Note 6. Convertible Notes Receivable

On June 28, 2018, SCWorx Acquisition Corp. entered into a SPA with Alliance MMA, under which SCW LLC agreed to buy up to $1,000,000 in principal amount of convertible notes and warrants to purchase up to 35,323 shares of common stock. The notes were originally convertible into shares of common stock at a conversion price of $7.0775 and bore interest at 10% annually. The warrants were originally exercisable for shares of common stock at an exercise price of $7.0775.

Under the SPA, SCWorx Acquisition Corp. agreed to fund (i) $500,000 at the initial closing, (ii) a second tranche of $250,000 upon the signing of a business combination agreement with the Company and (iii) a third tranche of $250,000 upon mutual agreement of Alliance MMA and SCWorx.

On December 18, 2018, SCWorx agreed to increase the total amount of principal from $1,000,000 to $1,250,000 and to reduce the conversion price of the final $500,000 installment of the aggregate $1,250,000 note purchase to $3.80 per share. The warrant exercise price for the related warrants to purchase 32,895 shares was reduced to $5.70 per share.

Pursuant to the SPA, during 2018, SCWorx purchased convertible notes from Alliance MMA in the principal amount of $1,035,000 and warrants to purchase an aggregate of 45,242 shares of common stock, for an aggregate purchase price of $1,035,000. The note for $750,000 bears interest at 10% annually and matured on July 31, 2019. This note was amended in January 2019 to reduce the conversion price to $4.09 per share. The related warrant to acquire 26,492 shares of common stock has an exercise price of $7.0775, a term of five years and was vested upon grant. The note for $275,000 has a conversion price of $3.80, bore interest at 10% annually and matured on June 22, 2019. The warrant to acquire 18,750 shares of common stock has an exercise price of $5.70, a term of five years and was vested upon grant.

During the first quarter of 2019, SCWorx purchased additional convertible notes from Alliance MMA in the principal amount of $215,000 and warrants to purchase an aggregate of 14,145 shares of common stock, for an aggregate purchase price of $215,000. The note for $215,000 had a conversion price of $3.80, bore interest at 10% annually and matured on June 22, 2019. The warrant to acquire 14,145 shares of common stock had an exercise price of $5.70, a term of five years and was vested upon grant.

The Alliance acquisition closed on February 1, 2019 and the principal, commitment costs and accrued interest related to the purchased Alliance convertible notes automatically converted into 362,280 shares of Alliance common stock. In January 2019, the SCWorx board of directors declared a dividend of the 362,280 when-converted shares of Alliance common stock, and related warrants, to the SCWorx shareholders, two of whom waived their rights to the dividend, resulting in the shares being distributed to shareholders who participated in the November 2018 stock offering by SCWorx Corp. of $1,250,000.

As of December 31, 2018, the Company held a convertible note receivable from Alliance MMA with a balance of $837,317. The Company also received warrants from the transaction which were valued at $67,000.