Attached files
| file | filename |
|---|---|
| 8-K - Pershing Gold Corp. | v198113_8k.htm |
| EX-2.1 - SHARE EXCHANGE AGREEMENT - Pershing Gold Corp. | v198113_ex2-1.htm |
| EX-10.4 - SHELLY FINKEL EMPLOYMENT AGREEMENT - Pershing Gold Corp. | v198113_ex10-4.htm |
| EX-10.1 - 2010 EQUITY INCENTIVE PLAN - Pershing Gold Corp. | v198113_ex10-1.htm |
| EX-10.3 - FORM OF NQSO AGREEMENT - Pershing Gold Corp. | v198113_ex10-3.htm |
| EX-10.5 - GREGORY D. COHEN EMPLOYMENT AGREEMENT - Pershing Gold Corp. | v198113_ex10-5.htm |
| EX-10.2 - FORM OF ISO AGREEMENT - Pershing Gold Corp. | v198113_ex10-2.htm |
| EX-21 - LIST OF SUBSIDIARIES - Pershing Gold Corp. | v198113_ex21.htm |
| EX-99.3 - UNAUDITED PRO FORMA FINANCIAL STATEMENTS - Pershing Gold Corp. | v198113_ex99-3.htm |
| EX-10.6 - PETER LEVY EMPLOYMENT AGREEMENT - Pershing Gold Corp. | v198113_ex10-6.htm |
| EX-99.1 - GOLDEN EMPIRE, LLC AUDITED FINANCIAL STATEMENTS - Pershing Gold Corp. | v198113_ex99-1.htm |
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
INDEX
|
Financial
Statements:
|
|
|
Balance
Sheet at June 30, 2010 (Unaudited)
|
F-2
|
|
Statement
of Operations –
|
|
|
For
the period from February 10, 2010 (Inception) to June 30, 2010
(Unaudited)
|
F-3
|
|
Statement
of Changes in Stockholders’ Equity (Deficit) –
|
|
|
For
the period from February 10, 2010 (Inception) to June 30, 2010
(Unaudited)
|
F-4
|
|
Statement
of Cash Flows –
|
|
|
For
the period from February 10, 2010 (Inception) to June 30, 2010
(Unaudited)
|
F-5
|
|
Notes
to Financial Statements (Unaudited)
|
F-6
to F-15
|
F-1
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
BALANCE
SHEET
|
June 30,
|
||||
|
2010
|
||||
|
(Unaudited)
|
||||
|
ASSETS
|
||||
|
CURRENT
ASSETS:
|
||||
|
Cash
|
$ | 1,429,409 | ||
|
Accounts
and note receivable
|
62,684 | |||
|
Advances
and other receivables
|
268,817 | |||
|
Total
Current Assets
|
1,760,910 | |||
|
OTHER
ASSETS:
|
||||
|
Property
and equipment, net
|
30,620 | |||
|
Advances
- net of current portion
|
70,564 | |||
|
Deposits
|
40,269 | |||
|
Total
Other Assets
|
141,453 | |||
|
Total
Assets
|
$ | 1,902,363 | ||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||
|
CURRENT
LIABILITIES:
|
||||
|
Accounts
payable and accrued expenses
|
$ | 58,882 | ||
|
Note
payable - related party
|
298,935 | |||
|
Due
to related party
|
89,997 | |||
|
Total
Liabilities
|
447,814 | |||
|
Commitments
and Contingencies
|
- | |||
|
STOCKHOLDERS'
EQUITY (DEFICIT):
|
||||
|
Preferred
stock ($.0001 Par Value; 50,000,000 Shares Authorized; None Issued and
Outstanding)
|
- | |||
|
Common
stock ($.0001 Par Value; 500,000,000 Shares Authorized; 15,810,333 shares
issued and outstanding)
|
1,581 | |||
|
Additional
paid-in capital
|
2,300,025 | |||
|
Accumulated
deficit
|
(847,057 | ) | ||
|
Total
Stockholders' Equity (Deficit)
|
1,454,549 | |||
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
$ | 1,902,363 | ||
See
accompanying notes to unaudited financial statements.
