be extremely limited for an indeterminate amount of time (for example, under
Rule 144 promulgated under the Securities Act until one year following the date
of this Report if we are considered a “shell” and prior to such time, our shares
issued to Empire shareholders may not be able to be sold absent a registration
statement under the Securities Act), which could result in higher bids,
asks/offers or sales prices than would otherwise exist. Securities
regulators have often cited thinly-traded markets, small numbers of holders, and
investor awareness campaigns as components of their claims of price manipulation
and other violations of law when combined with manipulative trading, such as
wash sales, matched orders or other manipulative trading timed to coincide with
false or touting press releases. There can be no assurance that our
activities or third-parties’ activities, or the small number of potential
sellers or small percentage of stock in the “float,” or determinations by
purchasers or holders as to when or under what circumstances or at what prices
they may be willing to buy or sell stock will not artificially impact (or would
be claimed by regulators to have affected) the normal supply and demand factors
that determine the price of the stock. Further, this is an evolving
area of the law and regulators may adopt new or different interpretations of the
foregoing factors which could impact the market for our shares in various
respects.
As
a result of the Exchange, Empire became a subsidiary of ours and since we are
subject to the reporting requirements of federal securities laws, this can be
expensive and may divert resources from other projects, thus impairing its
ability grow.
As a
result of the Exchange, Empire became a subsidiary of ours and, accordingly, is
subject to the information and reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and other federal securities laws,
including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”). The costs of preparing and filing annual and quarterly
reports, proxy statements and other information with the SEC (including
reporting of the Exchange) and furnishing audited reports to stockholders will
cause our expenses to be higher than they would have been if Empire had remained
privately held and did not consummate the Exchange.
It may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley
Act. We will need to hire additional financial reporting, internal
controls and other finance personnel in order to develop and implement
appropriate internal controls and reporting procedures. If we are
unable to comply with the internal controls requirements of the Sarbanes-Oxley
Act, then we may not be able to obtain the independent accountant certifications
required by such act, which may preclude us from keeping our filings with the
SEC current and interfere with the ability of investors to trade our securities
and for our shares to continue to be quoted on the OTC Bulletin Board or to list
on any national securities exchange.
If
we fail to establish and maintain an effective system of internal control, we
may not be able to report our financial results accurately or to prevent
fraud. Any inability to report and file our financial results
accurately and timely could harm our reputation and adversely impact the trading
price of our common stock.
Effective
internal control is necessary for us to provide reliable financial reports and
prevent fraud. If we cannot provide reliable financial reports or
prevent fraud, we may not be able to manage our business as effectively as we
would if an effective control environment existed, and our business and
reputation with investors may be harmed. As a result, our small size
and any current internal control deficiencies may adversely affect our financial
condition, results of operation and access to capital. We have not
performed an in-depth analysis to determine if historical un-discovered failures
of internal controls exist, and may in the future discover areas of our internal
control that need improvement.
Public
company compliance may make it more difficult to attract and retain officers and
directors.
The
Sarbanes-Oxley Act and rules implemented by the SEC have required changes in
corporate governance practices of public companies. As a public
company, we expect these rules and regulations to increase our compliance costs
in 2010 and beyond and to make certain activities more time consuming and
costly. As a public company, we also expect that these rules and
regulations may make it more difficult and expensive for us to obtain director
and officer liability insurance and we may be required to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. As a result, it may be more difficult for us to
attract and retain qualified persons to serve on our Board of Directors or as
executive officers, and to maintain insurance at reasonable rates, or at
all.
Because
we became public by means similar to a reverse merger, we may not be able to
attract the attention of major brokerage firms.
There may
be risks associated with us becoming public through a “reverse
merger.” Securities analysts of major brokerage firms may not provide
coverage of us since there is no incentive to brokerage firms to recommend the
purchase of our common stock. No assurance can be given that
brokerage firms will, in the future, want to conduct any offerings on behalf of
our post-Exchange company.
