B2DIGITAL, INCORPORATED This Management's Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the section titled "Risk Factors" of our Annual Report on Form 10-K for the year endedMarch 31, 2022 filed onSeptember 19, 2022 . We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements Basis of Presentation
We have seven wholly-owned subsidiaries.
The consolidated financial statements, which include the accounts of the Company and its seven wholly owned subsidiaries, are prepared in conformity with generally accepted accounting principles inthe United States of America ("U.S. GAAP"). All significant intercompany balances and transactions have been eliminated. Forward-Looking Statements Some of the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," and "would" or the negatives of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Quarterly Report on Form 10-Q identify important factors, which you should consider in evaluating our forward-looking statements. These factors include, among other things:
· The nature of our outstanding debt being senior secured and the risk of
foreclosure on our assets by the lender;
· The unprecedented impact of COVID-19 pandemic on our business, customers,
employees, consultants, service providers, stockholders, investors and
other stakeholders;
· The speculative nature of the business we intend to develop;
· Our reliance on suppliers and customers;
· Our dependence upon external sources for the financing of our operations,
particularly given that there are concerns about our ability to continue
as a "going concern;"
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· Our ability to effectively execute our business plan;
· Our ability to manage our expansion, growth and operating expenses;
· Our ability to finance our businesses;
· Our ability to service debt, when due and avoid defaults;
· Our ability to promote our businesses;
· Our ability to compete and succeed in highly competitive and evolving
businesses;
· Our ability to respond and adapt to changes in technology and customer
behavior; and
· Our ability to protect our intellectual property and to develop, maintain
and enhance strong brands.
Although the forward-looking statements in this Quarterly Report on Form 10-Q
are based on our beliefs, assumptions and expectations, taking into account all
information currently available to us, we cannot guarantee future transactions,
results, performance, achievements or outcomes. No assurance can be made to any
investor by anyone that the expectations reflected in our forward-looking
statements will be attained, or that deviations from them will not be material
and adverse. We undertake no obligation, other than as maybe be required by law,
to update this Quarterly Report on Form 10-Q or otherwise make public statements
updating our forward-looking statements.
Critical Accounting Policies
Basis of Accounting
The financial information furnished herein reflects all adjustments, consisting
of normal recurring items that, in the opinion of management, are necessary for
a fair presentation of the Company's financial position, results of operations
and cash flows for the interim periods. The results of operations for the three
months ended September 30, 2022 are not necessarily indicative of the results to
be expected for the year ending March 31, 2023 .
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. The most significant assumptions and estimates
relate to the valuation of derivative liabilities and the valuation of assets
and liabilities acquired through business combinations. Actual results could
differ from these estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company maintains
deposits primarily in four financial institutions, which may at times exceed
amounts covered by insurance provided by the U.S. Federal Deposit Insurance
Corporation ("FDIC"). The Company has not experienced any losses related to
amounts in excess of FDIC limits or $250,000 . The Company did not have any cash
in excess of FDIC limits at September 30, 2022 and March 31, 2022 , respectively.
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Fair Value of Financial Instruments
The Company's financial instruments consist primarily of accounts payable and accrued liabilities. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, "Distinguishing Liabilities from Equity," and ASC 815.
Property and Equipment Property and equipment are carried at cost. Depreciation is provided on the straight-line method over the assets' estimated service lives. Expenditures for maintenance and repairs are charged to expense in the period in which they are incurred, and betterments are capitalized. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected in the accompanying consolidated statement of operations of the respective period. The estimated useful lives range from
3-7 years. Assets Held for Sale
We consider properties to be Assets held for sale when management approves and commits to a plan to dispose of a property or group of properties. The property held for sale prior to the sale date is separately presented on the balance sheet as Assets held for sale. During the fourth quarter of fiscal 2022 management initiated the sale of the gyms located inIndiana : OneMore Gym, LLC One More Gym Valparaiso and One More Gym Merrillville. Long-Lived Assets Management reviews long-lived assets, including finite-lived intangible assets, for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the asset's useful life on an undiscounted basis. For assets held for use, the Company groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If the evaluation indicates that the carrying value of the asset may not be recoverable, the potential impairment is measured using fair value. Impairment losses for assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. 30 Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope ofFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. Live Event Revenue
The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. The majority of revenues are received from ticket and beverage sales before and during the live events. Sponsorship revenue is also recognized when the live event takes place. Any revenue received for events that have yet to take place are recorded in deferred revenue. Gym Revenue
The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. The majority of revenues are received for gym membership dues. Members pay their dues on the monthly anniversary of when they join the gym. Dues are recognized as revenue over the period they are earned. Any unearned dues are recorded in deferred revenue.