F-2
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
STATEMENTS
OF OPERATIONS
FOR THE
PERIOD FROM FEBRUARY 10, 2010 (INCEPTION) TO JUNE 30, 2010
(Unaudited)
|
Net
revenues
|
$ | 214,584 | ||
|
Operating
expenses:
|
||||
|
Cost
of revenues
|
135,332 | |||
|
Sales
and marketing expenses
|
109,685 | |||
|
Live
events expenses
|
202,366 | |||
|
Compensation
and related taxes
|
120,833 | |||
|
Consulting
fees
|
265,591 | |||
|
General
and administrative expenses
|
174,783 | |||
|
Total
operating expenses
|
1,008,590 | |||
|
Net
loss
|
$ | (794,006 | ) | |
|
NET
LOSS PER COMMON SHARE:
|
||||
|
Basic
and Diluted
|
$ | (0.06 | ) | |
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING - Basic and Diluted
|
12,379,437 |
See
accompanying notes to unaudited financial statements.
F-3
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE
PERIOD FROM FEBRUARY 10, 2010 (INCEPTION) TO JUNE 30, 2010
(Unaudited)
|
Common Stock
|
Total
|
|||||||||||||||||||
|
$0.0001 Par Value
|
Additional
|
Accumulated
|
Stockholders'
|
|||||||||||||||||
|
Shares
|
Amount
|
Paid-in Capital
|
Deficit
|
Equity (Deficit)
|
||||||||||||||||
|
Balance,
February 10, 2010 (Inception)
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
|
Contribution
of capital and accumulated deficit
|
- | - | 22,500 | (53,051 | ) | (30,551 | ) | |||||||||||||
|
Common
stock issued to founders
|
12,090,000 | 1,209 | - | - | 1,209 | |||||||||||||||
|
Issuance
of common stock for cash
|
2,720,333 | 272 | 1,540,958 | - | 1,541,230 | |||||||||||||||
|
Issuance
of common stock for payment of loans payable
|
600,000 | 60 | 359,940 | - | 360,000 | |||||||||||||||
|
Issuance
of common stock for services
|
400,000 | 40 | 239,960 | - | 240,000 | |||||||||||||||
|
Contributed
officer services
|
- | - | 90,000 | - | 90,000 | |||||||||||||||
|
Stock-based
compensation in connection with options granted
|
- | - | 46,667 | - | 46,667 | |||||||||||||||
|
Net
loss
|
- | - | - | (794,006 | ) | (794,006 | ) | |||||||||||||
|
Balance,
June 30, 2010
|
15,810,333 | $ | 1,581 | $ | 2,300,025 | $ | (847,057 | ) | $ | 1,454,549 | ||||||||||
See
accompanying notes to financial statements
F-4
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
STATEMENT
OF CASH FLOWS
FOR THE
PERIOD FROM FEBRUARY 10, 2010 (INCEPTION) TO JUNE 30, 2010
(Unaudited)
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||
|
Net
loss
|
$ | (794,006 | ) | |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||
|
Depreciation
|
2,088 | |||
|
Amortization
of promotional advances
|
14,364 | |||
|
Contributed
officer services
|
90,000 | |||
|
Common
stock issued for services
|
240,000 | |||
|
Stock-based
compensation in connection with options granted
|
46,667 | |||
|
Changes
in operating assets and liabilities:
|
||||
|
Accounts
receivable
|
(37,684 | ) | ||
|
Advances
and other receivables
|
(337,250 | ) | ||
|
Other
assets
|
(40,269 | ) | ||
|
Accounts
payable and accrued expenses
|
58,882 | |||
|
NET
CASH USED IN OPERATING ACTIVITIES
|
(757,208 | ) | ||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||
|
Investment
in note receivable
|
(25,000 | ) | ||
|
Purchase
of property and equipment
|
(32,708 | ) | ||
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(57,708 | ) | ||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||
|
Proceeds
from issuance of common stock to founders
|
100 | |||
|
Proceeds
from sale of common stock, net of issuance cost
|
1,541,230 | |||
|
Proceeds
from loan payable
|
160,000 | |||
|
Proceeds
from note payable - related party
|
468,500 | |||
|
Payments
on related party advances
|
(88,869 | ) | ||
|
Proceeds
from related party advances
|
163,364 | |||
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
2,244,325 | |||
|
NET
INCREASE IN CASH
|
1,429,409 | |||
|
CASH -
beginning of period
|
- | |||
|
CASH
- end of period
|
$ | 1,429,409 | ||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||
|
Cash
paid for:
|
||||
|
Interest
|
$ | - | ||
|
Income
taxes
|
$ | - | ||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||
|
Issuance
of common stock for payment of loans payable
|
$ | 360,000 | ||
|
Carrying
value of assumed assets, liabilities and certain promotion rights
agreement from Golden Empire
|
$ | (30,551 | ) | |
See
accompanying notes to unaudited financial statements.
F-5
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 1 –
ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The
