This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions that could cause actual results to differ
materially from management's expectations. Factors that could cause such
differences are discussed in "Special Note Regarding Forward-Looking Statements"
and "Risk Factors."
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.
Forward-looking statements include, but are not limited to, statements about:
· Substantial doubt as to our ability to continue as a going concern
· Changes in public and consumer tastes and preferences and industry trends could
reduce demand for our services and content offerings
· Our ability to maintain a professional reputation, adverse publicity concerning
us, one of our businesses, our clients or our key personnel
· Continued service of the members of our executive management and other key
employees
· Compliance with regulations may limit our operations and future acquisitions
· Reliance on technology, such as our information systems, to conduct our
business
· Failure to protect our technology against breakdowns and security breaches
could adversely affect our business
· Legislative, judicial, accounting, regulatory, political and economic risks and
conditions specific to international markets
· Inability to secure event venues or television stations to broadcast our shows
· Effects of the COVID-19 pandemic on our business, financial condition and
results of operations
· We may face disruptions of the systems and equipment utilized in our live
events
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.
The "Company", "we," "us," and "our," in this Management's Discussion and
Analysis of Financial Condition and Plan of Operation refer to the combined
business of (i) Rebel FC; (ii) Pure Heart; (iii) SCA Capital; (iv) Rebel
Shanghai; and (v) Qingdao Quanyao.
Business Overview
The Company, through Rebel FC, organizes, promotes and hosts Mixed Martial Arts
(MMA) events featuring top level athletic talent with assistance from contracted
production crews. The Company also seeks to produce and distribute videos of its
MMA events, through the internet, social media, and selling the rights to such
videos to distribute to television stations. The Company seeks to promote MMA in
China through hosting top quality matches, live TV broadcast and inspiring
reality series that attract talented fighters from all over the world. MMA is
unarmed combat involving the use of a combination of techniques from different
disciplines of martial arts, including, without limitation, grappling,
submission holds, kicking and striking. The styles of martial arts range from
Brazilian Jiu-Jitsu, Judo, Karate, Boxing, Muay Thai, Wrestling, Jeet Kune Do,
Taekwondo, Sanshou and various other forms of martial arts. Unlike boxing, where
athletes can only strike with their fists and only above the belt, the fighters
in MMA can use punches, kicks, elbows, knee strikes, takedowns and submissions
to win a contest.
The Company has successfully hosted the most recent MMA event, Return of the
Champion, on September 7, 2019 at Hongkou Indoor Stadium, Shanghai, China, with
its online digital viewership of 21.75 million exceeding the average viewership
of REBEL FC's two events in 2018 of 13 million (digital and broadcast viewership
combined). In addition to the 21.75 million viewership from major online
platforms such as Yizhibo, PP Sports, QiE Live, iQiyi, Gedoumi and Baidu Sports,
the company also garnered a viewership of 3.7 million on TV stations such as
Qinghai Satellite TV and Shenzhen TV 5 (Sports Health Channel). In all, Return
of the Champion gathered 25.45 million viewership from both TV and digital
platforms, an exponential increase from the average viewership of its two events
in 2018.
On January 11, 2020, the Company successfully co-hosted Rebel FC X - The New
Order with the First Southeast Asian MA promotion in Europe, at the Wings of
Soviet Sports Hall near the iconic Red Square in Moscow, Russia.
The viewership of REBEL FC X - The New Order reached a grand total of 30.62
million, including 4.6 million on from Russia's Boxing TV and ACB TV and another
26.02 million from digital platforms such as China's Yizhibo Live, PP Sports,
QiE Live, iQiyi and Weibo Combat. This is a noteworthy increase from the 25.45
million viewership amassed for REBEL FC 9 - Return of the Champion in China last
year.
As of March 31, 2020, our accumulated deficit was $(21,019,573); our
stockholders' deficit was $(3,705,275).
20
Results of Operations
For the three months ended March 31, 2020 and March 31, 2019
Gross Revenues
The Company had revenues from operations of $326,313 in the three months ended
March 31, 2020 compared to $nil in the three months ended March 31, 2019. The
Company's revenue of $326,313 in the three months ended March 31, 2020 primarily
came from sponsorship revenues generated by Quanyao for holding the event, Rebel
FC X - The New Order with the First Southeast Asian MA promotion in Europe.
The Company's cost of revenue was $471,927 in the three months ended March 31,
2020, compared to $779 in the three months ended March 31, 2019. The cost of
revenue mainly consisted of venue rental and related expenses, direct costs and
fighter and official expenses.
Operating Expenses
Operating expenses for the three months ended March 31, 2020 and 2019 were
$1,608,097 and $1,016,933, respectively. For the three months ended March 31,
2020, the operating expenses mainly consisted of payroll expenses of $152,208,
legal and professional fees of $142,309, rental expenses of $19,679,
depreciation and amortization expenses of $7,540, and expenses for professional
services and compensations of $1,209,828. For the three months ended March 31,
2019, the operating expenses mainly consisted of payroll expenses of $274,880,
legal and professional fees of $288,897, rental expenses of $29,568,
depreciation and amortization expenses of $15,073, and expenses of new share
issuance for services and compensations of $340,000. The increase in operating
expenses was largely due to the increased expenses for professional services and
compensations.