Our
stock price may be volatile.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including the following:
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changes
in our industry;
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competitive
pricing pressures;
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our
ability to obtain working capital
financing;
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additions
or departures of key
personnel;
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limited
“public float” following the Exchange, in the hands of a small number of
persons whose sales or lack of sales could result in positive or negative
pricing pressure on the market price for our common
stock;
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sales
of our common stock;
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our
ability to execute our business
plan;
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operating
results that fall below
expectations;
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loss
of any strategic
relationship;
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economic
and other external factors;
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period-to-period
fluctuations in our financial results;
and
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inability
to develop or acquire new or needed
technology.
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In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially
and adversely affect the market price of our common stock.
We
have not paid cash dividends in the past and do not expect to pay dividends in
the future. Any return on investment may be limited to the value of
our common stock.
We have
never paid cash dividends on our common stock and do not anticipate doing so in
the foreseeable future. The payment of dividends on our common stock
will depend on earnings, financial condition and other business and economic
factors affecting us at such time as our Board of Directors may consider
relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if our stock price
appreciates.
There
is currently a very limited trading market for our common stock and we cannot
ensure that one will ever develop or be sustained.
Our
shares of common stock are very thinly traded, only a small percentage of our
common stock is available to be traded and is held by a small number of holders
and the price, if traded, may not reflect our actual or perceived value. There
can be no assurance that there will be an active market for our shares of common
stock either now or in the future. The market liquidity will be dependent on the
perception of our operating business, among other things. We will take
certain steps including utilizing investor awareness campaigns, press releases,
road shows and conferences to increase awareness of our business and any
steps that we might take to bring us to the awareness of investors may require
we compensate consultants with cash and/or stock. There can be no assurance that
there will be any awareness generated or the results of any efforts will result
in any impact on our trading volume. Consequently, investors may not be able to
liquidate their investment or liquidate it at a price that reflects the value of
the business and trading may be at an inflated price relative to the performance
of our company due to, among other things, availability of sellers of our
shares. If a market should develop, the price may be highly volatile. Because
there may be a low price for our shares of common stock, many brokerage firms or
clearing firms may not be willing to effect transactions in the securities or
accept our shares for deposit in an account. Even if an investor finds a broker
willing to effect a transaction in the shares of our common stock, the
combination of brokerage commissions, transfer fees, taxes, if any, and any
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of low priced shares of common stock as
collateral for any loans.
We
anticipate having our common stock continue to be quoted for trading on the OTC
Bulletin Board, however, we cannot be sure that such quotations will
continue. As soon as is practicable, we anticipate applying for
listing of our common stock on either the NYSE Amex, The NASDAQ Capital Market
or other national securities exchange, assuming that we can satisfy the initial
listing standards for such exchange. We currently do not satisfy the
initial listing standards, and cannot ensure that we will be able to satisfy
such listing standards or that our common stock will be accepted for listing on
any such exchange. Should we fail to satisfy the initial listing
standards of such exchanges, or our common stock is otherwise rejected for
listing and remain listed on the OTC Bulletin Board or suspended from the OTC
Bulletin Board, the trading price of our common stock could suffer and the
trading market for our common stock may be less liquid and our common stock
price may be subject to increased volatility.
Furthermore,
for companies whose securities are traded in the OTC Bulletin Board, it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
Our
common stock may be deemed a “penny stock,” which would make it more difficult
for our investors to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Exchange Act. The penny stock rules generally apply to
companies whose common stock is not listed on The NASDAQ Stock Market or other
national securities exchange and trades at less than $4.00 per share, other than
companies that have had average revenue of at least $6,000,000 for the last
three years or that have tangible net worth of at least $5,000,000 ($2,000,000
if the company has been operating for three or more years). These
rules require, among other things, that brokers who trade penny stock to persons
other than “established customers” complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances. Many
brokers have decided not to trade penny stocks because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. If we remain
subject to the penny stock rules for any significant period, it could have an
adverse effect on the market, if any, for our securities. If our
securities are subject to the penny stock rules, investors will find it more
difficult to dispose of our securities.
Offers
or availability for sale of a substantial number of shares of our common stock
may cause the price of our common stock to decline.