Empire Sports and Entertainment, Co. (the “Company”) was 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. The Company is principally engaged in the production and
promotion of music and sporting events. The Company assumed all
assets, liabilities and certain promotion rights agreements entered into by
Golden Empire at carrying value of ($30,551) 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.
Basis of
presentation
The
financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America ("US GAAP"). In the
opinion of management, all adjustments (consisting of normal recurring items)
necessary to present fairly the Company's financial position as of June 30,
2010, and the results of operations and cash flows for the period from February
10, 2010 (inception) to June 30, 2010 have been included. The results of
operations for the period from February 10, 2010 (inception) to June 30, 2010
are not necessarily indicative of the results to be expected for the full year.
The accounting policies and procedures employed in the preparation of these
financial statements have been derived from the audited financial statements of
the predecessor company for the period ended December 31, 2009, which are also
included elsewhere in this Form 8-K.
Use of
estimates
In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet, and revenues and expenses for the period then
ended. Actual results may differ significantly from those estimates.
Significant estimates made by management include, but are not limited to, the
useful life of property and equipment, the fair values of certain promotional
contracts and the assumptions used to calculate fair value of options issued for
services.
Cash and cash equivalents
The
Company considers all highly liquid investments purchased with a maturity of
three months or less when acquired to be cash equivalents. The Company places
its cash with a high credit quality financial institution. The Company’s account
at this institution is insured by the Federal Deposit Insurance Corporation
("FDIC") up to $250,000. For the period from February 10, 2010 (inception) to
June 30, 2010, the Company has reached bank balances exceeding the FDIC
insurance limit. To reduce its risk associated with the failure of such
financial institution, the Company evaluates at least annually the rating of the
financial institution in which it holds deposits.
Fair value of financial
instruments
The
Company adopted Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures”, for assets and liabilities measured at fair value on a recurring
basis. ASC 820 establishes a common definition for fair value to be applied to
existing US GAAP that require the use of fair value measurements which
establishes a framework for measuring fair value and expands disclosure about
such fair value measurements.
F-6
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 1 –
ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ASC 820
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. Additionally, ASC 820 requires the use of valuation
techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs. These inputs are prioritized below:
|
Level 1:
|
Observable
inputs such as quoted market prices in active markets for identical assets
or liabilities
|
|
|
Level 2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market
data
|
|
|
Level 3:
|
Unobservable
inputs for which there is little or no market data, which require the use
of the reporting entity’s own assumptions.
|
Fair
value measurements are applied with respect to our nonfinancial assets and
liabilities measured on a nonrecurring basis, which consists of assets,
liabilities and certain promotion rights agreement assumed by the Company
from Golden Empire. The
valuation of the assumed assets, liabilities and certain promotion rights
agreements are classified as a Level 3 measurement, because it was based on
significant unobservable inputs and involved management judgment and
assumptions. Significant unobservable inputs include future cash flows to be
generated from these promotion rights agreements and the terms of the related
party liabilities such as the rate and repayment terms. In determining the fair
value of the assumed assets, liabilities and certain promotion rights
agreements, the company determined that the carrying amount for such
assets and liabilities (including promotion rights agreements) approximates fair
value.
