SCWorx, Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

Acquisitions

6 Months Ended

Jun. 30, 2017

Business Combination Disclosure [Text Block]

Note 4. Acquisitions

The Company completed the following acquisitions during the six months ended June 30, 2017:

SuckerPunch

On January 4, 2017, the Company acquired the stock of Roundtable Creative Inc., a Virginia corporation d/b/a SuckerPunch Entertainment, a leading fighter management and marketing company, for an aggregate purchase price of $1,686,347, of which $357,500 was paid in cash and $1,146,927 was paid with the issuance of 307,487 shares of Alliance MMA common stock valued at $3.73 per share, the fair value of Alliance MMA common stock on January 4, 2017 and $181,920 was paid with the issuance of a warrant to acquire 93,583 shares of the Company’s common stock.

Fight Time

On January 18, 2017, the Company acquired the mixed martial arts promotion business of Fight Time Promotions, LLC (“Fight Time”) for an aggregate consideration of $371,468, of which $84,000 was paid in cash and $287,468 was paid with the issuance of 74,667 shares of the Alliance MMA’s common stock valued at $3.85 per share, the fair value of Alliance MMA common stock on January 18, 2017.

National Fighting Championships

On May 12, 2017, Alliance MMA acquired the mixed martial arts promotion business of Undisputed Productions, LLC, doing business as National Fighting Championships or NFC for an aggregate consideration of $506,227, of which $140,000 was paid in cash and $366,227 was paid with the issuance of 273,304 shares of Alliance MMA common stock valued at $1.34 per share, the fair value of Alliance MMA common stock on May 12, 2017.

Fight Club OC

On June 14, 2017, Alliance MMA acquired the mixed martial arts promotion business of The Englebrecht Company, Inc., doing business as Roy Englebrecht Promotions and Fight Club Orange County for an aggregate consideration of $1,018,710 of which $207,900 was paid in cash and $810,810 was was paid with the issuance of 693,000 shares of the Company’s common stock valued at $1.17 per share, the fair value of Alliance MMA common stock on June 14, 2017.

All acquisitions have been accounted for as business acquisitions, under the acquisition method of accounting.

Preliminary Purchase Allocation SuckerPunch

As consideration for the acquisition of SuckerPunch, the Company delivered the following amounts of cash and shares of common stock.

					Warrant		Consideration
	Cash		Shares		Grant		Paid
SuckerPunch	$	357,500		307,487		93,583	$	1,686,347

In connection with the acquisition, 108,289 shares of the 307,487 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial performance of SuckerPunch post-closing. Accordingly, in the event the gross profit is less than $265,000 during fiscal year 2017, all 108,289 shares held in escrow will be forfeited.

The following table reflects the preliminary allocation of the purchase price for SuckerPunch to identifiable assets and preliminary pro forma intangible assets and goodwill:

	SuckerPunch
Cash	$
Accounts receivable, net
Intangible assets		1,525,584
Goodwill		160,763
Total identifiable assets	$	1,686,347
Total identifiable liabilities
Total purchase price	$	1,686,347

Preliminary Purchase Allocation Fight Time Promotions

As consideration for the acquisition of the MMA promotion business of Fight Time, the Company delivered the following amounts of cash and shares of common stock.

					Consideration
	Cash		Shares		Paid
Fight Time	$	84,000		74,667	$	371,468

In connection with the business acquisition, 28,000 shares of the 74,667 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial performance of Fight Time post-closing. Accordingly, in the event the gross profit of Fight Time is less than $60,000 during fiscal year 2017, all 28,000 shares held in escrow will be forfeited.

The following table reflects the preliminary allocation of the purchase price for the business of Fight Time to identifiable assets and preliminary pro forma intangible assets and goodwill:

	Fight Time
Cash	$
Accounts receivable
Intangible assets		48,867
Goodwill		322,601
Total identifiable assets	$	371,468
Total identifiable liabilities
Total purchase price	$	371,468

Preliminary Purchase Allocation National Fighting Championships

As consideration for the acquisition of the MMA promotion business of NFC, the Company delivered the following amounts of cash and shares of common stock.

