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| IFLI.OB > SEC Filings for IFLI.OB > Form 10-K on 15-Apr-2009 | All Recent SEC Filings |
15-Apr-2009
Annual Report
Discontinued Operations and Sale of Assets
Our business was founded in 2005 to organize, host and promote live and
televised professional mixed martial arts ("MMA") sporting events under the name
"International Fight league" or "IFL" and to capitalize on the growing
popularity of MMA in the United States and around the world. In June 2008 we
announced that our event scheduled for August 15, 2008 had been canceled and on
September 15, 2008, our wholly-owned subsidiary IFLC, through which we conducted
our operations and which held substantially all of our assets, voluntarily filed
a petition for reorganization relief under chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the Southern District of New York (the
"Court"). IFLC's bankruptcy case is docketed as In re IFL Corp., Case No.
08-13589 (MG). IFLC is operating its business and managing its assets as a
"debtor in possession" pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code. On November 17, 2008, IFLC sold substantially all of its assets to HDNet
LLC ("HDNet") for $650,000 cash and the assumption by HDNet of certain
obligations, pursuant to a sale under Section 363 of the Bankruptcy Code which
was approved by the Court on October 28, 2008. IFLC plans to file a plan of
liquidation with the Court to pay off creditors and to orderly wind down its
affairs.
With the sale of substantially all of our assets to HDNet and with no active
business operations or business assets, we are essentially a "shell company" as
defined by the rules of the SEC under the Securities Exchange Act of 1934. Our
Board of Directors, on a time available basis, will search for, review and
engage in due diligence for potential merger or acquisition proposals for which
the Board of Directors would deem to be suitable acquisition candidates. To
date, no such acquisition or merger proposal has been identified. If our Board
of Directors is able to identify a potential merger or acquisition candidate, we
cannot predict in what industry or business this candidate may operate.
We will continue to incur ongoing losses, which are expected to be greatly
reduced due to the inactive nature of our business following the sale of our
assets to HDNet and the winding down of IFLC. However, losses will be incurred
to pay ongoing reporting expenses, including legal and accounting, as necessary
to maintain the Company as a public entity, as well as some minimal operating
expenses and insurance premiums for directors' and officers' liability and other
insurance, while searching for merger or acquisition candidates. In addition, we
will incur costs related to the termination of our remaining employees and
satisfying our pre-existing severance obligations with these employees.
In connection with the sale of substantially all of our assets to HDNet, the
assets sold to HDNet included the name "International Fight League," our
corporate name. We have entered into a name use agreement with HDNet which
permits us to use "International Fight League" for general corporate purposes
until the earlier of (a) two years or (b) becoming involved in any active trade
or business (other than the use of the name for general corporate purposes). The
only assets we currently have are cash and cash equivalents, prepaid expenses
(consisting primarily of prepaid insurance premiums and unrealized charges for
equity compensation), security deposits and miscellaneous computer equipment.
Due to the September 15, 2008 bankruptcy filing by IFLC, IFLC ceased being a
consolidated subsidiary as of that date. As a result, our balance sheet as of
December 31, 2008 includes only the assets and liabilities of International
Fight League, Inc., the parent company, and our statement of operations includes
the results of operations of IFLC only through September 30, 2008. (Because the
petition was filed mid period on September 15, 2008, the Company has
consolidated the results of IFLC through September 30, 2008).
Corporate History
Prior to November 29, 2006, we were known as Paligent Inc., a Delaware
corporation ("Paligent"). On November 29, 2006, we acquired IFLC, then known as
International Fight League, Inc., a privately held Delaware corporation, by a
merger (the "Merger") pursuant to an agreement and plan of merger (the "Merger
Agreement"). Immediately following the Merger, we changed our name to
International Fight League, Inc. and IFLC changed its name to IFL Corp. and
continued to operate the business of organizing and promoting a mixed martial
arts sports league under the name "International Fight League."
The Merger has been accounted for as a reverse acquisition under the purchase
method of accounting for business combinations in accordance with generally
accepted accounting principles in the United States. Reported results of
operations of the combined group reflect the operations of the Company and IFLC.
Results of Operations
From inception through December 31, 2008, we have incurred costs and expenses
significantly in excess of revenues. On September 15, 2008, our wholly-owned
subsidiary, IFLC, through which we conducted our operations and which owned
substantially all of our assets, voluntarily filed a petition for reorganization
relief under chapter 11 of the Bankruptcy Code in the Court. On November 17,
2008, IFLC sold substantially all of its assets to HDNet for $650,000 cash plus
the assumption by HDNet of certain obligations, pursuant to a sale under
Section 363 of the Bankruptcy Code which was approved by the Court on
October 28, 2008. Furthermore, we have terminated all but two of our employees
and have no business assets or business operations and no future source of
revenues. Accordingly, the comparison below with prior periods should be read in
conjunction with these facts.
During the year ended December 31, 2008, we incurred a net loss of
$6.4 million, or $0.08 per common share compared to a net loss of $21.3 million,
or $0.33 per common share for the year ended December 31, 2007. For 2008, the
results of operations of ILFC are consolidated only for the period of January 1,
2008 through September 30, 2008.