The
following table presents the assets and liabilities that are measured and
recognized at fair value on a nonrecurring basis classified under the
appropriate level of the fair value hierarchy as of June 30, 2010:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Advances
receivable (including promotion rights agreements)
|
$ | — | $ | — | $ | 15,386 | $ | 15,386 | ||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Note
payable
|
$ | — | $ | — | $ | 30,435 | $ | 30,435 | ||||||||
|
Due
to related party
|
$ | — | $ | — | $ | 15,502 | $ | 15,502 | ||||||||
Cash and
cash equivalents include money market securities that are considered to be
highly liquid and easily tradable as of June 30, 2010. These securities are
valued using inputs observable in active markets for identical securities and
are therefore classified as Level 1 within our fair value
hierarchy.
The
carrying amounts reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued expenses, due to related party approximate their
estimated fair market value based on the short-term maturity of their
instruments. The carrying amount of the note payable - related party at June 30,
2010, approximates its respective fair value based on the Company’s incremental
borrowing rate. The Company did not identify any other assets or liabilities
that are required to be presented on the balance sheets at fair value in
accordance with the accounting guidance.
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure
certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is
irrevocable, unless a new election date occurs. If the fair value option is
elected for an instrument, unrealized gains and losses for that instrument
should be reported in earnings at each subsequent reporting date. The Company
did not elect to apply the fair value option to any outstanding
instruments.
Accounts receivable
The
Company has a policy of reserving for accounts receivable based on its best
estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its 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. The Company did
not consider it necessary to record any allowance for doubtful accounts for
the period from February 10, 2010 (inception) to June 30, 2010.
F-7
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 1 –
ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and
equipment
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. The
Company examines 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.
Impairment of long-lived assets
Long-lived
assets of the Company are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of assets may not be
recoverable. The Company recognizes 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. The Company did not consider it
necessary to record any impairment charges for the period from February 10, 2010
(inception) to June 30, 2010.
Income
taxes
Income
taxes are accounted for under the asset and liability method as prescribed by
ASC Topic 740: “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities, and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred tax
assets are reduced by a valuation allowance, when in the Company's opinion it is
likely that some portion or the entire deferred tax asset will not be
realized.
Pursuant
to ASC Topic 740-10 related to the accounting for uncertainty in income taxes,
the evaluation of a tax position is a two-step process. The first step is to
determine whether it is more likely than not that a tax position will be
sustained upon examination, including the resolution of any related appeals or
litigation based on the technical merits of that position. The second step is to
measure a tax position that meets the more-likely-than-not threshold to
determine the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is greater than
50% likelihood of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should
be recognized in the first subsequent period in which the threshold is met.
Previously recognized tax positions that no longer meet the more-likely-than-not
criteria should be de-recognized in the first subsequent financial reporting
period in which the threshold is no longer met. The accounting standard also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition. The
Company's U.S. Federal and state income tax returns for the tax year 2009 is
open and management continually evaluates expiring statutes of limitations,
audits, proposed settlements, changes in tax law and new authoritative rulings.
The adoption had no effect on the Company’s financial
statements.
The
Company accounts for potential interest and penalties on tax matters as a
component of the income tax provision.
F-8
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 1 –
ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
recognition
The
Company records 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.