If our
stockholders sell substantial amounts of our common stock in the public
market or upon the expiration of any statutory holding period, under Rule
144, or upon expiration of lock-up periods applicable to outstanding shares, or
issued upon the exercise of outstanding options or warrants, it could create a
circumstance commonly referred to as an “overhang” and in anticipation of which
the market price of our common stock could fall. The existence of an
overhang, whether or not sales have occurred or are occurring, also could make
more difficult our ability to raise additional financing through the sale of
equity or equity-related securities in the future at a time and price that we
deem reasonable or appropriate.
Exercise
of options may have a dilutive effect on our common stock.
If the
price per share of our common stock at the time of exercise of any options, or
any other convertible securities is in excess of the various exercise or
conversion prices of such convertible securities, exercise or conversion of such
convertible securities would have a dilutive effect on our common stock. As of
September 29, 2010, we had outstanding options to purchase 2,800,000 shares of
our common stock at an exercise price of $0.60 per share. Further, any
additional financing that we secure may require the granting of rights,
preferences or privileges senior to those of our common stock and which result
in additional dilution of the existing ownership interests of our common
stockholders.
Our
certificate of incorporation allows for our board to create new series of
preferred stock without further approval by our stockholders, which could
adversely affect the rights of the holders of our common stock.
Our Board
of Directors has the authority to fix and determine the relative rights and
preferences of preferred stock. Our Board of Directors also has the authority to
issue preferred stock without further stockholder approval. As a result, our
Board of Directors could authorize the issuance of a series of preferred stock
that would grant to holders the preferred right to our assets upon liquidation,
the right to receive dividend payments before dividends are distributed to the
holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. In addition, our
Board of Directors could authorize the issuance of a series of preferred stock
that has greater voting power than our common stock or that is convertible into
our common stock, which could decrease the relative voting power of our common
stock or result in dilution to our existing stockholders.
Security
Ownership of Certain Beneficial Owners and Management
The
following tables set forth certain information as of September 29, 2010
regarding the beneficial ownership of our common stock, taking into account the
consummation of the Exchange, by (i) each person or entity who, to our
knowledge, owns more than 5% of our common stock; (ii) our executive officers
named in the Summary Compensation Table below; (iii) each director; and (iv) all
of our executive officers and directors as a group. Unless otherwise indicated
in the footnotes to the following table, each person named in the table has sole
voting and investment power and that person’s address is c/o The Empire Sports
& Entertainment Holdings Co., 110 Greene Street, Suite 403, New York, New
York 10012. Shares of common stock subject to options, warrants, or
other rights currently exercisable or exercisable within 60 days of September
29, 2010, are deemed to be beneficially owned and outstanding for computing the
share ownership and percentage of the stockholder holding such options, warrants
or other rights, but are not deemed outstanding for computing the percentage of
any other stockholder.
|
|
|
Number of Shares
Beneficially Owned
|
|
|
Percentage
Beneficially Owned (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officers and
Directors
:
|
|
|
|
|
|
|
|
Shelly
Finkel
|
|
|
2,150,000
|
(2)
|
|
|
5.4
|
%
|
|
Barry
Honig
|
|
|
3,803,333
|
(3)
|
|
|
9.6
|
%
|
|
Gregory
D. Cohen
|
|
|
2,100,000
|
(4)
|
|
|
5.3
|
%
|
|
Peter
Levy
|
|
|
0
|
(5)
|
|
|
0
|
%
|
|
All
executive officers and directors as a group (four persons)
|
|
|
8,053,333
|
(2)(3)(4)(5)
|
|
|
20.3
|
%
|
|
(1)
|
Based
on 39,712,403 shares of our common stock issued and
outstanding.
|
|
(2)
|
Does
not include (i) 850,000 shares of our common stock issuable upon exercise
of options that are not currently exercisable, and (ii) 400,000
shares of common stock held by Mr. Finkel’s son, William Finkel, which Mr.