Income Taxes The Company follows Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated Statements of Operations in the period that includes the enactment date. ThroughSeptember 30, 2022 , the Company has an expected loss. Due to uncertainty of realization for these losses, a full valuation allowance is recorded. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements. 31
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, the Company, on a regular basis, reviews the carrying amount of long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows, before interest, from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on appraised value of the assets or the anticipated cash flows from the use of the asset, discounted at a rate commensurate with the risk involved. There were no impairment charges recorded during the three months endedSeptember 30, 2022 and 2021. Inventory Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As ofSeptember 30, 2022 andMarch 31, 2022 , the Company did not carry any
finished goods inventory. Earnings Per Share (EPS)
The Company utilize FASB ASC 260, Earnings per Share. Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods of operating loss for which no common share equivalents are included because their effect would be anti-dilutive. As ofSeptember 30, 2022 , the convertible notes are indexed to 21,938,722,500 shares of common stock.
The following table sets for the computation of basic and diluted earnings per
share the six months ended
September 30, 2022 September 30, 2021
Basic and diluted
Net loss $ (9,109,756 ) $ (3,618,523 )
Net loss per share
Basic $ (0.004 ) $ (0.003 )
Diluted $ (0.004 ) $ (0.003 )
Weighted average number of shares outstanding:
Basic & diluted 2,063,438,543 1,289,383,719
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Stock Based Compensation
The Company records stock-based compensation in accordance with the provisions
of FASB ASC Topic 718, Accounting for Stock Compensation, which establishes
accounting standards for transactions in which an entity exchanges its equity
instruments for goods or services. In accordance with guidance provided under
ASC.
Topic 718, the Company recognizes an expense for the fair value of its stock
awards at the time of grant and the fair value of its outstanding stock options
as they vest, whether held by employees or others. As of September 30, 2022 ,
there were no options outstanding.
On June 20, 2018 , the FASB issued ASU 2018-07, Compensation-Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU
2018-07 is intended to reduce cost and complexity and to improve financial
reporting for share-based payments to nonemployees (for example, service
providers, external legal counsel, suppliers, etc.). Under the new standard,
companies will no longer be required to value non-employee awards differently
from employee awards. Meaning that companies will value all equity classified
awards at their grant-date under ASC 718 and forgo revaluing the award after
this date. The Company adopted ASU 2018-07 on April 1, 2019 . The adoption of
this standard did not have a material impact on the consolidated financialstatements. Leases InFebruary 2016 , the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. OnJanuary 1, 2019 , the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company's assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Operating lease right of use ("ROU") assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the statements of operations. As permitted under the new guidance, the Company has made an accounting policy election not to apply the recognition provisions of the new guidance to short term leases (leases with a lease term of twelve months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise); instead, the Company will recognize the lease payments for short term leases on a straight-line basis over the lease term. 33
Recent Accounting Pronouncements
InSeptember 2016 , the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. The new guidance was effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2020 . Recently, the FASB voted to delay the implementation date for this accounting standard, for smaller reporting companies, the new effective date is beginning afterDecember 15, 2022 , and early adoption is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the consolidated financial statements and is collecting and analyzing data that will be needed to produce historical inputs into any models created as a result of adopting this ASU. At this time, the Company does not believe the adoption of this ASU will have a material effect on the financial statements. InJune 2016 , the FASB issued the ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Among other things, the amendments in this ASU requires the measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The ASU also requires additional disclosures related to estimates and judgments used to measure all expected credit losses. The new guidance was originally effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2020 . Recently, the FASB voted to delay the implementation date for this accounting standard, for smaller reporting companies, the new effective date is for fiscal years beginning afterDecember 15, 2022 , and early adoption is permitted. At this time, the Company believes the adoption of this ASU will have no effect on the consolidated financial statements.