The
Company earns 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 the various revenues streams of
the Company:
|
|
·
|
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.
|
|
|
·
|
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.
|
|
|
·
|
Revenues
from the sale of products are recognized at the point of sale at the live
event concession stands.
|
Cost of revenue and prepaid
expenses
Costs
related to live events are recognized when the event occurs. Event costs paid
prior to an event are capitalized to prepaid expenses and then charged to
expense at the time of the event. Cost of other revenue streams are recognized
at the time the related revenues are realized.
Advances and other
receivable
Advances
receivable represent cash paid in advance to athletes for their training. The
Company has the right to offset the advances against the amount payable to such
athletes for their future sporting events. The amounts advanced under such
arrangements are short-term in nature which totaled $138,596 as of June 30,
2010. Promotional advances represents signing bonuses paid to athletes upon
signing the promotional agreements with the Company. Promotional advances are
amortized over the terms of the promotional agreements, generally from three to
four years. As of June 30, 2010, promotional advances - current and long-term
portion amounted to $36,072 and $70,564, respectively, and is included in the
accompanying balance sheet under advances and other receivables. For the period
from February 10, 2010 (inception) to June 30, 2010, amortization of these
promotional advances amounted to $14,364 which has been included in live events
expenses on the accompanying statement of operations. Also included in this
caption was a receivable for a participation guarantee of $93,000 at June 30,
2010.
Concentrations of
credit risk and major customers
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents and accounts receivable.
Management believes the financial risks associated with these financial
instruments are not material. The Company places its cash with high credit
quality financial institutions. The Company maintains its cash in bank deposit
accounts that, at times, may exceed federally insured limits.
For the
period from February 10, 2010 (inception) to June 30, 2010, one company
accounted for 48% of net revenues.
F-9
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 1 –
ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising
Advertising
is expensed as incurred and is included in sales and marketing expenses on the
accompanying statement of operations. Such expenses for the period
from February 10, 2010 (inception) to June 30, 2010 totaled
$20,745.
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. The Company initially records 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.
Net loss per common share
Net loss
per common share is calculated in accordance with ASC Topic 260: Earnings Per
Share (“ASC 260”). Basic loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the period.
The computation of diluted net loss per share does not include dilutive common
stock equivalents in the weighted average shares outstanding as they would be
anti-dilutive. As of June 30, 2010, there were 2,800,000 stock options which
could potentially dilute future earnings per share.
Related
parties
Parties
are considered to be related to the Company if the parties, directly or
indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with the Company. Related parties also include
principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties
with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that
one of the transacting parties might be prevented from fully pursuing its own
separate interests. The Company discloses all related party transactions. All
transactions shall be recorded at fair value of the goods or services exchanged.
Property purchased from a related party is recorded at the cost to the related
party and any payment to or on behalf of the related party in excess of the cost
is reflected as a distribution to related party.
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. ASC Topic
810-10 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.
F-10
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 1 –
ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
In
October 2009, the FASB issued Accounting Standards Updates (“ASU”) No. 2009-13,
“Multiple-Deliverable Revenue Arrangements.” The ASU establishes the accounting
and reporting guidance for arrangements including multiple revenue-generating
activities and 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 the Company’s 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 the
Company’s 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 Company’s 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 US 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
the Company’s 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. The Company
anticipates that adoption of these additional disclosures will not have a
material effect on its 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.
NOTE 2 –
ACCOUNTS AND NOTE
RECEIVABLE
On June
28, 2010, the Company issued a demand promissory note of $25,000 to an unrelated
party. The note is due on demand and bears interest at 6% per annum. The
Borrower shall have the option of paying the principal sum to the Company in
advance in full or in part at any time and from time to time without premium or
penalty. At June 30, 2010, there were accounts receivable in the amount of
approximately $37,000 from two customers.