Finkel disclaims beneficial ownership
of.
|
|
(3)
|
Does
not include 400,000 shares of our common stock issuable upon exercise
of options that are not currently
exercisable.
|
|
(4)
|
Does
not include 600,000 shares of our common stock issuable upon exercise of
options that are not currently
exercisable.
|
|
(5)
|
Does
not include 250,000 shares of our common stock, which Mr. Levy is entitled
to receive pursuant to his employment agreement, issuable upon
exercise of options that are not currently
exercisable.
|
Executive
Officers and Directors
The
following persons became our executive officers and directors on September 29,
2010, upon effectiveness of the Exchange, and hold the positions set forth
opposite their respective names.
|
|
|
|
|
Position with the Company
|
|
|
|
|
|
|
|
Shelly
Finkel
|
|
66
|
|
Chairman
and Chief Executive Officer
|
|
|
|
|
|
|
|
Barry
Honig
|
|
39
|
|
Co-Chairman
|
|
|
|
|
|
|
|
Gregory
D. Cohen
|
|
41
|
|
President,
Chief Operating Officer, Secretary and Director
|
|
|
|
|
|
|
|
Peter
Levy
|
|
49
|
|
Executive
Vice President
|
Biographies
Shelly Finkel, Chairman and Chief
Executive Officer,
has been the premier manager of fighters since
1980. He has represented some of the biggest names in the sport
during that time, including Mike Tyson, Evander Holyfield, Pernell Whitaker,
Manny Pacquiao, and many more. Finkel was selected by the Boxing Writers
Association of America as manager of the year in 1990 and 1993. In June 2010, he
was inducted into the Boxing Hall of Fame. Before beginning his career in
boxing, Finkel was in the music industry, first in the mid-sixties running a
club called “The Action House,” featuring legends such as Cream, The Doors,
Mitch Ryder, Procol Harem and some of the more progressive groups of the time.
He began promoting and worked with the likes of Jimi Hendrix, Janis Joplin, The
Who, The Rolling Stones, Bob Dylan, Billy Joel, Elton John, and many others. He
produced the Watkins Glen Summer Jam concert in 1973, that featured the Grateful
Dead, Allman Brothers and The Band and is one of the greatest rock concerts of
all time.
Barry Honig, Co-Chairman,
has
served as Co-Chairman of InterCLICK, Inc. (NASDAQ:ICLK) since
August 2007. Since January 2004, Mr. Honig has been the
President of GRQ Consultants, Inc., and is a private investor and consultant to
early stage companies and sits on the board of several private
companies. Mr. Honig serves as a director on our Board of Directors
due to his success as an investor, extensive knowledge of the capital markets,
his judgment in assessing business strategies, and his knowledge of sports and
marketing.
Gregory D. Cohen, President and Chief
Operating Officer,
received his introduction to boxing in the late 1980’s
while working for Triple Threat Enterprises. The team signed heavyweight gold
medalist Ray “Merciless” Mercer, junior welterweight Charles “The Natural”
Murray, and light heavyweight Al “Ice” Cole out of the 1988 Olympics, who all
went on to win World Titles as professionals. Cohen has promoted a number of
heavyweight champions and top contenders, including linear and WBO Champion
Shannon “The Cannon” Briggs, Chris Byrd, David Tua, HasimRahman, Samuel Peter,
Ike Ibeabuchi, Oleg Maskaev, Joel Casamayor, and future hall of famer “Sugar”
Shane Mosley. Greg has consulted various companies and has assisted in capital
introductions, strategic planning and business development. Mr. Cohen also has
served as executive producer on several
feature-length
films.
Peter Levy, Executive Vice President,
commenced his career as a practicing attorney with the New York law firm,
Rosenman Colin Freund Lewis and Cohen. In 1989, Mr. Levy joined AT&T, first
as a technology attorney in the Computer Systems Business Unit, and subsequently
as an attorney and Senior Attorney in the Consumer Business Unit and AT&T
EasyLink Services, AT&T Internet Division. Peter Levy was chosen as the
lawyer responsible for the Launch Team of the AT&T Universal Card, the first
affinity credit card of its kind and the fastest growing credit card in U.S.