Organization and Nature of Business
We are the premier development league for MMA. We operate in two major branded businesses: The B2 Fighting Series and The Official B2 Training Facilities Network, which is comprised of our two ONE MORE Gym Facilities. We primarily derive revenues from live event ticket sales, pay-per-view ticket sales, content media marketing, and fitness facility memberships. The Live Events business (the B2 Fighting Series) is primarily engaged with scheduling, organizing, and producing live MMA events, marketing those events, and generating both live audience and PPV ticket sales, as well as creatively marketing the archived content generated through its operations in this business. We own all media rights, merchandising rights, digital distribution networks of the B2 Fighting Series. We also plan to generate additional revenues over time from endorsement deals with global brands as its audience grows. The B2 Fighting Series is licensed in 20 U.S. states to operate LIVE MMA Fights. Most B2 Fighting Series events sell out at the gate.
The B2 Training Facilities business operates primarily through our ONE More Gym Facilities brand. We currently operate two ONE More Gym locations.
For more information aboutB2Digital , visit our website at www.B2FS.com. We do not incorporate the information on or accessible through our website into this 10-Q. We have included our website address in this 10-Q solely as an inactive textual reference. 34
Results of Operations for the three months ended
Revenue
We had total revenues of$235,476 for the three months endedSeptember 30, 2022 , versus revenues of$660,010 for the three months endedSeptember 30, 2021 . There was a decrease in live event revenue of$122,702 , or 43%, due to a decrease in the number of live events held during the period. There was a decrease in gym revenue of$301,832 or 80%, due to the sale of the gym locations. Operating Expenses Operating expenses are all expenses including merchant fees, payroll, utilities, professional fees, all costs associated with marketing, press releases, public relations, rent, sponsorships, and other expenses. We incurred operating expenses of$948,082 for the three months endedSeptember 30, 2022 , versus operating expenses of$2,245,625 for the three months endedSeptember 30, 2021 . The decrease of$1,297,543 was primarily due to a decrease in the number of live events and the sale of gym locations.
Depreciation and Amortization Expense
We incurred depreciation and amortization expense of$71,868 for the three months endedSeptember 30, 2022 , versus depreciation expense of$98,470 for the three months endedSeptember 30, 2021 . The decrease of$26,602 was due to a decrease in capitalized assets and intangible assets as a result of the disposal of gym assets. Also, the Company did not purchase any capital assets during
the quarter. Other Income (Expense)
Our other income and expenses include gain on forgiveness of loan, loss on sale of assets, gain on extinguishment of debt, financing expense, change in fair value of derivative liabilities, day-one derivative expense and interest expense. We incurred other expenses of$2,827,508 for the three months endedSeptember 30, 2022 , versus other expense of$971,561 for the three months endedSeptember 30, 2021 . The increase in other expenses of$1,855,947 was primarily due to increases in the fair value of derivatives, day-one derivative expense and interest expense. Net Losses We incurred a net loss of$3,540,114 for the three months endedSeptember 30, 2022 , versus a net loss of$2,557,176 for the three months ended September
30, 2021.
Results of Operations for the six months ended
Revenue We had total revenues of$935,817 for the six months endedSeptember 30, 2022 , versus revenues of$1,228,775 for the six months endedSeptember 30, 2021 . There was a decrease in live event revenue of$20,471 , or 4%, due to a decrease in live events held during the period. There was a decrease in gym revenue of$272,487 or 38%, due to the disposal of the gym locations. 35 Operating Expenses Operating expenses are all expenses including merchant fees, payroll, utilities, professional fees, all costs associated with marketing, press releases, public relations, rent, sponsorships, and other expenses. We incurred operating expenses of$3,455,503 for the six months endedSeptember 30, 2022 , versus operating expenses of$4,091,056 for the six months endedSeptember 30, 2021 . The decrease of$635,553 was primarily due to a decrease in the number of live events and decreased operations as a result of the gym dispositions.
Depreciation and Amortization Expense
We incurred depreciation and amortization expense of$143,627 for the six months endedSeptember 30, 2022 , versus depreciation expense of$186,519 for the six months endedSeptember 30, 2021 . The decrease of$42,892 was due to a reduction of capital assets purchased and the disposition of gym locations over the period. Other Income (Expense)
Our other income and expenses include gain on forgiveness of loan, loss on sale of assets, gain on extinguishment of debt, financing expense, change in fair value of derivative liabilities, day-one derivative expense and interest expense. We incurred other expenses of$6,590,070 for the six months endedSeptember 30, 2022 , versus other expense of$756,242 for the six months endedSeptember 30, 2021 . The increase in other expenses of$5,833,828 was primarily due to increases in the fair value of derivatives, day-one derivative expense and interest expense. Net Losses
We incurred a net loss of
Current Liquidity and Capital Resources for the six months ended
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