UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended SeptemberJune 30, 20172019

or

For the transition period from                     to                     

Commission File Number: 001-37899

ALLIANCE MMA, INC.SCWORX CORP.

(Exact name of registrant as specified in its charter)

590 Madison Avenue, 21^st Floor

New York, New York 10022

(Address of principal executive offices)offices, including zip code)

(212) 739-7825

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.files).   Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨    No   x

Number of shares of the registrant’s common stock outstanding at November 9, 2017 was 12,662,974.August 12, 2019: 6,584,180

Alliance MMA, Inc.SCWorx Corp.

Form 10-Q - Quarterly Report

For the Quarter Ended September 30, 2017

TABLE OF CONTENTS

Cautionary Statement Regarding Forward-Looking Statements

Certain statements that we make from time to time, including statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”), constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Form 10-Q are forward-looking statements. These statements, among other things, relate to our business strategy, goals and expectations concerning our future operations, prospects, plans and objectives of management. The words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, and similar terms and phrases are used to identify forward-looking statements in this Form 10-Q.

Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. Forward-looking statements in this Form 10-Q include, without limitation, statements reflecting management’s expectations for future financial performance and operating expenditures (including our ability to continue as a going concern, to raise additional capital and to succeed in our future operations), expected growth, profitability and business outlook and increased operating expenses.

Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, among other things, the unknown risks and uncertainties that we believe could cause actual results to differ from these forward looking statements as set forth under the heading, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements, including without limitation, risks and uncertainties relating to our ability to:

Although we believe that the expectations reflected in the forward-looking statements contained in this Form 10-Q are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. In light of inherent risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Except as required by law, we are under no duty to update or revise any of such forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of this Form 10-Q.

You should read this Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

All references to “SCWorx,” “we,” “us,” “our” or the “Company” mean SCWorx Corp., a Delaware corporation, and where appropriate, its wholly owned subsidiaries.

PART I—FINANCIALI-FINANCIAL INFORMATION

Item 1. Financial Statements

Alliance MMA, Inc.

SCWorx Corp.

Condensed Consolidated Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Alliance MMA, Inc.SCWorx Corp.

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Alliance MMA, Inc.SCWorx Corp.

Condensed Consolidated StatementStatements of Changes In Stockholders’ EquityEquity/(Deficit)

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SCWorx Corp.

Condensed Consolidated Statements of Changes In Stockholders’ Equity/(Deficit)(continued)

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Alliance MMA, Inc.SCWorx Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Alliance MMA, Inc.SCWorx Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

Note 1. The Company and BasisDescription of PresentationBusiness

Nature of Business

SCWorx, LLC (n/k/a SCW FL Corp.) (“SCW LLC”) was a privately held limited liability company which was organized in Florida on November 17, 2016. On December 31, 2017, SCW LLC acquired Primrose Solutions, LLC (“Primrose”), a Delaware limited liability company, which became its wholly-owned subsidiary and focused on developing functionality for the software now used and sold by SCWorx Corp. (the “Company” or “SCWorx”). The majority shareholders of Primrose were shareholders of SCW LLC and based upon Staff Accounting Bulletin (“SAB”) Topic 5G, the technology acquired has been accounted for at predecessor cost of $0. To facilitate the planned acquisition by Alliance MMA, Inc., a Delaware corporation (“Alliance” or), on June 27, 2018, SCW LLC merged with and into a newly-formed entity, SCWorx Acquisition Corp., a Delaware corporation (“SCW Acquisition”), with SCW Acquisition being the “Company”) was formedsurviving entity. Subsequently, on August 17, 2018, SCW Acquisition changed its name to SCWorx Corp. On November 30, 2018, the Company and certain shareholders agreed to cancel 6,510 common shares. In June 2018, the Company began to collect subscriptions for common stock. From June to November 2018, the Company collected $1.25 million in Delawaresubscriptions and issued 3,125 shares of common stock to new third-party investors. In addition, on February 12, 20151, 2019, (i) SCWorx Corp. (f/k/a SCWorx Acquisition Corp.) changed its name to acquire companiesSCW FL Corp. (to allow Alliance to change its name to SCWorx Corp.) and (ii) Alliance acquired SCWorx Corp. (n/k/a SCW FL Corp.) in a stock- for- stock exchange transaction and changed Alliance’s name to SCWorx Corp., which is the Company’s current name, with SCW FL Corp. becoming the Company’s subsidiary.

Business Combination and Related Transactions

In June 2018, SCWorx Acquisition Corp. entered into a Securities Purchase Agreement (“SPA”) with Alliance, as amended December 18, 2018, under which the SCWorx Acquisition Corp. agreed to purchase up to $1.25 million in principal amount of Alliance’s convertible notes and warrants to purchase up to 1,128,356 [59,387 shares reflective of one for nineteen stock split] [bracketed amounts disclosed represent post-split adjusted shares or per share amounts] shares of Alliance common stock. The initial $750,000 tranche of the notes was convertible into shares of Alliance common stock at an initial conversion price of $0.3725 [$7.0775 post-split] and the related 503,356 [26,492 post-split] warrants have an exercise price of $0.3725 [$7.0775 post-split]. The conversion price on the $750,000 convertible note was reduced to $0.215 [$4.085 post-split] per share in January 2019. The remaining $500,000 tranche of the notes was convertible into shares of Alliance common stock at a conversion price of $0.20 [$3.80 post-split] and the related 625,000 [32,895 post-split] warrants had an exercise price of $0.30 [$5.70 post-split]. All of these notes (an aggregate of $1.25 million in principal amount) converted automatically into Alliance common stock upon the closing of the Company’s acquisition on February 1, 2019 and were distributed to certain of the Company’s common shareholders.