The loss from discontinued operations was approximately $6,000,000 in 2008,
or $0.08 per share, versus a loss from discontinued operations in 2007 of
$18,949,000, or $0.30 per share a decrease of 68%. This decrease is the result
of fewer events in 2008 (three) as compared to 13 events in 2007. We lost money
on each event, and having fewer events reduced our loss. The loss was also lower
because of a reduction in per event costs and significantly lower selling,
general and administrative expenses. The revenues from discontinued operations
were $1,384,000 in 2008 versus $5,659,000 in 2007, while cost of revenue
decreased from $17,697,000 in 2007 to $3,781,000 in 2008. Selling, general and
administrative expenses from discontinued operations decreased from $6,992,000
in 2007 versus $3,060,000 in 2008.
The loss from continuing operations in 2008 was approximately $384,000, or
$0.005 per share, as compared with $2,308,000, or $0.03 per share, in 2007. The
much of the reduction was a result of cost reduction efforts for selling,
general and administrative expenses that began in late 2007 and continued into
2008, and higher costs in 2007 as a result of expenses incurred in our first
year as a public company.
During the year ended December 31, 2008, interest income of $63,000 was
earned on available cash balances compared to $415,000 in 2007, a decrease of
$352,000 or 85%. Cash balances in 2008 were lower than in 2007 due to our
continuing losses in 2008 and the increase in our cash balance in 2007 resulting
from our private placements of common stock in December 2006 and August 2007,
and the deconsolidation of IFLC and its cash balances.
For the year ended December 31, 2007, we incurred liquidated damages of
$583,000 pursuant to the registration rights agreements with the investors in
the December 2006 and August 2007 private sales of our common stock. We incurred
these costs because (a) the registration statement to register the shares issued
in the August 2007 private placement for resale was not effective by an agreed
upon date and (b) the investors in our December 2006 private placement were
unable to sell their shares under the previously effective registration
statement for a period of time. These two events were the result of the
restatement of our financial statements we disclosed on November 19, 2007 due to
our previous accounting for our FSN television arrangement as a barter
transaction. No such charges were incurred in 2008.
Liquidity, Capital Resources and Going Concern
At December 31, 2008, our consolidated cash and cash equivalents were
$118,000.
We are exploring options to realize value for our stockholders, which may
include seeking a reverse merger transaction with a party having ongoing
operations. We have no present avenues of financing, no source of revenues and
no present plans to obtain interim financing while continuing to explore our
options.
As a result of the foregoing, our lack of liquidity and funding sources pose
a substantial risk to our ongoing viability. The consolidated financial
statements in this report have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The forgoing conditions raise substantial doubt
about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
For the years ended December 31, 2008 and 2007, we had no off-balance sheet
arrangements.
Critical Accounting Policies and Estimates
The preparation of our financial statements is based upon the selection of
accounting policies and the application accounting estimates and assumptions.
Actual results could differ from those estimates. The following are the
accounting policies we believe are the more important areas of our accounting
policies and estimates.
Equity Method of Accounting - Under Accounting Research Bulletin No. 51
"Consolidation of Financial Statements (as Amended)" ("ARB 51"), consolidation
of a majority-owned subsidiary is precluded where control does not rest with the
majority owners. Under these rules, legal reorganization or bankruptcy represent
conditions which can preclude consolidation as control rests with the bankruptcy
court, rather than the majority owner. Accordingly, IFLI deconsolidated IFLC as
of September 15, 2008, the date the bankruptcy petition was filed, eliminating
all future operations from the financial results of operations. From September
16, 2008 through December 31, 2008, the operations of IFLI's wholly-owned
subsidiary IFLC have, therefore, been accounted for under the equity method of
accounting.
Generally accepted accounting principles require that the investment in the
investee be reported using the equity method when an investor corporation can
exercise significant influence over the operations and financial policies of an
investee corporation. When the equity method of accounting is used, the investor
initially records the investment in the stock of an investee at cost. The
investment account is then adjusted to recognize the investor's share of the
income or losses of the investee after the date of acquisition when it is earned
by the investee. Such amounts are included when determining the net income of
the investor in the period they are reported by the investee. As a result of
applying the equity method, the investment account reflects IFLI's equity in the
underlying net liabilities of IFLC, the investee. In IFLI's statement of
operations after deconsolidation , IFLC's net gain or loss is reported as a
single-line item.
Cash and Cash Equivalents - For purposes of the consolidated statements of
cash flows, we consider all short-term investments purchased with an original
maturity of three months or less at the date of acquisition to be cash
equivalents. We invest our excess cash in money market instruments. Cash and
cash equivalents are, at times, maintained at financial institutions in amounts
that exceed federally insured limits.