					Consideration
	Cash		Shares		Paid
NFC	$	140,000		273,304	$	506,227

In connection with the business acquisition, 81,991 shares of the 273,304 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial performance of NFC post-closing. Accordingly, in the event the gross profit of NFC is less than $100,000 during the 12 month period following the acquisition, all 81,991 shares held in escrow will be forfeited.

The following table reflects the preliminary allocation of the purchase price for the business of NFC to identifiable assets and preliminary pro forma intangible assets and goodwill:

	NFC
Cash	$
Accounts receivable
Fixed assets		20,000
Intangible assets		120,000
Goodwill		366,227
Total identifiable assets	$	506,227
Total identifiable liabilities
Total purchase price	$	506,227

Preliminary Purchase Allocation Fight Club OC

As consideration for the acquisition of the MMA promotion business of Fight Club OC, the Company delivered the following amounts of cash and shares of common stock.

					Consideration
	Cash		Shares		Paid
Fight Club OC	$	207,900		693,000	$	1,018,710

In connection with the business acquisition, 258,818 shares of the 693,000 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial performance of Fight Club OC post-closing. Accordingly, in the event the gross profit of Fight Club OC is less than $148,500 during the 12 month period following the acquisition, all 258,818 shares held in escrow will be forfeited. Among the assets purchased is a cash balance of $159,000 related to customer deposits on ticket sales for future 2017 MMA promotion events.

The following table reflects the preliminary allocation of the purchase price for the business of the Fight Club OC to identifiable assets, liabilities, and preliminary pro forma intangible assets and goodwill:

	Fight Club OC
Cash	$	159,000
Accounts receivable
Intangible assets		500,000
Goodwill		518,710
Total identifiable assets	$	1,177,710
Total identifiable liabilities		(159,000)
Total purchase price	$	1,018,710

Under acquisition accounting, assets and liabilities acquired are recorded at their fair value on the acquisition date, with any excess in purchase price over these values being allocated to identifiable intangible assets and goodwill at June 30, 2017.

Goodwill and Identifiable Intangible Assets

Goodwill

The change in the carrying amount of goodwill for the six months ended June 30, 2017 is:

Balance as of December 31, 2016	$	3,271,815
Goodwill Sucker Punch		160,763
Goodwill Fight Time Promotions		322,601
Goodwill National Fighting Championships		366,227
Goodwill Fight Club OC		518,710
Balance as of June 30, 2017	$	4,640,116

Intangible Assets

Identified intangible assets consist of the following:

		June 30, 2017						December 31, 2016
	Useful	Gross		Accumulated				Gross		Accumulated
Intangible assets	Life	Assets		Amortization		Net		Assets		Amortization		Net
Video library, intellectual property	5 years	$	3,546,241	$	528,578	$	3,017,663	$	3,512,741	$	181,824	$	3,330,917
Venue contracts	3 years		1,966,400		491,600		1,474,800		1,966,400		163,867		1,802,533
Ticketing software	3 years		360,559		90,140		270,419		360,559		30,047		330,512
Brand	3 years		993,867		83,591		910,276		325,000		8,749		316,251
Fighter contracts			1,525,584		254,264		1,271,320
Total intangible assets, gross		$	8,392,651	$	1,448,173	$	6,944,478	$	6,164,700	$	384,487	$	5,780,213

Amortization expense for the three months ended June 30, 2017 and 2016, was $546,310 and$0, respectively.

Amortization expense for the six months ended June 30, 2017 and 2016, was $1,063,686 and $0, respectively.

As of June 30, 2017, estimated amortization expense for the unamortized acquired intangible assets over the next five years and thereafter is as follows:

2017 (Remaining six months)	$	1,156,259
2018		2,311,385
2019		2,110,388
2020		803,383
2021		543,611
Thereafter		19,452
	$	6,944,478

Pro Forma Results

The combined pro forma net revenue and net loss of the Company as if Initial Business Units were acquired in January 1, 2016 are (in 000’s):

	Three Months Ended		Six Months Ended
	June 30, 2016		June 30, 2016
Revenue, Net	$	784	$	1,224
Net loss	$	(3,082)	$	(3,204)

Significant adjustments to expenses for the three months ended June 30, 2016 include $546,000 of amortization of acquired intangible assets.

Significant adjustments to expenses for the six months ended June 30, 2016 include $707,000 of amortization of acquired intangible assets, and $142,000 professional fees attributable to consulting fees related to the acquisitions.