Pursuant to the SPA, between June 29, 2018 and October 16, 2018, Alliance sold SCWorx Acquisition Corp. convertible notes in the mixed martial arts (“MMA”) industry. On September 30, 2016,aggregate principal amount of $750,000 and warrants to purchase 503,356 [26,492 post-split] shares of Alliance completedcommon stock, for an aggregate purchase price of $750,000. Each of the first tranchenotes bore interest at 10% annually and had a one year term. The warrants had an exercise price of its initial public offering and acquired the assets and assumed certain liabilities of six companies, consisting$0.3725, [$7.0775 post-split] a term of five MMA promotersyears and were vested upon grant. As noted above, these notes automatically converted into Alliance common stock upon the closing of the Company’s acquisition on February 1, 2019.

On August 20, 2018, the Company and its stockholders entered into a ticketing platform focused on MMA events. In October 2016, GFL Acquisition, Co., Inc.Stock Exchange Agreement with Alliance, as amended December 18, 2018 (“SEA”). Under the SEA, the Company’s shareholders agreed to sell all of the issued and outstanding common stock of the Company, in exchange for which Alliance agreed to issue at the closing100,000,000shares of Alliance common stock to the Company’s stockholders.

Pursuant to the SPA, between November 16, 2018 and December 31, 2018, the Company purchased additional Alliance convertible notes in the aggregate principal amount of $275,000 and warrants to purchase 356,250 [18,750 post-split] shares of Alliance common stock, for an aggregate purchase price of $275,000. Each of the Notes bore interest at 10% annually and matured one year from the issue date. These warrants had an exercise price of $0.30 [$5.70 post-split], a wholly-owned subsidiaryterm of five years and were vested upon grant. This brought the total amount funded by the Company to $1,035,000 as of December 31, 2018. In January 2019, SCWorx purchased $215,000 of additional Alliance merged with a seventh company, Go Fight Net, Inc., which produces and distributes MMA video entertainment. GFL was subsequently rebranded asconvertible notes under the aggregate $1,250,000 SPA. These notes automatically converted into Alliance Sports Media. The respective acquired businessescommon stock upon the closing of the seven companies are referred to in these Notes asCompany’s acquisition on February 1, 2019 and were purchased under the “Initial Business Units”. At the completionaggregate $1.25 million terms of the offering in October 2016, the Company acquired certain MMA and kickboxing video libraries (the “Initial Acquired Assets”). Subsequent toSPA.

In anticipation of the acquisition of the Initial Business Units and the Initial Acquired Assets, the Company, acquired the assets of five additional promotion companies, Iron Tiger Fight Series, Fight Time, National Fighting Championships, Fight Club OC, and Victory Fighting Championship and a fighter management and marketing company, SuckerPunch, alongAlliance filed an original listing application with the intellectual property rightsNasdaq Capital Market to list the Sheffield video fight librarycommon stock of Shogun Fights (the “Subsequent Acquisitions”).the combined company. On February 1, 2019, Nasdaq approved the listing of Alliance’s common stock (on a combined basis with the Company), with the result being that the newly combined company’s common stock is now newly listed on the Nasdaq Capital Market.

Initial Business Units

Promotions

Ticketing Platform

Video Production and Distribution

Initial Acquired Assets

Following the completion ofOn February 1, 2019, SCWorx Corp. changed its initial public offering,name to SCW FL Corp. to allow Alliance also acquired the following assets:

Louis Neglia’s Ring of Combat

All rights in the existing MMA and kickboxing video libraries of Louis Neglia’s Martial Arts Karate, Inc. related to the Louis Neglia’s Ring of Combat and Louis Neglia’s Kickboxing events and shows, a right of first refusalchange its name to acquire the rights to all future Louis Neglia MMA and kickboxing events.

Hoss Promotions, LLC

The MMA and video library of Hoss Promotions, LLC related to certain CFFC events.

Subsequent Acquisitions

FollowingSCWorx Corp. Alliance completed the acquisition of SCWorx Corp. (n/k/a SCW FL Corp.), at which point Alliance changed its name to SCWorx Corp., changed its ticker symbol to “WORX”, and effected a one-for-nineteen reverse stock split of its common stock, which combined the Initial Business Units100,000,000 Alliance shares of common stock issued to the Company’s shareholders into 5,263,158 shares of common stock of the newly combined company.

From a legal perspective, Alliance acquired SCW FL Corp., and Initial Acquired Assets,as a result, historical equity awards including stock options and warrants are carried forward at their historical basis.

From an accounting perspective, Alliance was acquired by SCW FL Corp. in a reverse merger and as a result, the Company acquired:

Iron Tiger Fight Series

The Ohio-based MMA promotion business of Ohio Fitness and Martial Arts, LLC doing business as Iron Tiger Fight Series (“ITFS”) on December 9, 2016.

In June 2017, ITFS hiredhas completed preliminary purchase accounting for the former owner of Explosive Fight Promotions, an Ohio based MMA promotion business, as General Manager, along with certain staff members.

Sucker Punch

Roundtable Creative Inc., a Virginia corporation d/b/a SuckerPunch Entertainment (“SuckerPunch”), a leading fighter management and marketing company on January 4, 2017.