history. His abilities in business planning and strategy became apparent, and he
became the Division Head of AT&T Advanced Consumer Enterprises, AT&T's
strategic planning group responsible for researching and developing new consumer
services aligned with telecommunications. From 1999 until April of 2010, Peter
Levy was a partner and principal of Sobel & Co., LLC, Certified Public
Accountants and Consultants, a leading regional CPA firm, where Mr. Levy was
responsible for the firm's Sarbanes-Oxley practice, Strategic Planning, and the
Corporate Integrity Unit. Most recently prior to joining our Company, Mr. Levy
was head of Research and Development for JMP Holdings, a premier real estate
development firm maintaining a portfolio of retail, entertainment, sports,
education, government projects, and residential properties. A renowned speaker
on strategic planning and internal controls, Mr. Levy is also the author of
Corporate Topography, a proprietary strategic planning tool used throughout the
business community. Mr. Levy graduated from Harvard University in 1982 and
Cornell Law School in 1985.
Tom Arnold, Advisory Board,
has established himself to both television and film audiences worldwide, having
won such awards as the Peabody Award and a Golden Globe Award. Additionally, he
helped put Fox Sports Network on the map with his hosting duties on “BEST DAMN
SPORTS SHOW PERIOD.” He recently returned to Fox Sports Network as both producer
and host of the kids’ baseball show “KID PITCH”. Arnold cornered the market
playing comic relief in films like “NINE MONTHS” with Hugh Grant, Julianne
Moore, and Robin Williams, “TRUE LIES” with Arnold Schwarzenegger, “HERO” with
Dustin Hoffman, and “AUSTIN POWERS: INTERNATIONAL MAN OF MYSTERY” with Mike
Myers. Arnold is becoming a fixture at film festivals by landing more mature and
dramatic roles. He received critical praise for his role in “GARDENS OF THE
NIGHT,” opposite John Malkovich, “THE GREAT BUCK HOWARD” starring John Malkovich
and Tom Hanks, “GOOD DICK” opposite Jason Ritter, and “THE YEAR OF GETTING TO
KNOW US”.
There are
no family relationships among our executive officers and directors.
Employment
Agreements
On May
19, 2010 (the “Effective Date”), we entered into a 3 year employment agreement
with Shelly Finkel, our Chief Executive Officer (the “Employment
Agreement”). As Chief Executive, Mr. Finkel will be solely and
exclusively responsible for all operations of the Company, and exclusive
authority to hire employees and consultants, within the budget for such
activities, reporting directly to the Board of Directors. Unless
notice of non-renewal is provided sixty days prior to the end of the term, the
term of employment will be continued for an additional 3 years. Mr.
Finkel receives a base salary of $500,000 per year, plus reimbursement of
expenses and shall participate in an incentive compensation plan to be
established for an annual bonus (“Bonus”). Executive will be entitled
to a Bonus amount equal to ten percent (10%) of Employer’s audited annual Net
Income (prior to the Acquisition, of Empire), determined in accordance with US
Generally Accepted Accounting Principles, consistently applied
(“GAAP”). Net Income shall be as reported for each fiscal year as
filed on the Annual Report on Form 10-K filed with the Securities and Exchange
Commission, or if no such report is required to be filed, by mutual agreement on
or prior to February 28 of each year, and if not agreed then by an accounting
firm mutually agreed to by the parties (whose fees and expenses shall be paid by
the Empire), and prepared in accordance with GAAP. Each Bonus payment
shall be made to Executive no later than 95 days following the last day of the
fiscal year for which Net Income has been determined.