Net Loss
Net loss for the three months ended March 31, 2020 and 2019 were $1,818,081 and
$6,873,673, respectively. Basic and diluted net loss per share for the three
months ended March 31, 2020 and 2019 were $0.03 and $0.14, respectively.
The decrease of net loss for the three months ended March 31, 2020 compared to
the three months ended March 31, 2019 was mainly due to the decreased of
recognized loss from changes in fair value as a result of investment
disposition.
Liquidity and Capital Resources
The Company's financial statements for the three months ended March 31, 2020
have been prepared on a going concern basis, which assumes that the Company will
be able to meet its financial obligation, working capital and capital
expenditures need as and when they fall due.
As of March 31, 2020, we had working capital deficiency of $3,826,271 as
compared to working capital deficiency of $4,159,067 as of December 31, 2019.
Net cash used in operating activities for the three months ended March 31, 2020
was $540,642 as compared to $1,062,100 for the three months ended March 31,
2019. The decrease in net cash used in operating activities for the three months
ended March 31, 2020 was primarily due to a decreased net loss generated in the
period.
Net cash provided by financing activities for the three months ended March 31,
2020 was $574,062 as compared to $1,193,076 for the three months ended March 31,
2019. The cash provided by financing activities for the three months ended March
31, 2020 are mainly from issuing of common shares and advances from related
parties.
As of March 31, 2020, our cash balance was $48,262 and our current liabilities
exceed current assets by $3,826,271 which together with continued losses from
operations raises substantial doubt about its ability to continue as a going
concern. The Company's operating results for future periods are subject to
uncertainties and it is uncertain if the management will be able to achieve
profitability and continued growth for the foreseeable future. If the management
is not able to increase revenue and manage operating expenses in line with
revenue forecasts, the Company may not be able to achieve profitability.
Historically, the Company financed its operations through loans from investors
and shareholders. The Company's actions to improve operation efficiency, cost
reduction, and develop core cash-generating business include the following:
seeking advances from the major shareholders, pursuing additional public and/or
private issuance of securities, and looking for strategic business partners to
optimize our operations.
We have considered whether there is substantial doubt about our ability to
continue as a going concern due to (1) our recurring losses from operations,
including approximately $1,818,081 net loss attributable to the our stockholders
for the period ended March 31, 2020, (2) our accumulated deficit of
approximately $21,019,573 as of March 31, 2020 and (3) the fact that we had
negative operating cash flows of approximately $540,642 for the period ended
March 31, 2020.
In evaluating if there is substantial doubt about our ability to continue as a
going concern, we are trying to alleviate the going concern risk through (1)
increasing cash generated from operations by controlling operating expenses and
increasing more live events, (2) financing from domestic banks and other
financial institutions, and (3) equity or debt financing. We have certain plans
to mitigate these adverse conditions and to increase the liquidity of the
Company.
21
On an on-going basis, the Company also received and will continue to receive
financial support commitments from the Company's related parties.
Our cash balance as of March 31, 2020 will not be sufficient to support our
operations for the next 12 months after the date that the financial statements
issued. We have several actions to implement as mentioned above. However, if we
are unable to obtain the necessary additional capital on a timely basis and on
acceptable terms, we will be unable to implement our current plans for
expansion, repay debt obligations or respond to competitive market pressures,
which will have negative influence upon our business, prospects, financial
condition and results of operations.
The negative operating results of cash flow and working capital in the three
months ended March 31, 2020 raise substantial doubt about our ability to
continue as a going concern. Our continued operations are highly dependent upon
our ability to increase revenues and if needed complete equity and/or debt
financing.
We believe if we are unable to obtain our resources to fund operations, we may
be required to delay, scale back or eliminate some or all of our planned
operations, which may have a material adverse effect on our business, results of
operations and ability to operate as a going concern.
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at dates of the financial
statements and the reported amounts of revenue and expenses during the periods.
Actual results could differ from these estimates. Our significant estimates and
assumptions include depreciation, allowance for trade receivables and
prepayments, and the fair value of our stock, the discount rate for lease,
stock-based compensation, debt discount and the valuation allowance relating to
the Company's deferred tax assets/liabilities.
Recently Issued Accounting Pronouncements
Reference is made to the "Recent Accounting Pronouncements" in Note 2 to the
unaudited condensed consolidated financial statements included in this Report
for information related to new accounting pronouncement, none of which had a
material impact on the company's unaudited condensed consolidated financial
statements, and the future adoption of recently issued accounting
pronouncements, which we do not expect will have a material impact on our
consolidated financial statements.
Off-Balance Sheet Arrangements
As of March 31, 2020, we did not have any off-balance sheet arrangements.
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