Fight Time

The MMA Promotion business of Ft. Lauderdale, Florida based Fight Time Promotions, LLC (“Fight Time”) on January 18, 2017.

National Fighting Championships

The Atlanta, Georgia based mixed martial arts promotion business of Undisputed Productions, LLC, doing business as National Fighting Championships or NFC (“NFC”) on May 12, 2017.

Fight Club OC

The Orange County, California based mixed martial arts business of The Englebrecht Company, Inc., doing business as Roy Englebrecht Promotions or Fight Club OC (“Fight Club OC”) on June 14, 2017.

Victory Fighting Championship

The Omaha, Nebraska based mixed martial arts promotion business of Victory Fighting Championship, LLC, doing business as Victory Fighting Championship (“Victory”) on September 28, 2017.

Sheffield Recordings Limited, Inc. - Media Library Rights

The intellectual property rights to the Sheffield video fight library of the Shogun promotions.transaction.

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

Basis of Presentation and Principles of Consolidation(Unaudited)

Operations of the Business

The accompanying interim unaudited condensed consolidated financial statements as

SCWorx is a leading provider of September 30, 2017data content and December 31, 2016,services related to the repair, normalization and interoperability of information for healthcare providers and big data analytics for the threehealthcare industry.

SCWorx has developed and nine months ended September 30, 2017markets health information technology solutions and 2016,associated services that improve healthcare processes and information flow within hospitals. SCWorx’s software platform enables healthcare providers to simplify, repair, and organize its data (“data normalization”), allows the data to be utilized across multiple internal software applications (“interoperability”) and provides the basis for sophisticated data analytics (“big data”). SCWorx’s solutions are designed to quickly and accurately improve the flow of information between the existing supply chain, electronic medical records, clinical systems, and patient billing functions. The software is designed to achieve multiple operational benefits such as supply chain cost reductions, decreased accounts receivables aging, accelerated and more accurate billing, contract optimization, increased supply chain management and cost visibility, synchronous Charge Description Master (“CDM”) and control of vendor rebates and contract administration fees.

SCWorx empowers healthcare providers to maintain comprehensive access and visibility to an advanced business intelligence that enables better decision-making and reductions in product costs and utilization, ultimately leading to accelerated and accurate patient billing. SCWorx’s software modules perform separate functions as follows:

SCWorx continues to provide transformational data-driven solutions to some of the finest, most well-respected healthcare providers in the United States. Clients are geographically dispersed throughout the country. The Company’s focus is to assist healthcare providers with issues they have been preparedpertaining to data interoperability. SCWorx provides these solutions through a combination of direct sales and relationships with strategic partners.

SCWorx’s software solutions are delivered to clients within a fixed term period, typically a three-to-five-year contracted term, where such software is hosted in SCWorx data centers (Amazon Web Service’s “AWS” or RackSpace) and accessed by the Companyclient through a secure connection in accordance with generally accepted accounting principlesa software as a service (“GAAP”SaaS”) delivery method.

SCWorx currently sells its solutions and services in the United States (“U.S.”) for interim financial information. The amountsto hospitals and health systems through its direct sales force and its distribution and reseller partnerships.

SCWorx, as of December 31, 2016 have been derived from the Company’s annual audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial positionpart of the Company and its resultsacquisition of operations, changes in stockholders’ equity and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2016, included in the Company’s Annual ReportAlliance MMA, operates an online event ticketing platform focused on Form 10-K for the year ended December 31, 2016, filed on April 17, 2017 (the “Form 10-K”serving regional MMA (“mixed martial arts”). The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2017 or any future period and the Company makes no representations related thereto. promotions.

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

Use of Estimates(Unaudited)

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, the assessment of the recoverability of goodwill, likelihood and range of possible losses on contingencies, valuation and recognition of stock-based compensation expense, recognition and measurement of current and deferred income tax assets and liabilities, assessment of unrecognized tax benefits, among others. Actual results could differ from those estimates.Note 2. Liquidity

Liquidity and Going Concern

OurThe Company’s primary need for liquidity is to fund the working capital needs of ourthe business our planned capital expenditures, the continued acquisition of regional promotions and related companies, and general corporate purposes. We haveThe Company has historically incurred losses and experiencedhas relied on borrowings from members to fund the operations and growth of the business. As of June 30, 2019, the Company had cash of approximately $1.3 million, negative operating cash flows since the inceptionworking capital of our operations in October 2016. We believe, however, that the successful implementationapproximately $0.6 million and an accumulated deficit of our business plan, along with other actions we have taken and will continue to take, will improve our operating margins and address corporate overhead expenditures.approximately $9.7 million.

Since completing our IPODuring 2018, the Company began to gain traction with more hospitals and witnessed customer renewals of expiring agreements with existing customers. During the first quarter of 2019, the Company signed four contracts with new customers and during the second quarter completed a number of data consulting projects as proof of concept for potentially new customers. The Company’s target is to sign on average, a contract a month, with new customers during 2019. Management expects increases in October 2016, we have focused primarily on building out a domestic MMA platform, which is expected eventuallyrevenue to include a presence inprovide sufficient cash flow to fund the top 20 media markets. To date, we have created a persistent brand presence in twelve markets through the acquisition of ten promotional businesses along with the promotion of regional Alliance MMA events in two additional markets. We have also continued to develop our existing media library of live MMA events, and have built a professional corporate infrastructure that will support our long-term goals. These activities and investments in our business directly support our stated goal of promotingoperations for at least 125 regional MMA events annually.the one-year period following the release of these condensed consolidated financial statements.

