XFTB Background Information
Industry Overview
According to the most recent information released by the International Health, Racquet and Sportsclub Association (“IHRSA”) and Statista, total global fitness club industry revenues increased $78.2 billion in 2014 from $74.1 billion in 2013 and $72.6. billion in 2012. Total global fitness club memberships increased to 139 million in 2014 from 135 million in 2013 and 131 million in 2012. Total U.S. fitness club industry revenues increased to $24.2 billion in 2014 from $22.4 billion in 2013 and $21.8 billion in 2012. Total U.S. fitness club memberships increased to 58 million in 2014 from 54 million in 2013 and from 50 million in 2012. According to the IHRSA, the fitness industry is witnessing a shift in the exercise and preference of health club members. The club landscape now extends beyond the traditional, full-service fitness centers as studio concepts including boxing, yoga, Pilates, group cycling, barre, boot camps, cross training, Crossfit®, and personal training.
Sporting goods sales are also increasing at an accelerated rate. According to Statista, total global sporting goods revenues increased $146.5 billion in 2014 from $130.2 billion in 2013 and $129.9 billion in 2012. US sporting goods revenues increased $64.8 billion in 2014 from $63.7 billion in 2013 and $62.6 billion in 2012.
According to the IHRSA, two (2) significant developments are continuing to drive the growth experienced by the fitness industry: obesity continues in endemic proportions and the healthcare industry continues its trend towards prevention versus treatment. As the focus on exercise and overall healthy lifestyles continue to impact the health club industry, we believe the Company can benefit from these dynamics en route to accomplishing the Company’s mission of becoming the leading developer and marketer of functional fitness brands and products in retail and fitness outlets worldwide.
Products
We currently sell products in the following categories: (i) Functional Fitness Stations; (ii) Training and Protective Gear; (iii) Cages and Rings; (iv) Bag Rack Systems; (v) Apparel; (vi) Functional Training Equipment and Accessories and (vii) Fitness Training Programs.
Functional Fitness Stations. We offer an extensive array of fitness training stations including our XTC, CTC and UTC training equipment. Our fitness training stations have key features such as cantilever bag mounts, adjustable step-up platforms, dip bars, ladder system, adjustable Olympic bar rack, squat station, pull up rock station, medicine ball targets / storage, t-bar row, battle ropes, and weight horns. In addition, we recently started offering our mobile fitness training stations, which can be set up for mobile events such as mobile boot camps, community events, trade shows and outdoor competitions.
Training and Protective Gear. We offer a complete catalog of training and protective gear including MMA and boxing gloves, punching mitts, thai pads, body shields and heavy bags. We have designed and developed our products with input from athletes in the MMA industry. Further, our products have been approved for use by both MMA and boxing commissions.
Cages and Rings. Cages and Rings are our legacy product. We continue to offer an extensive portfolio of cages and rings in the MMA industry. We are a provider of the Octagon and other functional fitness equipment to all corporate Ultimate Fighting Championship (UFC) Gyms. All of our cages and rings encompass our proprietary design with the flex zone floor and framing system to protect against injuries. Our cages are designed with high safety standards and have been in use in the MMA industry for over ten years.
Bag Rack Systems. Our bag rack systems are engineered for commercial grade usage with powder coated 4” square tubing, and oversized stainless steel eyebolts, carabineers and swivels. They feature an industry first bucket system and other options including hydraulically bent rolling monkey bars and the retractable bag and curtain system.
Apparel. We have a library of over 2,500 lifestyle tee apparel designs. In addition, we are currently beta testing a new line of athletic performance apparel with innovative technology such as heat displacement, and antibacterial.
Functional Training Equipment and Accessories. We have produced sample quantities of a full portfolio of commercial grade products for dynamic movement and exercise, endurance and strength building including kettle bells, resistance bands, weight bars and dumbbells, jump ropes, slam balls and plyo boxes to be used in cross training, cross fit, and other similar High and Impact fitness regimens. We are beginning expansion and sales of these retail products and Gym staples commercialized under the XFit Brand®.
Fitness Training Programs. We recently began offering fitness training programs offered under the Transformations™ brand name. These programs are designed to be used both in conjunction with our fitness training centers, bag racks and our functional fitness equipment.
Our Strengths
We believe the following competitive strengths and sources of sustainable competitive advantage that will enable the implementation of our growth strategies:
Strong Brand Association. We have been providing cages, equipment and protective gear to the MMA community for the past 10 years and enjoy a brand associated with quality, durability, and innovation. We are a provider of equipment to all UFC Gym® corporate and Crunch® Franchise Gym locations and have sponsored events and athletes with our products internationally. We believe our strong brand recognition (as well as our recent portfolio expansion discussed below) will enable us to establish a presence in sporting goods retail stores, to penetrate new markets, such as the cross-fit training market and to expand geographically to new channels including the United States retail market.
Portfolio of Products. We have an extensive suite of products and apparel for the fitness, MMA and boxing industry. We believe this extensive line of products will enable us to establish a presence in sporting goods retail stores and fitness facilities. Further, we believe that our recent expansion of our portfolio to include functional strength and conditional equipment as well as fitness training programs enables us to provide a one-stop shop for major gym operators and fitness outlets to allow us to capitalize on the growth of the broader cross training and cross fit workout concepts.