Pursuant
to the Employment Agreement, Mr. Finkel is also entitled to receive an
aggregate of 1,252,000 shares of common stock of Empire, which equates to 10% of
the fully diluted common stock of Empire as of the Effective
Date. The Initial Grant and any subsequent Antidilution Shares (as
described below) are subject to repurchase by the Company at the price paid by
Mr. Finkel as follows:(i)100% of the Initial Grant and any subsequent
Antidilution Shares are subject to repurchase if Mr. Finkel is not employed on
the date of the Exchange or on the first anniversary of the Effective Date; (ii)
2/3 of the Initial Grant and any Antidilution Shares are subject to repurchase
if Mr. Finkel is not employed by Empire or the Company on the second anniversary
of the Effective Date; and (iii) 1/3 of the Initial Grant and any Antidilution
Shares are subject to repurchase if Mr. Finkel is not employed by Empire or the
Company on the second anniversary of the Effective Date; and (iv) 1/3 The
Board of Directors shall make an initial grant of Restricted Stock to Mr. Finkel
on the date that is the earlier of: (a) the date on which our common stock shall
be quoted on the OTC Bulletin Board, the OTCQB or any national securities
exchange or acquired by any such company; or (b) the date on which we shall
become obligated to file reports with the SEC. The initial grant
shall be equal to ten (10%) percent of the fully-diluted common stock issued and
outstanding on the grant date, without giving effect to any securities issued in
any financing transaction(s) or issuances or offerings for cash which
close following the date hereof.
In
addition, under the terms of the Employment Agreement the Company shall secure
and post an irrevocable Letter of Credit, satisfactory in form and substance,
and issued by a financial institution satisfactory, by May 31, 2010 in the
amount of one million five hundred thousand dollars
($1,500,000.00). This Letter of Credit may be reduced after six (6)
months, and after each six (6) month period thereafter, in increments of two
hundred and fifty thousand dollars ($250,000.00). At any time base
compensation or additional compensation under this Agreement is not timely paid,
or if Empire otherwise is in material breach of the Agreement, Mr. Finkel shall
be entitled to draw the full remaining amount of the Letter of
Credit. The Letter of Credit has been posted by our Co-Chairman Barry
Honig, and is expected to be replaced with a Letter of Credit from Empire
following the Closing, including collateral in the amount of $1,500,000 posted
by our Co-Chairman, Mr. Honig, as a temporary accommodation to Empire and Mr.
Finkel.
On August
27, 2010, we entered into an employment agreement with Gregory D. Cohen,
pursuant to which Mr. Cohen agreed to serve as our President and Chief Operating
Officer for a term of three years. Unless notice of non-renewal is
provided sixty days prior to the end of the term, the term of employment will be
continued for an additional one year. Mr. Cohen receives a base
salary of $180,000 per year, plus reimbursement of expenses and shall
participate in an incentive compensation plan to be established for an annual
bonus (“Bonus”). Mr. Cohen was also granted options to purchase an
aggregate of 600,000 shares of our common stock at an exercise price of $0.60
per share.
On September 17, 2010, we entered into an employment agreement with
Peter Levy, pursuant to which Mr. Levy agreed to serve as our Executive Vice
President for a term of one year. Unless notice of non-renewal is provided sixty
days prior to the end of the term, the term of employment will be continued for
an additional one year. Mr. Levy receives a base salary of $150,000 per year,
plus reimbursement of expenses and shall participate in an incentive
compensation plan to be established for an annual bonus (“Bonus”). Mr. Levy is
also entitled to receive options to purchase an aggregate 250,000 shares of our
common stock at an exercise price of $0.60 per share. Mr. Levy’s options will
vest over a three year period.
Executive
Compensation
Summary
Compensation Table
The table
below sets forth, for the last two fiscal years, the compensation earned by our
chief executive officer and any other executive officer who had annual
compensation in excess of $100,000 during the last fiscal year.
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Shelly
Finkel, Chairman and Chief Executive Officer of Empire
|
|
2009
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Gregory
D. Cohen, President and Chief Operating Officer of Empire
|
|
2009
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Betty
Soumekh, President and Chief Executive Officer of the Company
|
|
2009
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Outstanding
Equity Awards at Fiscal Year-End
There
were no outstanding equity awards issued to our named executive officers as of
December 31, 2009.
Stock
Incentive Plan
On
September 29, 2010, our Board of Directors and stockholders adopted the 2010
Stock Incentive Plan (the “2010 Plan”). Under the 2010 Plan, options may be
granted which are intended to qualify as Incentive Stock Options under Section
422 of the Internal Revenue Code of 1986 (the "Code") or which are not intended
to qualify as Incentive Stock Options thereunder. In addition, direct grants of
stock or restricted stock may be awarded. The 2010 Plan
has reserved 2,800,000 shares of common stock for issuance.