To ensure the Company’s capital needs are met over the next twelve months, in August 2017,On November 30, 2018, the Company completed a capital raise of approximately $1.5 million through the placement of approximately 1.5 million units at $1.00 per unit, which consist of one share of common stock andprivate place of $1.25 million. In February 2019, the transactions related to the purchase of Alliance MMA resulted in a warrant to purchase one sharegross increase of common stock at $1.50.

In November 2017,cash of $5.4 million which the Company raised approximately $500,000 throughhas utilized a significant portion to operate the placementbusiness. Management believes the remaining cash balance of 390,000 units$1.3 million along with anticipated increases in sales is expected to fund operations for at $1.25 per unit, which consist of one common share and a warrant to purchase one-half share of common stock at an exercise price equal to $1.75 per whole share.

Additionally in November,least the next 12 months; however, the Company filed a “shelf” registration statementwill thereafter need to raise additional funding through strategic relationships, public or private equity or debt financings. If such funding is not available or not available on Form S-3 which, when declared effective by the SEC, will allow the Company to issue various types of securities up to an aggregate of $20 million.

Management is in negotiations with multiple national sponsors and, on the basis of those negotiations, expects to receive at least $500,000 in national sponsorship revenue during the next twelve months.

Additionally, management is in discussions with national casinos to promote our MMA events at venues that would produce better margins through entertainment fees paidterms acceptable to the Company, and, in certain cases, a reduction in event overhead through complimentary food and lodgingthe Company’s current plans for fighters and staff.expansion, including new product development, may be curtailed or cancelled.

SCWorx Corp.

Notes to our ability to continue as a going concern, we expect that our recent and anticipated financings, the continued implementation of our business plan and the expected increase in sponsorship revenue will provide sufficient liquidity and financial flexibility over the next twelve months. We cannot, however, predict with certainty the outcome of our actions to generate liquidity, including our success in raising additional capital or the anticipated results of our operations.Condensed Consolidated Financial Statements

(Unaudited)

Note 2.3. Summary of Significant Accounting Policies

ThereBasis of Presentation and Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements as of June 30, 2019 and 2018, and for the three and six months then ended, have been no significant changesprepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) for interim financial information. The amounts as of December 31, 2018 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2018, included in the Company’s significant accounting policies duringAnnual Report on Form 10-K for the nineyear ended December 31, 2018.

The results of operations for the three month and six months ended SeptemberJune 30, 2017, as compared2019 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2019 or any future period and the Company makes no representations related thereto.

Reclassification

A reclassification has been made to the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Changes in Stockholders’ Equity/(Deficit) to break out the Series A Convertible Preferred stock par value of $819 and additional paid in capital of $7,980,126. Previously, for the quarter ended March 31, 2019, the entire balance was disclosed as Preferred Stock. This change in classification does not affect the previously reported total stockholders’ equity balance. In addition, the authorized common stock has been restated to reflect the correct amount of 45,000,000 authorized common shares.

In addition, certain prior quarter amounts have been reclassified for consistency with the current quarter presentation. These reclassifications had no effect on reported results of operations or cash flows.

Cash

Cash is maintained with various financial institutions. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000.

Fair Value of Financial Instruments

Management applies fair value accounting for significant accounting policies describedfinancial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the Form 10-K,consolidated financial statements on a recurring basis. Management defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, management considers the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability.

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable, due from shareholder and convertible notes receivable. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing internal credit evaluations of its customers’ financial condition, obtains deposits and limits the amount of credit extended when deemed necessary but generally requires no collateral. The Company believes that any concentration of credit risk in its due from shareholder and convertible notes receivable was substantially mitigated by the shareholder’s material interest in the Company, ability to sell off portions of the interest, if necessary, and the closing of the acquisition of SCWorx by Alliance and conversion of the notes payable - related party into Series A Convertible Preferred share and the settlement of the due from stockholder balance with the exceptionsurrender of the fighter commission revenue recognition policy disclosed below.1,401 SCWorx common shares in January 2019.

For the quarter ended June 30, 2019, the Company had 3 customers representing 23%, 19% and 11% of aggregate revenues. For the quarter ended June 30, 2018, the Company had 3 customers representing 23%, 21% and 12% of aggregate revenues. At June 30, 2019, the Company had 4 customers representing 18%, 16% and 13% and 12% of aggregate accounts receivable. At December 31, 2018, the Company had 3 customers representing 39%, 21% and 13% of aggregate accounts receivable. 

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

Revenue Recognition(Unaudited)

Promotion RevenueAllowance for Doubtful Accounts

The Company continually monitors customer payments and maintains a reserve for estimated losses resulting from its customers' inability to make required payments. In determining the reserve, the Company evaluates the collectability of its accounts receivable based upon a variety of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer's ability to meet its financial obligations, the Company records revenuea specific allowance against amounts due. For all other customers, the Company recognizes allowances for doubtful accounts based on its historical write-off experience in conjunction with the length of time the receivables are past due, customer creditworthiness, geographic risk and the current business environment. Actual future losses from ticket salesuncollectible accounts may differ from the Company's estimates. The Company deemed no allowance for doubtful accounts necessary as of June 30, 2019 and sponsorship income uponDecember 31, 2018.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in the successful completionlease right-of-use (“ROU”) assets, current portion and long-term portion of lease obligations on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the related event,lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments to be made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease, which time services have been deemed rendered,are included in the sales price is fixed and determinable and collectabilitylease ROU asset when it is reasonably assured. Customer deposits consist of amounts received fromcertain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the customerlease term. We have lease agreements with lease components only, none with non-lease components, which are generally accounted for fight promotion and entertainment services to be provided in the next fiscal year. The Company receives these funds and recognizes them as a liability until the services are provided and revenue can be recognized.separately.