Income Taxes - On January 1, 2007, we adopted the provisions of Financial
Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes-an interpretation of FAS 109" ("FIN 48"). As of January 1 and
December 31, 2007 and December 31, 2008, there were no unrecognized tax
benefits. FIN 48 prescribes a recognition threshold and a measurement attribute
for the financial statement recognition and measurement of tax positions taken
or expected to be taken in a tax return. For those benefits to be recognized, a
tax position must be more likely than not to be sustained upon examination by
taxing authorities. We recognize accrued interest and penalties related to
unrecognized tax benefits as income tax expense. No amounts were accrued for the
payment of interest and penalties at January 1, 2007. There was no change to
this balance at December 31, 2008. Management is currently unaware of any issues
under review that could result in significant payments, accruals or material
deviations from its position. The adoption of the provisions of FIN 48 did not
have a material impact on our financial position, results of operations and cash
flows.
For the year ended December 31, 2008 and 2007, we complied with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial reporting for income
taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in future taxable or deductible amounts, based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when necessary, to
reduce deferred income tax assets to the amount expected to be realized. In
assessing the realization of deferred tax assets, we consider whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. As a result of uncertainty of achieving sufficient taxable income in
the future a full valuation allowance against our deferred tax asset has been
recorded. If these estimates and assumptions change in the future, we may be
required to reverse the valuation allowance against deferred tax assets, which
could result in additional income tax income.
Revenue Recognition - In accordance with the provisions of Staff Accounting
Bulletin. ("SAB") No. 101, "Revenue Recognition," as amended by SAB No. 104,
revenues are generally recognized when products are shipped or as services are
performed. However, due to the nature of our business, there are additional
steps in the revenue recognition process, as described below:
• Sponsorships: We follow the guidance of Emerging Issues Task Force Issue
00-21, "Revenue Arrangements with Multiple Deliverables," and assign the
total of sponsorship revenues to the various elements contained within a
sponsorship package based on their relative fair values.
• Licensing: Licensing revenues are recognized upon receipt of notice by the individual licensees as to licensing fees due. Licensing fees received in advance will be deferred and recognized as income when earned.
• Television rights: We only recognize revenue for television rights to the extent we are paid (or expected to be paid) in cash or other monetary assets and we recognize distribution fee expense only to the extent we are obligated to make payments.
Stock-Based Compensation - Accounting for equity awards issued to employees
and other service providers follows the provisions of SFAS No. 123(R),
"Share-Based Payment." This statement requires an entity to measure the cost of
employee or service provider services received in exchange for an award of
equity instruments based on the grant date fair value of the award. That cost
will be recognized over the period during which an employee or service provider
is required to provide service in exchange for the award.
We use the Black-Scholes option pricing model to measure the fair value of
options granted to employees and service providers.
Control Weakness
Our management has identified a material weakness in our disclosure controls
and procedures and our internal control over financial reporting. See Item 9A(T)
in this Annual Report on Form 10-K.
Item 7A-Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8-Financial Statements and Supplementary Data
Index To Financial Information
Report of Independent Registered Public Accounting Firm 12
Consolidated Balance Sheets 13
Consolidated Statements of Operations 14
Consolidated Statements of Stockholders' Equity (Deficit) 15
Consolidated Statements of Cash Flows 16
Notes to Consolidated Financial Statements 17
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INTERNATIONAL FIGHT LEAGUE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $ 118,468 $ 6,120,500
Prepaid expenses 228,555 439,397
Current assets from discontinued operations - 688,954
Total current assets 347,023 7,248,851
Property and equipment, net 1,150 2,761
Non-current assets from discontinued operations - 377,501
Total assets $ 348,173 $ 7,629,113
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 7,340 $ 116,370 Accrued liquidated damages - 456,045 Accrued expenses and other current liabilities 66,568 139,000 Current liabilities from discontinued operations - 1,094,742 Loss in excess of investment in Equity Investee 466,745 - Total current liabilities 540,653 1,806,157 |
COMMITMENTS AND CONTINGENCIES Stockholders' equity (deficit): Common stock, $0.01 par value per share; 150,000,000 shares authorized; 79,058,509 shares issued and outstanding at December 31, 2008 and December 31, 2007 790,562 790,562 Additional paid-in capital 36,304,680 35,936,112 Accumulated deficit (37,287,722 ) (30,903,718 ) Total stockholders' equity (deficit) (192,480 ) 5,822,956 Total liabilities and stockholders' equity (deficit) $ 348,173 $ 7,629,113 |
The accompanying notes are an integral part of the consolidated financial statements.
INTERNATIONAL FIGHT LEAGUE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31,
2008 2007
Revenues $ - $ -
Selling, general and administrative expenses 693,363 1,901,122
Stock-based compensation expense 267,034 235,165
Other income (expenses):
Income from Equity Investee 516,208 -
Interest expense (3,347 ) (4,712 )
Liquidated damages - (582,695 )
Interest income 63,096 415,438
Other income (expenses), net 575,957 (171,969 )
Loss from continuing operations (384,440 ) (2,308,256 )
Loss from discontinued operations (5,999,564 ) (18,949,059 )
Net loss $ (6,384,004 ) $ (21,257,315 )
Net loss per common share-basic and diluted
Continuing operations $ (0.00 ) $ (0.03 )
Discontinued operations $ (0.08 ) $ (0.30 )
Net loss $ (0.08 ) $ (0.33 )
Weighted average number of common shares outstanding-basic
and diluted 79,058,509 63,838,915
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