(a)
Purpose
. The primary
purpose of the 2010 Plan is to attract and retain the best available personnel
in order to promote the success of our business and to facilitate the ownership
of our stock by employees and others who provide services to us.
(b)
Administration
. The
2010 Plan will be administered by our Board of Directors until such time as such
authority has been delegated to a committee of the Board of
Directors.
(c)
Eligibility
. Under
the 2010 Plan, options may be granted to employees, officers, directors or
consultants of the Company, as provided in the 2010 Plan.
(d)
Terms of Options
. The
term of each option granted under the 2010 Plan shall be contained in a stock
option agreement between the optionee and the Company and such terms shall be
determined by the Board of Directors consistent with the provisions of the 2010
Plan, including the following:
|
|
·
|
Purchase Price
.
The purchase price of the common stock subject to each incentive stock
option shall not be less than the fair market value (as set forth in the
2010 Plan), or in the case of the grant of an incentive stock option to a
principal stockholder, not less that 110% of fair market value of such
common stock at the time such option is
granted;
|
|
|
·
|
Vesting
. The
dates on which each option (or portion thereof) shall be exercisable and
the conditions precedent to such exercise, if any, shall be fixed by the
Board of Directors, in its discretion, at the time such option is granted.
Unless otherwise provided in the grant agreement, in the event of a change
of control (as set forth in the Incentive Stock Plan ) all unvested shares
shall immediately become
vested;
|
|
|
·
|
Expiration
. Any
option granted to an employee of the Company shall become exercisable over
a period of no longer than five years. No option shall in any event be
exercisable after ten years from, and no Incentive Stock Option granted to
a ten percent shareholder shall become exercisable after the expiration of
five years from, the date of the
option;
|
|
|
·
|
Transferability
.
No option shall be transferable, except by will or the laws of descent and
distribution, and any option may be exercised during the lifetime of the
optionee only by such optionee. No option granted under the 2010 Plan
shall be subject to execution, attachment or other
process;
|
|
|
·
|
Option
Adjustments.
In the event of any change in the outstanding
Company’s stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, or similar event,
the Board or the Committee may adjust proportionally (a) the number of
shares of common stock (i) reserved under the 2010 Plan, (ii) available
for Incentive Stock Options and Nonstatutory Options and (iii) covered by
outstanding stock awards or restricted stock purchase offers; (b) the
exercise prices related to outstanding grants; and (c) the appropriate
fair market value and other price determinations for such grants. In the
event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Board or the
Committee shall be authorized to issue or assume stock options, whether or
not in a transaction to which Section 424(a) of the Code applies, and
other grants by means of substitution of new grant agreements for
previously issued grants or an assumption of previously issued
grants.
|
(e)
Termination, Modification
And Amendment
. The Board may, in so far as permitted by law, from time to
time, suspend or terminate the 2010 Plan or revise or amend it in any respect
whatsoever, except that without the approval of the shareholders of the Company,
no such revision or amendment shall (i) increase the number of shares subject to
the 2010 Plan, (ii) decrease the price at which grants may be granted, (iii)
materially increase the benefits to participants, or (iv) change the class of
persons eligible to receive grants under the 2010 Plan; provided, however, no
such action shall alter or impair the rights and obligations under any option,
or stock award, or restricted stock purchase offer outstanding as of the date
thereof without the written consent of the participant thereunder.