Culture of Performance Based Innovation. We have provided significant innovation to products in the MMA and training products including improving safety of the MMA cages with our SlamTec flooring, to various use of unique surfaces like T-Flex. In addition, we have implemented multiple protective and training gear improvements in gloves, bags, and pads, which we believe has increased use of our products. Our UTC-K2 two-story fitness training stations are, to our knowledge, the first of their kind, and the Company expects to continue developing new innovations to expand our line of products, which will also strengthen our portfolio of brands, range of intellectual property and intangible assets, and market value. Our innovation has further strengthened the value of our brands, which we expect will enable us to establish a presence in sporting goods retail stores and our entry into new markets.
Key Relationships. We are currently a provider of equipment and cages for all UFC Gym® corporate locations, recently became the exclusive supplier of CTC Fitness Training Stations and related fitness accessories for all Crunch® Franchise Gyms, and we have a significant direct supply relationship with Centauro, a Brazilian sporting goods retailer. In addition, our brands are now sold in over 20 countries and we continue to sponsor international athletes and events, which maintains visibility and strengthens our reputation. We believe our current relationships will foster new partnerships and will bolster our efforts to secure new licensing relationships.
Global Sourcing Network. We have established a global network of manufacturers both directly and through licensing relationships. We currently have relationships with two US manufacturers, and four manufacturers internationally in Pakistan, China, and Taiwan. In addition, we have a licensing arrangement with a Brazilian company which supports distribution of Throwdown products to Brazil. Our international direct ship program benefits our international distribution points on several levels including, but not limited to, reduction in lead time to meet demand as well as savings related to duties, taxes, and transportation.
Social Media Footprint. Throwdown has a strong digital footprint among Facebook, Twitter, Pinterest, Instagram, and YouTube which foster presences and engagement around key Campaigns like “That’s How I Throwdown.” Our strong social media footprint is instrumental in promoting the Throwdown brand, which we believe could be helpful in establishing a presence in sporting goods retail stores and further penetrating our presence in fitness facilities. We are establishing a social media presence for the newly formed “XFit Brands” corporation as well.
Intellectual Property. We have an extensive collection of registered global trademarks. In addition, we have a large collection of proprietary functional fitness designs, equipment, and systems for which we intend to file provisional patents. These intellectual assets and specifically the global trademarks, serve to both protect the brand and we believe may attract strategic licensees.
Experienced Management Team. Our management team possesses substantial experience in the consumer goods and products industry. The strength and passion of our current dynamic and talented leaders coupled with the senior management expansion plans underway will enable both continued success and more rapid growth. Our senior management team has worked together for over five years and believe that the teams’ experience has enabled us to anticipate and respond effectively to industry trends and competitive dynamics, better understand our consumer base, and build strong customer relationships.
Our Growth Strategy
Key elements of our growth strategy include the following:
Expand our presence in the exercise and fitness training community. Our initial entry into the fitness products market with the introduction of our training stations (Cross Training Center, Ultimate Training Center and Combat Training Centers) has been well received. In addition, major gym operators have expressed a desire for us to provide a one-stop-shop for all their functional fitness equipment needs and programming. We believe that our recent portfolio expansion to include products for the exercise and fitness training industry, including jump ropes, medicine balls, resistance bands, ropes, kettle bells, agility ladders, push / pull sleds, dumbbells, rings, Olympic weights, and plyometric boxes as well as fitness and exercise programs will enable us to significantly expand our presence in the fitness training community and will also allow us to provide a complete fitness portfolio for gym operators and retail stores.
Leverage our MMA core credibility and heritage. Our products have been used in the MMA industry for over 10 years and we are a product supplier to the UFC Gyms®. We intend to leverage our reputation of product quality and innovation in the MMA industry to establish a meaningful position within both domestic and international sporting goods retailers as well as increasing our presence in the training industry. We have an extensive retail ready portfolio of products and have recently started targeting national sporting goods retailers. We believe our reputation for quality and durable products will facilitate our ability to establish a position with sporting goods retail stores. We believe our new line of products for the exercise and training segment of the fitness industry will be attractive to both retail stores and fitness facilities.
Develop Strategic Alliances. We intend to cultivate and execute key licensing partnerships with highly qualified licensees to build brand awareness and increase brand value by extending the Throwdown Brand into complementary product categories and international markets. We will continue to seek qualified partners to license our current Throwdown products in locations where we do not have a geographic presence, similar to our license arrangement with a Brazilian company. In addition, we will also seek to license the Throwdown brand for market segments in which we do not have a presence or expertise, such as headwear, eyewear, footwear, or nutritional products.
Acquiring other fitness related products to leverage our asset base, manufacturing infrastructure, market presence and experienced personnel. We currently have a manufacturing and distribution infrastructure in place and a reputation for providing quality products for the MMA and fitness industries. Accordingly, we will look to acquire additional fitness industry related products, brands and companies to take advantage of our infrastructure, capabilities and global customer base. Many of the competitors in this industry are smaller, private, entrepreneurial-based companies that are undercapitalized, underscaled, or looking for monetization which we believe would facilitate our strategy. The cost of acquiring new fitness related products will range from $100,000 for small products or companies to $600,000 for medium size companies to in excess of $1 million for large size operations. In February 2015, we acquired certain exercise and fitness programs under the Transformations brand name and we will continue to seek out additional opportunities. We expect to fund the purchase of any product via a combination of cash, equity and earn-out consideration. We expect to be able to fund the cash portion of any acquisition from either a drawdown from our PIMCO facility, under our equity purchase agreement with Kodiak Capital, issuance of debt/equity securities or a combination of the foregoing.