Ticket Service RevenueBusiness Combinations

The Company actsincludes the results of operations of a business it acquires in its consolidated results as an agent for ticket sales for promoters and records revenue upon receipt of cash from the credit card companies. The Company charges a fee per transaction for collecting the cash on ticket sales and remits the remaining amount to the promoter upon completion of the event or request for advance from the promoter. The Company’s fee is non-refundable and is recognized immediately as it is not tied to the completiondate of the event. The Company recognizes revenue upon receipt from the credit card companies due to the following: the fee is fixed and determined and the service of collecting the cash for the promoter has been rendered and collection has occurred.

Fighter Commission Revenue

The Company records fighter commission revenue upon the completion of the contracted athlete’s related event, at which time the fighter’s services have been deemed rendered, the contractual amount due to the fighter is known and the commission due to the Company related to these activities is fixed and determinable and collectability is reasonably assured.

Distribution Revenue

The Company acts as a producer, distributor and licensor of video content. The Company’s online video content is offered on a pay per view (“PPV”) basis. The Company records revenue on PPV transactions upon receipt of payment to credit processing partners. The Company charges viewers a fee per PPV purchase transaction for entitling a viewer to watch the desired video. The Company records revenue net of a fee for the credit card processing cost per transaction. The Company maintains all revenues from videos the Company films and distribute a profit share, typically 50% to promoters who use our streaming services. The Company generates revenues from video production services, and books this revenue upon completion of the video production project. The Company generates revenues from licensing the rights to videos to networks overseas and domestically, and books revenue upon delivery of content. To the extent there are issues (i) watching a video (ii) with our production services or (iii) with the quality of a video we send out for distribution to a network we would issue a partial or full refund based on the circumstances. Given the nature of our business, these refund requests come within days of delivery, thus we would not anticipate any refund request in excess of 30 days from a PPV purchase, a license delivery or video production performance.

Business Combinations

acquisition. The Company allocates the fair value of the purchase consideration of its acquisitionsacquisition to the tangible assets, liabilities and intangible assets acquired, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expensesThe primary items that generate goodwill include the value of the synergies between the acquired businesses and the Company. Intangible assets are amortized over their estimated useful lives. The fair value of contingent consideration (earn out) associated with acquisitions is remeasured each reporting period and adjusted accordingly. Acquisition and integration related restructuring costs are recognized separately from the business combination and are expensed as incurred.

For additional information regarding the Company’s acquisitions, refer to “Note 4 – Business Combinations.”

Goodwill and PurchasedIdentified Intangible Assets

Goodwill. Goodwill is testedrecorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets acquired under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. The Company reviews impairment on an annual basisof goodwill annually in the fourth fiscalthird quarter, and, when specificor more frequently if events or circumstances dictate, between annual tests. When impaired,indicate that the carrying value of goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is written downnecessary to fair value. Theperform the quantitative goodwill impairment test involves a two-step process. The first step, identifying a potential impairment, comparestest. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit withis less than its carrying amount, including goodwill. Ifthen the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no potentialquantitative goodwill impairment exists. If necessary, the second step to measure the impairment loss would be to compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair valuetest is recognized as an impairment loss. Purchasedunnecessary.

Identified intangible assets. Identified finite-lived intangible assets with finite livesconsist of ticketing software and promoter relationships resulting from the February 1, 2019 business combination. The Company’s identified intangible assets are carried at cost, less accumulated amortization. Amortization is computedamortized on a straight-line basis over thetheir estimated useful lives, ranging from 5 to 7 years. The Company makes judgments about the recoverability of the respective assets. See “Long-Lived Assets” for the Company’s policy regarding impairment testing of purchasedfinite-lived intangible assets with finite lives. Purchased intangible assets with indefinite lives are assessed for potential impairment annually or when events orwhenever facts and circumstances indicate that their carrying amounts might be impaired.

Long-Lived Assets

Long-lived assets that are held and used by the Company are reviewed for impairment whenever eventsuseful life is shorter than originally estimated or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination ofIf such facts and circumstances exist, the Company assesses recoverability of long-lived assets is based on an estimate ofby comparing the projected undiscounted futurenet cash flows resulting fromassociated with the userelated asset or group of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use isover their remaining lives against their respective carrying amounts. Impairments, if any, are based on the difference betweenexcess of the carrying amount over the fair value of those assets. If the assetuseful life is shorter than originally estimated, the Company would accelerate the rate of amortization and itsamortize the remaining carrying value. Long-livedvalue over the new shorter useful life.

For further discussion of goodwill and identified intangible assets, to be disposed of are reported at the lower of carrying amount or fair value.

see “Note 4 – Business Combinations.”

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the related assets’ estimated useful lives. Equipment, furniture and fixtures are being amortized over a period of three years.

Expenditures that materially increase asset life are capitalized, while ordinary maintenance and repairs are expensed as incurred.