On the
closing date of the Exchange, the following options to purchase shares of our
common stock were granted:
|
Name
|
|
Shares
|
|
Vesting
Schedule
|
|
Exercise
Price
|
|
Expiration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shelly
Finkel
|
|
|
850,000
|
|
(1)
|
|
$
|
0.60
|
|
9/29/2020
|
|
|
Gregory
D. Cohen
|
|
|
600,000
|
|
(1)
|
|
$
|
0.60
|
|
9/29/2020
|
|
|
Barry
Honig
|
|
|
400,000
|
|
(1)
|
|
$
|
0.60
|
|
9/29/2020
|
|
|
Tom
Arnold
|
|
|
600,000
|
|
(1)
|
|
$
|
0.60
|
|
9/29/2020
|
|
|
Shannon
Briggs
|
|
|
100,000
|
|
(1)
|
|
$
|
0.60
|
|
9/29/2020
|
|
|
Eddie
Mustafa
|
|
|
150,000
|
|
(1)
|
|
$
|
0.60
|
|
9/29/2020
|
|
|
Herman
Caicedo
|
|
|
100,000
|
|
(1)
|
|
$
|
0.60
|
|
9/29/2020
|
|
________________
|
(1)
|
One-third
at the end of each of the first three years, provided the holder is
continuing to provide services to the
Company
|
Director
Compensation
Except
for the options granted as set forth above, we have not had compensation
arrangements in place for members of our Board of Directors and have not
finalized any plan to compensate directors in the future for their services as
directors. We may develop a compensation plan for our independent directors in
order to attract qualified persons and to retain them. We expect that the
compensation arrangements may be comprised of a combination of cash and/or
equity awards.
Directors’
and Officers’ Liability Insurance
We
maintain directors’ and officers’ liability insurance insuring our directors and
officers against liability for acts or omissions in their capacities as
directors or officers, subject to certain exclusions. Such insurance
also insures us against losses which we may incur in indemnifying our officers
and directors.
Board
Independence
We do not
believe that any of our directors is an “independent director,” as that term is
defined by listing standards of the national exchanges and SEC rules, including
the rules relating to the independence standards of an audit committee and the
non-employee director definition of Rule 16b-3 promulgated under the Exchange
Act.
Board
Committees
Our Board
of Directors may appoint an audit committee, nominating committee and
compensation committee, and to adopt charters relative to each such committee,
in the future. We intend to appoint such persons to the committees of the Board
of Directors as are expected to be required to meet the corporate governance
requirements imposed by a national securities exchange, although we are not
required to comply with such requirements until we elect to seek listing on a
national securities exchange, and we are under no obligation to do
so.
Code
of Ethics
The Board
of Directors has approved, and we have adopted, a Code of Ethics that applies to
all of our directors, officers and employees. We will provide a copy of the Code
of Ethics free of charge upon request to any person submitting a written request
to our Chief Executive Officer.
Certain
Relationships and Related Transactions
Except as
set forth below, during the past three years, there have been no transactions,
whether directly or indirectly, between the Company and any of its officers,
directors or their family members.
Loans from Directors
Between
December 2009 and June 2010, one of our Directors provided loans of $498,935 to
us. For the period from December 2009 to June 30, 2010, these loans were
noninterest bearing and were due on demand. On June 30, 2010, we issued 333,333
shares of our common stock valued at $0.60 in payment of $200,000 of such
loans and issued an unsecured demand promissory note in the amount of $298,935
for the balance of the obligation. This promissory note shall accrue interest at
the annual rate of five percent (5%) and shall be payable on the earlier of (i)
on demand by the lender upon thirty (30) days prior written notice to US or (ii)
the two-year anniversary of the date of this promissory note (the “Maturity
Date”). In September 2010, we issued a demand convertible promissory note (the
“convertible promissory note”) in exchange for this promissory note dated
June 30, 2010 with a principal amount of $198,935 and such prior note is deemed
canceled and null and void. This convertible promissory note shall accrue
interest at the annual rate of five percent (5%) and shall be payable on the
earlier of (i) on demand by the lender upon thirty (30) days prior written
notice to US or (ii) the two-year anniversary of the date of this promissory
note (the “Maturity Date”). This convertible promissory note including interest
shall be convertible into shares of our common stock at a fixed conversion price
per share equal to $0.60 at the option of the lender.
Due
to related party
Our
President, has from time to time, provided advances to us for operating
expenses. At June 30, 2010, we had a payable to our President amounting to
$89,997. These advances are short-term in nature and non-interest
bearing.
Office
rent
We are
sharing our office space with an affiliated company for which our President,
Greg Cohen, is a director. During the six months ended June 30, 2010, we were
reimbursed a portion of the leasehold improvements cost of $2,700, a portion of
the security deposit of $10,000, and rent of $7,684 from such affiliated
company.
