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

Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

Business Combinations

3 Months Ended

Mar. 31, 2018

Business Combination Disclosure [Text Block]

Note 4. Business Combinations

During 2017, we completed several business acquisitions. We have included the financial results of these business acquisitions in our unaudited condensed consolidated financial statements from their respective dates of acquisition and pro forma financial information of the Company as if all the acquisitions occurred January 1, 2017. Goodwill generated from all business acquisitions was primarily attributable to expected synergies from future growth and potential monetization opportunities.

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

In connection with respective asset purchase agreements, the Company entered into trademark license agreements to license the trademark used by the underlying MMA business.

The Company completed no acquisitions during the three months ended March 31, 2018.

The following acquisitions were completed during 2017:

SuckerPunch

On January 4, 2017, Alliance MMA 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, $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, Alliance MMA 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 Orange County

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 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.

Victory Fighting Championship

On September 28, 2017, Alliance MMA acquired the mixed martial arts promotion business of Victory Fighting Championship, LLC, doing business as Victory Fighting Championship, for an aggregate consideration of $822,938, of which $180,000 was paid in cash and $642,938 was paid with the issuance of 267,891 shares of the Company’s common stock valued at $2.40 per share, the fair value of Alliance MMA common stock on September 28, 2017.

Final Purchase Allocation SuckerPunch

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

		Cash			Shares			Warrant Grant			Consideration 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, if the gross profit was less than $265,000 during fiscal year 2017, all 108,289 shares held in escrow will be forfeited. During the first quarter 2018, Management determined the target earn out threshold was not met and as a result, Management anticipates the shares issued in conjunction with the earn out will be returned to the Company, subject to the terms of the respective purchase agreement.

The following table reflects the final allocation of the purchase price for SuckerPunch to identifiable assets, intangible assets, goodwill and identifiable liabilities:

	Final Fair Value
Cash	$
Accounts receivable, net
Intangible assets		210,000
Goodwill		1,522,605
Total identifiable assets	$	1,732,605
Total identifiable liabilities		(46,258)
Total purchase price	$	1,686,347

Final 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.

		Cash			Shares			Consideration 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, if the gross profit of Fight Time was less than $60,000 during fiscal year 2017, all 28,000 shares held in escrow will be forfeited. During the first quarter 2018, Management entered a separation agreement with the former owner of Fight Time and released the shares held under escrow.

The following table reflects the final allocation of the purchase price for the business of Fight Time to identifiable assets, intangible assets, goodwill and identifiable liabilities:

	Final Fair Value
Cash	$
Accounts receivable
Intangible assets		140,000
Goodwill		231,468
Total identifiable assets	$	371,468
Total identifiable liabilities
Total purchase price	$	371,468

During the year ended December 31, 2017 the Company recognized an impairment charge of the intangible assets and goodwill and fully wrote off these assets.

Final 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.

		Cash			Shares			Consideration 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, if the gross profit of NFC was 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 final allocation of the purchase price for the business of NFC to identifiable assets, intangible assets, goodwill and identifiable liabilities:

	Final Fair Value
Cash	$
Accounts receivable
Fixed assets		20,000
Intangible assets		180,000
Goodwill		306,227
Total identifiable assets	$	506,227
Total identifiable liabilities
Total purchase price	$	506,227

Final 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.

		Cash			Shares			Consideration 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 final allocation of the purchase price for the business of the Fight Club OC to identifiable assets, intangible assets, goodwill and identifiable liabilities, and preliminary pro forma intangible assets and goodwill:

	Final Fair Value
Cash	$	159,000
Accounts receivable
Intangible assets		270,000
Goodwill		748,710
Total identifiable assets	$	1,177,710
Total identifiable liabilities		(159,000)
Total purchase price	$	1,018,710

Final Purchase Allocation Victory Fighting Championship

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

		Cash			Shares			Consideration Paid
Victory Fighting Championship		$	180,000			267,891		$	822,938

In connection with the business acquisition, 121,699 shares of the 267,891 shares of common stock that were issued as part of the purchase price were placed into escrow to guarantee the financial performance of Victory post-closing. Accordingly, in the event the gross profit of Victory is less than $140,000 during the 12-month period following the acquisition, all 121,699 shares held in escrow will be forfeited. Additionally, 146,192 shares were placed into a separate escrow to indemnify the Company for potential additional expenses incurred by Victory prior to the acquisition and to cover any uncollectible accounts receivable.

The following table reflects the final allocation of the purchase price for the business of Victory to identifiable assets, intangible assets, goodwill and identifiable liabilities:

	Final Fair Value
Cash	$
Accounts receivable		32,180
Fixed assets		30,000
Intangible assets		290,000
Goodwill		578,167
Total identifiable assets	$	930,347
Total identifiable liabilities		(107,409)
Total purchase price	$	822,938

Supplemental Pro Forma Information

The following unaudited pro forma financial information assumes SuckerPunch, Fight Time, NFC, FCOC and Victory were combined with Alliance MMA as of January 1, 2017 and includes the impact of purchase accounting. The unaudited pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information. This is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2017, nor is it necessarily indicative of future results. Consequently, actual results could differ materially from the unaudited pro forma financial information presented below.

The following table presents the pro forma operating results for the three months ended March 31, 2017, as if the acquisitions had been included in the Company’s condensed consolidated statements of operations as of January 1, 2017 (unaudited, in thousands):

	Revenue		Earnings (Loss)
Actual for the three months ended March 31, 2017	$	0.8	$	(2.4)
Supplemental pro forma for the three months ended March 31, 2017	$	1.1	$	(4.4)

(i)

Amortization of intangible assets. Intangible assets are amortized over their estimated useful lives. The estimated useful lives of acquired intangible assets are based upon the economic benefit expected to be received and the period during which we expect to receive that benefit. For the periods presented amortization expense was approximately $517,000 offset by proforma adjustments of $355,000 related to the final valuation adjustments.