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Recent Accounting Pronouncements

Revenue Recognition

In May 2014,

The Company recognizes revenue in accordance with Topic 606 to depict the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), and since May 2014transfer of promised goods or services in an amount that reflects the FASB has issued amendmentsconsideration to this newwhich an entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of Topic 606 the Company performs the following steps:

The Company follows the accounting revenue guidance which collectively provides guidanceunder Topic 606 to determine whether contracts contain more than one performance obligation. Performance obligations are the unit of accounting for revenue recognition. ASU 2014-09recognition and generally represent the distinct goods or services that are promised to the customer.

The Company has identified the following performance obligations in its contracts with customers:

A contract will typically include Data Normalization, SaaS and Maintenance, which are distinct performance obligations and are accounted for separately. The transaction price is effectiveallocated to each separate performance obligation on a relative stand-alone selling price basis. Significant judgement is required to determine the stand-alone selling price for each distinct performance obligation and is typically estimated based on observable transactions when these services are sold on a stand-alone basis. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company beginning January 1, 2018 and,considers all the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when the performance obligation has been met. The Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the Company may adopthas transferred use of the new standardgood or service, and the customer is able to direct the use of, and obtain substantially all the remaining benefits from, the good or service. 

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company’s SaaS and Maintenance contracts typically have termination for convenience without penalty clauses and accordingly, are generally accounted for as month-to-month agreements. If it is determined that the Company has not satisfied a performance obligation, revenue recognition will be deferred until the performance obligation is deemed to be satisfied.

Revenue recognition for the Company’s performance obligations are as follows:

Data Normalization and Professional Services

The Company’s Data Normalization and Professional Services are typically fixed fee. When these services are not combined with SaaS or Maintenance revenues as a single unit of accounting, these revenues are recognized as the services are rendered and when contractual milestones are achieved and accepted by the customer.

Software-as-a-Service and Maintenance

Software-as-a-service and maintenance revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date on which the Company’s service is made available to customers. 

The Company does have some contracts that have payment terms that differ from the timing of revenue recognition, which requires the Company to assess whether the transaction price for those contracts include a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if it expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. The Company does not maintain contracts in which the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service exceeds the one-year threshold.

In periods prior to the adoption of ASC 606, the Company recognized revenues when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and the collectability of the resulting receivable is reasonably assured. The adoption of Topic 606 did not result in a cumulative effect adjustment to our opening retained earnings since there was no significant impact upon adoption of Topic 606. There was also no material impact to revenues, or any other financial statement line items for the year ended December 31, 2018 as a result of applying ASC 606.

The Company has one revenue stream, from the SaaS business, and has not presented any varying factors that affect the nature, timing and uncertainty of revenues and cash flows.

There were no revenues that were recognized from performance obligations that were partially satisfied prior to January 1, 2018.

Costs to Fulfill a Contract

Costs to fulfill a contract typically include costs related to satisfying performance obligations as well as general and administrative costs that are not explicitly chargeable to customer contracts. These expenses are recognized and expensed when incurred in accordance with ASC 340-40.

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Cost of Revenue

Cost of revenues primarily represents data center hosting costs, consulting services and maintenance of the Company’s large data array that were incurred in delivering professional services and maintenance of the Company’s large data array during the periods presented.

Contract Balances

Contract assets arise when the revenue associated prior to the Company’s unconditional right to receive a payment under a contract with a customer (i.e., unbilled revenue) and are derecognized when either it becomes a receivable or the cash is received. There were no contract assets as of June 30, 2019 and December 31, 2018.

Contract liabilities arise when customers remit contractual cash payments in advance of the Company satisfying its performance obligations under the full retrospective approachcontract and are derecognized when the revenue associated with the contract is recognized when the performance obligation is satisfied. Contract liabilities were approximately $912,000 and $817,000 as of June 30, 2019 and December 31, 2018, respectively.

Research and Development Costs

The Company expenses all research and development related costs as incurred. Research and development cost for the quarters ended June 30, 2019 and 2018 was approximately $478,000 and $0, respectively. Research and development cost for the six months ended June 30, 2019 and 2018 was approximately $660,000 and $0, respectively. These research and development cost relate to a new product development and programming expenses expected to be released during 2019.

Advertising Costs

The Company expenses advertising costs as incurred. There were no advertising costs for the quarters or six months ended June 30, 2019 and 2018.

Income Taxes

The Company converted to a corporation from a limited liability company during 2018.

The Company uses the modified retrospective approach.asset and liability method of accounting for income taxes in accordance with Accounting Standard Codification (“ASC”) Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.

Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of June 30, 2019, the Company has evaluated available evidence and concluded that the Company may not realize all the benefit of its deferred tax assets; therefore, a valuation allowance has been established for its deferred tax assets.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017, (“the Tax Act”) was enacted. The Tax Act significantly revised the U.S. corporate income tax regime by, including but not limited to, lowering the U.S. corporate income tax rate from 34% to 21% effective January 1, 2018, implementing a territorial tax system, imposing a one-time transition tax on previously untaxed accumulated earnings and profits of foreign subsidiaries, and creating new taxes on foreign sourced earnings. As of June 30, 2019, we completed the accounting for tax effects of the Tax Act under ASC 740. There were no impacts to the reporting period ended June 30, 2019.

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The income tax expense for the quarters ended June 30, 2019 and 2018 was $195,000 and $0, respectively, and was $0 and $0 for the six months ended June 30, 2019 and 2018, respectively, and are included in prepaid assets and accounts payable and accrued liabilities on the condensed consolidated balance sheet.