F-11
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 3 –
RELATED PARTY
TRANSACTIONS
Note
payable - related party
Between
December 2009 and June 2010, one of the Company’s Directors provided loans of
$498,935 to the Company. For the period from December 2009 to June 30, 2010,
these loans were noninterest bearing and were due on demand. On June 30,
2010, the Company issued 333,333 shares of its 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 the Company or (ii) the two-year anniversary of the date
of this promissory note (the “Maturity Date”). See Note 6.
Due
to related party
The
President of the Company, from time to time, provided advances to the Company
for operating expenses. At June 30, 2010, the Company had a payable to the
President of the Company amounting to $89,997. These advances are short-term in
nature and noninterest bearing.
Office
rent
The
Company is sharing its office space pursuant to an informal sublease on a month
to month basis with an affiliated company for which our President is a
director. For the period from February 10, 2010 (inception) to June 30, 2010,
the Company was 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.
NOTE 4–
STOCKHOLDERS’ EQUITY
(DEFICIT)
Common
Stock
On
February 10, 2010, the Company issued an aggregate of 12,090,000 restricted
shares of common stock to the founders of the Company pursuant to common stock
subscription agreements. The Company received gross proceeds of $100 and a
subscription receivable of $1,109 from such issuance of shares of the Company's
common stock. The Company valued these common shares at par value.
Between
January 2010 and June 2010, one of the Company’s directors loaned $468,500 to
the Company. On June 30, 2010, the Company issued 333,333 shares in connection
with the conversion of $200,000 of this loan payable. The fair value of such
shares issued amounted to $200,000 or $0.60 per share based on recent sales of
the Company’s common stock in a private placement.
Between
February 2010 and June 2010, two unrelated parties loaned an aggregate amount of
$160,000 to the Company. On June 30, 2010, the Company issued 266,667 shares in
connection with the conversion of these loans payable for a total amount of
$160,000. The fair value of such shares issued amounted to $160,000 or $0.60 per
share based on recent sales of the Company’s common stock in a private
placement.
F-12
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 4–
STOCKHOLDERS’ EQUITY
(DEFICIT) (continued)
In June
2010, the Company issued 2,720,333 shares of common stock at $0.60 per
share pursuant to a private placement which generated net proceeds of
approximately $1,541,000. In connection with these private placements, the
Company paid private placement commissions of approximately $37,500 in cash,
legal fees of $50,000 and related private placements fees of
$3,470.
In June
2010, the Company issued an aggregate of 400,000 shares of the Company’s common
stock to four persons for consulting services rendered. The Company valued these
common shares at the fair market value on the date of grant at $0.60 per share
or $240,000 based on the recent sales of the Company’s common stock in a
private placement which has been recognize as consulting expense for the
period from February 10, 2010 (inception) to June 30, 2010.
For the
period from February 10, 2010 (inception) to June 30, 2010, compensation in the
amount of $90,000 was recorded to additional paid-in capital for contributed
services provided by an officer of the Company, which represented $15,000 per
month of compensation.
Common Stock
Options
On June
1, 2010, the Company’s 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. 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.
On June
1, 2010, the Company granted an aggregate of 1,850,000 10-year options to
purchase shares of common stock at $0.60 per share which vests at the end of
three years to three officers of the Company. The 1,850,000 options were
valued on the grant date at $0.60 per option or a total of $1,110,000 using a
Black-Scholes option pricing model with the following assumptions: stock price
of $0.60 per share (based on recent sales of the Company’s common stock in a
private placement), volatility of 209% (estimated using volatilities of similar
companies), expected term of six years and six months, and a risk free interest
rate of 3.29%. For the period from February 10, 2010 (inception) to June
30, 2010, the Company recorded stock-based compensation expense of $30,833. At
June 30, 2010, there was $1,079,167 of total unrecognized compensation expense
related to non-vested option-based compensation arrangements under the 2010
Plan.
On June
1, 2010, the Company granted an aggregate of 950,000 10-year options to purchase
shares of common stock at $0.60 per share which vests at the end of three
years to four consultants of the Company. The 950,000 options were valued
on the grant date at $0.60 per option or a total of $570,000 using a
Black-Scholes option pricing model with the following assumptions: stock price
of $0.60 per share (based on recent sales of the Company’s common stock in a
private placement), volatility of 209% (estimated using volatilities of similar
companies), expected term of ten years, and a risk free interest rate of
3.29%. For the period from February 10, 2010 (inception) to June 30, 2010,
the Company recorded stock-based consulting expense of $15,834. At June 30,
2010, there was $554,166 of total unrecognized compensation expense related to
non-vested option-based compensation arrangements under the 2010
Plan.
F-13
THE
EMPIRE SPORTS AND ENTERTAINMENT, CO.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
JUNE 30,
2010
NOTE 5 –
COMMITMENTS
In March
2010, the Company signed a five year lease agreement for office space which will
expire in March 2015. The lease requires the Company to pay a monthly base rent
of $5,129 plus a pro rata share of operating expenses. The base rent is subject
to annual increases beginning on April 1, 2011 as defined in the lease
agreement.
In May
2010, the Company entered into a 3 year employment agreement with one of its
founders and Chief Executive Officer (“CEO”) commencing on July 1, 2010. The CEO
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”). In addition, under the terms of the Employment Agreement
the Company shall secure and post an irrevocable Letter of Credit by May 31,
2010 in the amount of $1,500,000. This Letter of Credit may be reduced after six
months, and after each six month period thereafter, in increments of $250,000.
At any time base compensation or additional compensation under this Agreement is
not timely paid, or if the Company otherwise is in material breach of the
Agreement, the CEO shall be entitled to draw the full remaining amount of the
Letter of Credit. In June 2010, the Letter of Credit has been posted by one of
the Company’s directors and is expected to be replaced with a Letter of Credit
from the Company following the closing of the private placement, including
collateral in the amount of $1,500,000 as a temporary accommodation to the
Company and the CEO. In August 2010, the Company replaced the Letter of Credit
posted by its Director.
NOTE 6 –
SUBSEQUENT
EVENTS
Between
July 8, 2010 and August 13, 2010, the Company issued 3,791,667 shares of common
stock at $0.60 per share pursuant to a private placement which generated
net proceeds of approximately $2,149,000. In connection with these private
placements, the Company paid private placement commissions of approximately
$125,850 in cash.
In
connection with the employment agreement with the Company’s CEO, the Company’s
banking institution issued a 1-year irrevocable standby Letter of Credit for the
benefit of the CEO. In August 2010, the Company opened an account with its
banking institution in the amount of $1,000,000 and pledged to the Letter of
Credit. This Letter of Credit may be reduced after six months, and after
each six month period thereafter, in increments of $250,000. At any time base
compensation or additional compensation under the employment agreement is not
timely paid, or if the Company otherwise is in material breach of this
agreement, the CEO shall be entitled to draw the full remaining amount of the
Letter of Credit. The Company and the CEO have mutually agreed to decrease the
amount of the Letter of Credit to $1,000,000.
In August
2010, the Company entered into a three year employment agreement with one of its
founders, President and Chief Operating Officer (“COO”) commencing in August
2010. The COO receives a base salary of $180,000 per year, plus reimbursement of
expenses and shall be entitled to a bonus compensation which is determined by
the Company’s board of directors.
In
September 2010, the Company issued a demand convertible promissory note (the
“convertible promissory note”) for the balance of the promissory note issued by
the Company dated June 30, 2010 with a principal amount of $298,935 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 the Company 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 the
Company’s common stock at a fixed conversion price per share equal to $0.60 at
the option of the lender. The Company evaluated whether the convertible
note was considered to have an embedded beneficial conversion feature and has
concluded that there is no beneficial conversion feature since the fixed
conversion price of $0.60 is equal to the fair value of the Company’s common
stock based on recent sales of the Company’s common stock in a private
placement.
F-14