Stock-based Compensation Expense

The Company accounts for stock-based compensation expense in accordance with the authoritative guidance on share-based payments. Under the provisions of the guidance, stock-based compensation expense is measured at the grant date based on the fair value of the option using a Black-Scholes option pricing model and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair value of the Company’s stock awards for non-employees is estimated based on the fair market value on each vesting date, accounted for under the variable-accounting method.

The authoritative guidance also requires that the Company measure and recognize stock-based compensation expense upon modification of the term of stock award. The stock-based compensation expense for such modification is accounted for as a repurchase of the original award and the issuance of a new standard,award.

Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. The Company estimates the expected life of options granted based on historical exercise patterns, which are believed to be representative of future behavior. The Company estimates the volatility of the Company’s common stock on the date of grant based on historical volatility. The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from the estimate, stock-based compensation expense could be significantly different from what was recorded in the current practiceperiod. The Company also grants performance based restricted stock awards to employees and consultants. These awards will vest if certain employee\consultant-specific or company-designated performance targets are achieved. If minimum performance thresholds are achieved, each award will convert into a designated number of many licensing companies of reporting revenues from per-unit royalty based agreements one quarter in arrears wouldthe Company’s common stock. If minimum performance thresholds are not achieved, then no longer be accepted and instead companiesshares will be issued. Based upon the expected levels of achievement, stock-based compensation is recognized on a straight-line basis over the requisite service period. The expected levels of achievement are reassessed over the requisite service periods and, to estimate royalty-based revenues. the extent that the expected levels of achievement change, stock-based compensation is adjusted in the period of change and recorded on the statements of operations and the remaining unrecognized stock-based compensation is recorded over the remaining requisite service period. See “Note 10 – Stockholders’ Equity” for additional detail.

Indemnification

The Company is currently evaluatingprovides indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from the methoduse of adoptionthe Company’s software. In accordance with authoritative guidance for accounting for guarantees, the Company evaluates estimated losses for such indemnification. The Company considers such factors as the degree of probability of an unfavorable outcome and the resulting impact onability to make a reasonable estimate of the amount of loss. To date, no such claims have been filed against the Company and no liability has been recorded in the Company’s financial statements.

As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company believes, given the absence of any such payments in the Company’s history, and the estimated low probability of such payments in the future, that the estimated fair value of these indemnification agreements is immaterial. In August 2014,addition, the FASB issued “Accounting Standards Update No. 2014-15,Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable the Company to recover any payments, should they occur.

Contingencies

From time to time, the Company may be involved in legal and administrative proceedings and claims of various types. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Management reviews these estimates in each accounting period as additional information becomes known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements. If a loss is probable but the amount of loss cannot be reasonably estimated, the Company discloses the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made). The Company does not recognize gain contingencies until they are realized. Legal costs incurred in connection with loss contingencies are expensed as incurred. See “Note 9 – Commitments and Contingencies,” Disclosurefor further information.

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Use of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“Update 2014-15”), whichEstimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to assess a company’s abilitymake estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates and assumptions that require management’s most significant, difficult, and subjective judgment include the accounting for the business combination, the recognition of revenue, collectability of accounts receivable, valuation of convertible notes receivable and related warrants, the assessment of recoverability of goodwill and intangible assets, the assessment of useful lives and the recoverability of property and equipment, the valuation and recognition of stock-based compensation expense, loss contingencies, and income taxes. Actual results could differ materially from those estimates.

SCWorx Corp.

Notes to continue as a going concern and to provide related footnote disclosures in certain circumstances. For public entities, Update 2014-15 was effective for annual reporting periods ending after December 15, 2016. The Company adopted this update in 2016 resulting in no impact on its consolidated results of operations, financial position, cash flows and disclosures.Condensed Consolidated Financial Statements

(Unaudited)

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update No. 2016-02,Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 “Leases (Topic 842):” The core principle of Topic 842 is thatrequires a lessee should recognizeto record a right-of-use asset and a corresponding lease liability, initially measured at the assetspresent value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. Disclosures are required to provide the amount, timing and liabilities that ariseuncertainty of cash flows arising from leases. A modified retrospective transition approach is provided for lessees of capital and operating leases whileexisting at, or entered into after, the accounting by a lessorbeginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is largely unchanged from that applied under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of theyears, with early adoption of this new standard.

permitted. In March 2016,July 2018, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation2018-11,Leases (Topic 718):”842) Targeted Improvements (“ASU 2016-09”2018-11”). ASU 2016-09 identifies areas2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. The Company adopted the provisions of ASU 2016-02 and ASU 2018-11 in the quarter beginning January 1, 2019. The adoption resulted in the recognition of additional disclosures and a right of use asset of approximately $53,000 included as a component of prepaid expenses and other assets and a lease liability of approximately $53,000, which is included as a component of accounts payable and accrued liabilities.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation(Topic 810):Targeted Improvements to Related Party Guidance for simplification involving several aspects of accountingVariable Interest Entities (“ASU 2018-17”). ASU 2018-17 provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an optiondetermining whether fees paid to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidancedecision makers and service providers are variable interests. ASU 2018-17 is effective for fiscal yearsannual and interim periods beginning after December 15, 2016 and for interim periods within those fiscal years,2019, with early adoption permitted. The CompanyWe do not expect the standard to have a material impact on our condensed consolidated financial statements.

In February 2018, the FASB issued new guidance (“ASU 2018-02”) to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts & Jobs Act. We have adopted this updatethe new standard effective January 1, 2017.2019, and the standard did not have a material impact on our condensed consolidated financial statements. 

In August 2016,2018, the FASB issued ASU 2016-15, “Statement of Cash Flows2018-13, Fair Value Measurement (Topic 230)820):” Classification of Certain Cash Receipts and Cash Payments. This Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU addresses2018-13”), which modifies the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. Thisdisclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Companyfirst quarter of fiscal 2020, and earlier adoption is currently assessingpermitted. We do not expect the standard to have a material impact of this new guidance.on our consolidated financial statements.

In January 2017, the FASB issued ASUAccounting Standards Update No. 2017-04, “Compensation – Retirement BenefitsIntangibles - Goodwill and Other (Topic 715)350):” to simplify Simplifying the measurement ofTest for Goodwill Impairment (“ASU 2017-04”), which eliminates step two from the goodwill by eliminating the Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requiresUnder ASU 2017-04, an entity to compare the fair value of a reporting unit with its carrying amount andshould recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, though early adoption is permitted. The Company is currently assessing the impact of this new guidance.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805):” This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted for transactions for which the acquisition date occurs before the effective date of the ASU only when the transaction has not been reported in financial statements that have been issued. The Company chose to early adopt this standard effective for the year ended December 31, 2016.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350):” which removes Step 2 of the goodwill impairment test. Step 2 requires the assessment of fair value of individual assets and liabilities of a reporting unit to measure goodwill impairments. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value. ASU 2017-4value up to the amount of goodwill allocated to that reporting unit. This guidance will be effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019,us in the first quarter of 2020 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

In May 2017,June 2018, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718):No. 2018-07, “Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting,” scopewhich amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of modification accounting (“ASU 2017-09”), which provides clarity regarding the applicabilityguidance on measuring and classifying nonemployee awards with that of modification accounting in relationawards to share-based payment awards.employees. Under the new guidance, modification accountingthe measurement of nonemployee equity awards is required only iffixed on the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.grant date. The effective date for the standard is for interim periods in fiscal years beginning after December 15, 2017, which for2018, with early adoption permitted, but no earlier than the Company is January 1, 2018. EarlyCompany’s adoption is permitted.date of Topic 606. The new standardguidance is required to be applied prospectively.retrospectively with the cumulative effect recognized at the date of initial application. The Company doeshas adopted this new standard in the first quarter of fiscal 2019 and the adoption of the standard did not expect ASU 2017-09 to have a material impact on its consolidated financial statements.

SCWorx Corp.

Note 3. Property and EquipmentNotes to Condensed Consolidated Financial Statements

Property and equipment, net, consisted of the following:

Depreciation expense for the three and nine months ended September 30, 2017 was $41,111 and $96,810, respectively.

Depreciation expense for the three and nine months ended September 30, 2016 was zero for both periods.(Unaudited)

Note 4. Acquisitions

The Company completed the following acquisitions during the nine months ended September 30, 2017:Business Combinations

SuckerPunchPreliminary purchase accounting

On January 4, 2017,February 1, 2019, the Company acquired the stockCompany’s shareholders exchanged all of Roundtable Creative Inc., a Virginia corporation d/b/a SuckerPunch Entertainment, a leading fighter management and marketing company,its outstanding shares in exchange 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 307,4875,263,158 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 warrantstock. Due to acquire 93,583 shares of the Company’s common stock.shareholders acquiring a controlling interest in Alliance after acquisition, the transaction was treated as a reverse merger for accounting purposes, with SCWorx being the reporting company. In accordance with purchase accounting rules under ASC 805, the purchase consideration was $11,865,306.

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 $84,000The acquisition 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 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.

All acquisitions have been accounted for as business acquisitions, under the acquisition method of accounting. The assets acquired, liabilities assumed and preliminary purchase allocation, which is based on estimates and valuations of management, is as follows:

The allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition date fair values are considered preliminary and may change within the permissible measurement period, not to exceed one year.

SCWorx Corp.

Notes to Condensed Consolidated Financial Statements

Preliminary Purchase Allocation – SuckerPunch(Unaudited)

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

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:

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.

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:

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.

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:

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.

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:

Preliminary 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.

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 preliminary allocation of the purchase price for the business of Victory to identifiable assets, liabilities, and preliminary pro forma intangible assets and goodwill:

Final Purchase Allocation - Initial Business Units

The Company completed the first tranche of its IPO on September 30, 2016, and closed the acquisitions of the Initial Business Units and the Acquired Assets. The transactions were accounted for as business combinations and the results of operations of the Initial Business Units have been included in the Alliance MMA results since the date of acquisition.

The following table is a reconciliation of the preliminary purchase price allocation at September 30, 2016 to the final purchase price allocation based on the final fair value of the acquired assets and assumed liabilities at the acquisition date:

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 September 30, 2017.

The Company allocated $3,575,000 to intangible assets as follows:

In conjunction with the final purchase price allocation, the Company recognized a cumulative measurement period adjustment benefit of approximately $(551,687) related to the adjustment to intangible assets. This benefit is a reduction to amortization expense which is included within General and Administrative expense of the Statement of Operations for the three and nine months ended September 30, 2017.

Goodwill and Identifiable Intangible Assets

Goodwill

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

Intangible Assets

Identified intangible assets consist of the following: