UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-37899
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
47-5412331
(I.R.S. Employer
Identification No.)
590 Madison Avenue, 21st Floor
New York, New York 10022
(212) 739-7825
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.001 per share
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 preceding 12
months (or for such shorter period that the registrant was required to file such reports), 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 every Interactive Data File required to be submitted 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 such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Non-accelerated filer x
Accelerated filer ¨
Smaller reporting company x
Emerging growth company x
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 Securities Exchange Act). Yes ¨ No x
As of June 30, 2018, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $4.9 million, based on the last
reported trading price of the Common Stock on that date, as reported on the Nasdaq Capital Market.
The number of shares outstanding of the registrant’s common stock as of March 29, 2019 was 6,563,195.
SCWORX CORP.
(f/k/a ALLIANCE MMA, INC.)
ANNUAL
REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Index to Consolidated Financial Statements
Index to Exhibits
PART IV
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EX–1
Cautionary Statement Regarding Forward-Looking Statements
Certain statements that we make from time to time, including statements contained in this Annual Report on Form 10-K constitute “forward-looking statements” within the
meaning Private Securities Litigation Reform Act of 1995, and of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Annual Report on Form 10-K are forward-
looking statements. These statements, among other things, relate to our business strategy, goals and expectations concerning our services, 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 presentation.
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 Annual Report on Form 10-K 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 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” and elsewhere in this
Annual Report on Form 10-K. 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:
·
·
integrate and optimize the results from the acquisition of SCWorx Corp; and
grow the revenues and contain the costs related to our recently acquired SCWorx business and existing CageTix ticketing business.
Although we believe that the expectations reflected in the forward-looking statements contained in this Annual Report on Form 10-K 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 Annual
Report on Form 10-K 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 Annual Report on Form 10-K.
You should read this Annual Report on Form 10-K 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 “Alliance,” “Alliance MMA,” “we,” “us,” “our” or the “Company” mean Alliance MMA, Inc., a Delaware corporation n/k/a SCWorx Corp., and where
appropriate, its wholly owned subsidiaries.
3
PART I
Item 1. Business
Corporate Information
We were incorporated in Delaware on February 15, 2015 under the name “Alliance MMA, Inc.”
On February 1, 2019, the Company acquired SCWorx Corp. in a stock for stock exchange transaction and changed its name to SCWorx Corp. Effective February 4, 2019, the
Company changed the trading symbol for its common stock listed on the Nasdaq Capital Market to “WORX.”
Our principal executive offices are located at 590 Madison Avenue, 21st Floor, New York, New York, 10022. Our telephone number is (212) 739-7825.
In this Annual Report, the terms “Alliance,” “Alliance MMA,” the “Company,” “we,” “us” and “our” refer to Alliance MMA, Inc. (n/k/a SCWorx Corp.). Unless specified
otherwise, the historical financial results in this Annual Report are those of the Company and its subsidiaries on a consolidated basis.
Our Business
Alliance MMA began its operations as a sports media company operating a regional mixed martial arts (“MMA”) promotion business under the Alliance MMA name as well as
under the trade names of the regional promoters we acquired. The fighters who participated in our MMA promotions were provided the opportunity to develop and showcase
their talents for advancement to the next level of professional MMA competition. On May 25, 2018, the Company commenced cessation of all the professional MMA
promotion operations and supporting functions and began the plan of disposition. This action included the termination of all promotion and support employees. As of June 30,
2018, all the MMA promotions were either disposed or ceased operations. On September 13, 2018, the Company commenced cessation of the sports management operations
and began a plan of disposition. This action included the termination of all sports management employees. As of September 30, 2018, the sports management business unit was
disposed. As of December 31, 2018, the Company has disposed of all MMA promotion businesses and the sports management business and has been focused on the closing of
the SCWorx Corp. (“SCWorx”) acquisition and related financing transactions, and operating its ticketing business. The SCWorx acquisition closed on February 1, 2019 and the
company completed a one-for-nineteen reverse stock split [bracketed amounts represent post-split adjusted shares or per share amounts]. As of the filing date of this 10-K
Annual Report, the Company continues to operate its ticketing business, and is focused on its newly acquired SCWorx business.
4
Our Promotions
The following is a discussion of our former promotion business, all of which had been disposed of as of May 25, 2018, as previously described.
In 2018, our regional promotions held a number of events, some of which were televised on cable and network stations and/or streamed live via the internet. In providing
fighters the opportunity to demonstrate their talents and move toward more lucrative fights, we also stressed the importance of maintaining strong personal values such as
integrity, respect and discipline, as we believe that these attributes to be as important to a fighter’s success as his or her physical talents and skills. Our promotions generated
revenue through ticket and concession sales at live MMA events. In addition, we distributed our original content on television, cable networks, pay-per-view broadcasts and
streaming over the internet. We also received sponsorship fees for live and tape-delayed MMA events.
Our promotions were as follows:
CFFC Promotions (“CFFC”) – based in Atlantic City, New Jersey, CFFC promoted professional MMA events primarily in New Jersey and Pennsylvania.
Hoosier Fight Club (“Hoosier Fight Club” or “HFC”) – based in the Chicago, Illinois metropolitan area, HFC promoted professional MMA events in Indiana.
COmbat GAmes MMA (“COGA”) – based in Kirkland, Washington, COGA promoted professional MMA events primarily in Washington State.
Shogun Fights (“Shogun”) – based in Baltimore, Maryland, Shogun promoted professional MMA events at the Royal Farms Arena in Baltimore.
V3 Fights (“V3”) – based in Memphis, Tennessee, V3 promoted professional MMA events primarily at event centers in Memphis, Tennessee, elsewhere in Tennessee,
Mississippi and Alabama.
Iron Tiger Fight Series (“IT Fight Series” or “ITFS”) – based in Bellefontaine, Ohio, IT Fight Series promoted professional MMA events in various locations throughout Ohio.
Fight Time Promotions (“Fight Time”) – based in Fort Lauderdale, Florida, Fight Time promoted professional MMA events throughout the South Florida Market.
National Fighting Championships (“NFC”) – based in Atlanta, Georgia, NFC promoted professional MMA events throughout Atlanta, Georgia, South Carolina and North
Carolina.
Fight Club Orange County (“FCOC” or “Fight Club OC”) – based in Orange County, California, Fight Club OC promoted professional MMA events throughout Southern
California.
Victory Fighting Championship (“Victory”) – based in Omaha, Nebraska, Victory promoted professional MMA events throughout Nebraska, Kansas, South Dakota and Iowa.
5
Video Production and Distribution
Go Fight Net, Inc. (“GFL”) – As an adjunct to the promotion business, Alliance provided video distribution and media archiving through Alliance Sports Media (“ASM”)
formerly GFL and ceased operations on May 25, 2018.
Sports Management
On January 4, 2017, Alliance MMA acquired the stock of Roundtable Creative, Inc., a Virginia corporation d/b/a SuckerPunch Entertainment, for an aggregate purchase price
of $1,686,347, of which $357,500 was paid in cash and $1,146,927 was paid with the issuance of 307,487 shares of Alliance MMA common stock valued at $3.73 per share,
the fair value of Alliance MMA common stock on January 4, 2017 and $181,920 was paid with the issuance of a warrant to acquire 93,583 shares of the Company’s common
stock.
On September 13, 2018, management and the board of directors extended the exit/disposal plan to the sports management business unit because it did not believe it could
generate positive cash flows. On September 26, 2018 the Company entered an agreement to sell SuckerPunch Entertainment to the former owners. The effective date of the
transaction was July 1, 2018. SuckerPunch – based in Northern Virginia, managed over approximately 150 professional MMA fighters. Since 2007, SuckerPunch has managed
several UFC titleholders including Joanna Jedrzejczyk, Jens Pulver, Carla Esparza and, most recently, Max Holloway.
Ticketing Platform
CageTix – founded in 2009, CageTix focusses its ticket sales service on the MMA industry. CageTix presently services many of the industry’s top U.S. mixed martial arts
events.
As of the filing date of this 10-K Annual Report, the Company continues to operate its ticketing business, but is focused primarily on its newly acquired SCWorx business.
6
Our Business Objectives and Strategies
The Company’s current focus is on integrating and optimizing the acquisition of SCWorx Corp., which was completed February 1, 2019. The Company also continues to
operate its ticketing business.
The CageTix Ticketing Platform
The majority of paid tickets for regional MMA events are sold by fighters appearing on the event fight card. The CageTix platform provides significant benefits to third party
MMA promotions, including the security of credit/debit card sales processing; immediate revenue recognition; real time sales reporting; and sales audit and compliance tracking
for tax and regulatory authorities.
SCWorx Corp.’s Corporate History
On December 31, 2017, SCWorx, LLC acquired its wholly owned subsidiary, Primrose Solutions, LLC, (“Primrose”), a Delaware limited liability company focused on
developing functionality within SCWorx Corp.’s software. The majority of shareholders of Primrose were shareholders of SCWorx Corp. and based upon SAB Topic 5G, the
technology acquired has been accounted for at predecessor cost of $nil. In June 2018, SCWorx, LLC merged with and into SCWorx Acquisition Corp., a Delaware corporation,
as a result of which it became a Delaware corporation. Prior to entering into the Share Exchange Agreement, SCWorx Acquisition Corp. changed its name to SCWorx Corp. and
then changed its name to SCW FL Corp. to allow the Company to change its name to SCWorx Corp. at the closing of the acquisition.
Overview of SCWorx Acquisition and related Financing Transactions
SCWorx Corp. Acquisition
On August 20, 2018, Company entered into a Stock Exchange Agreement, as amended by Amendment No. 1 thereto (the “Share Exchange Agreement” or “SEA”) with
SCWorx Corp., a software as a service (“SaaS”) company servicing the healthcare industry, under which the Company agreed to purchase from the SCWorx Corp. shareholders
all the issued and outstanding capital stock of SCWorx Corp., in exchange for which the Company agreed to issue at the closing:
(i)
(ii)
190,000 Series A Preferred Stock Units, comprised of 190,000 shares of Series A Preferred Stock ($10.00 face value per share, convertible into common stock at a
post-split adjusted price per share of $3.80 (subject to adjustment), and warrants to purchase 250,000 post-split adjusted shares of common stock at a post-split
adjusted exercise price of $5.70 per share), in satisfaction of approximately $1.9 million of SCWorx indebtedness; and
approximately 5,263,158 post-split adjusted shares of the Company’s common stock (each of which had a value of approximately $4.40 per share, based on the last
sale price of the Company’s common stock on February 1, 2019 (the Closing Date).
Consummation of the transactions contemplated by the SEA was subject to satisfaction of a variety of conditions, including approval by the Company and SCWorx Corp.’s
shareholders and the newly combined company meeting the listing qualifications for initial inclusion on the Nasdaq Capital Market.
SCWorx Corp. Financing Transaction
On June 28, 2018, the Company entered into a Securities Purchase Agreement, as amended December 18, 2018 (the “SPA”) with SCWorx Corp. (n/k/a SCW FL Corp.) a big
data software as a service company servicing the healthcare industry (f/k/a SCWorx Acquisition Corp.) (“SCWorx”), under which it agreed to sell up to $1,250,000 in principal
amount of convertible notes and warrants to purchase up to 59,387 post-split adjusted shares of Company common stock. $750,000 in principal amount was under the SPA
convertible into shares of common stock at a post-split conversion price of $7.08 (reduced to $4.09 per share by amendment dated January 25, 2019) and the warrants are
exercisable for shares of Company common stock at a post-split exercise price of $7.08 per share. The remaining $500,000 in principal amount is under the SPA convertible
into shares of common stock at a post-split conversion price of $3.80 and the warrants are exercisable for shares of Company common stock at a post-split exercise price of
$5.70 per share.
7
As of December 31, 2018, pursuant to the SPA, SCWorx had purchased convertible notes of the Company in the aggregate amount of $1,035,000, convertible into 180,970
post-split shares, and warrants to purchase an aggregate 45,243 post-split shares of common stock. These notes bear interest at 10% per annum, mature one year from the date
of issue and are subject to automatic conversion upon consummation of the Company’s acquisition of SCWorx. Since December 31, 2018, SCWorx purchased the remaining
$215,000 in convertible notes bringing the aggregate amount purchased to $1,250,000. This note was amended in January 2019 to reduce the conversion price to $0.215 [$4.09]
per share.
Series A Preferred Stock Financing
The Company has sold an aggregate of $6,150,000 in Series A Preferred Stock Units comprised in the aggregate of 615,000 shares of Preferred Stock (face value $10 per
share), convertible into common stock at a rate of $3.80 per share (on a post-split adjusted basis) (subject to adjustment), and (ii) warrants to purchase up to 809,211 post-split
adjusted shares of common stock, with an exercise price of $5.70 per share (subject to adjustment) (the “Preferred Stock Units”).The sale of the Series A Preferred Stock Units
was deemed a below market issuance (on an as converted basis) of more than 20% of the Company’s issued and outstanding common shares. As such, the conversion of the
Preferred Shares and exercise of the Warrants was subject to shareholder approval, as required by Nasdaq Rule 5635(d), which was obtained January 30, 2019.
In connection with the sale of the Series A Preferred Stock Units, the Company (i) received $5.5 million in cash proceeds and (ii) satisfied approximately $676,000 of
indebtedness, for an aggregate of $6,150,000.
The cash amount raised from the sale of the Series A Preferred Stock Units was required to be kept in a reserve account pending the closing of the Company’s acquisition of
SCWorx, which occurred February 1, 2019. These funds are now available to fund the business of the combined company.
On February 1, 2019, the Company consummated the acquisition of SCWorx as contemplated by the SEA and effected a one-for-nineteen reverse stock split of its common
stock and changed its name to SCWorx Corp. References to SCWorx herein refer to the company acquired by the Company. SCWorx is focused on streamlining the three core
healthcare provider systems; Supply Chain, Financial and Clinical (“EMR”) enabling providers’ enterprise systems to work as one automated and seamless business
management system.
Alliance’s common stock was listed on the Nasdaq Capital Market under the trading symbol “AMMA”. Upon the completion of the acquisition of SCWorx, the Company’s
common stock began being listed on the Nasdaq Capital Market under the trading symbol “WORX” as of February 4, 2019.
Overview of the Company’s Business
As noted above, as of the filing date of this 10-K Annual Report, although the Company continues to operate its ticketing business, it is now focused on its newly acquired
SCWorx business.
SCWorx is a provider of data content and services related to the repair, normalization and interoperability of information for healthcare providers, as well as big data analytics
for the healthcare industry. SCWorx has developed and markets health care information technology solutions and associated services that improve healthcare processes and
information flow within hospitals and other healthcare facilities. SCWorx’s software enables a healthcare provider to simplify 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”). Customers
use our software to achieve multiple operational benefits, such as supply chain cost reductions, decreased accounts receivables aging, accelerated and completed patient billing
in less than 72 hours, contract optimization, increased supply chain management and total cost visibility via dynamic AI connections that automatically structures, repairs,
synchronizes and maintains purchasing (“MMIS”), Clinical (“EMR”) and finance (“CDM”) systems. SCWorx’s customers include some of the most prestigious healthcare
organizations in the United States. SCWorx offers an advanced software solution for the management of health care providers’ foundational business applications, empowering
its customers to significantly reduce costs, drive better clinical outcomes and enhance their revenue. SCWorx supports the interrelationship between the three core healthcare
provider systems: Supply Chain, Financial and Clinical. This solution integrates common keys within distinct and variable databases that allows the repaired foundational data
to move seamlessly from one application to another enabling our Customers to drive supply chain cost reductions, optimize contracts, increase supply chain management
(“SCM”), cost visibility, control rebates and contract administration fees.
8
Currently, the business systems of hospitals are frequently deficient and often unconnected from each other. These deficiencies in part result from the vast amount of
unstructured, manually created and managed data that proliferates within the hospital’s supply chain, clinical and billing systems. SCWorx’s solutions are designed to quickly
and accurately improve the flow of information between the buy-side (supply chain purchasing systems), the consumption-side (clinical documentation systems like the
electronic medical records (“EMR”)) and billing and collection systems (patient billing systems). The currently poor state of interoperability limits the potential value of each
independent system and requires significant expense and huge human resource commitments from senior personnel to stay ahead of problems and complete basic
administrative tasks. SCWorx provides an information service that ultimately leads to safer, more cost effective and financially efficient patient care.
SCWorx has demonstrated that in order for the core hospital systems to function properly there must be a Single Source of Truth (“SSOT”) for all products utilized and
ultimately billed for. The Item Master File (“IMF”), which is a database of all known products used in hospital and health care settings, must be accurate at all times and
expanded upon to hold both clinical and financial attributes. An accurate and expanded Item Master File supports interoperability between the supply chain, clinical and
financial systems by delivering, on demand, reports detailing the purchasing, utilization and revenue associated with each and every item used, allowing hospitals to better
manage their business. The Single Source of Truth establishes a common vernacular and syntax, while assigning a consistent meaning across the healthcare providers core
systems and accurately migrating data from one application to another and removing disconnects between critical business systems.
SCWorx’s software solutions are delivered to clients within a fixed term period, where such software is hosted in SCWorx’s data center and accessed by the client through a
secure connection in a software as a service (“SaaS”) delivery method.
SCWorx sells its solutions and services in the United States to hospitals and health systems through its distribution and reseller partnerships.
SCWorx’s Software Solutions/Services
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.
•
Virtualized Item Master File repair, expansion and automation — The process begins with data normalization — data is put into a simplified and normalized structure
and location for use throughout the enterprise. The SCWorx software normalizes, automates and builds interoperability via advanced attribution, vendor and contract
mapping, product categorization, repairing the unit of measure and establishing revenue codes and flags. SCWorx improves the healthcare providers’ business processes
through the establishment of a clean and normalized Item Master File that improves efficiencies, eliminates cumbersome and error-prone manual processes, provides an
integrated cloud-based suite of services that enhances the productivity of operating room staff, supply chain margins and billing revenue through the seamless sharing
and accuracy of critical business data.
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•
•
•
•
•
•
Electronic Medical Record Management — The Electronic Medical Record (EMR) module integrates the advanced data attributes created by SCWorx in the Item
Master to the EMR. The EMR serves as the database that hospitals use to document all clinical procedures in terms of the products used and the costs that should be
charged. What makes this module special is that prior to its creation there was no mechanism that tied product purchases to actual utilization. Hospitals, being mass
consumption businesses, had no way to identify excess ordering that always accompanies mass consumption organizations. In addition, the automation and consistency
of delivered attributes dramatically reduces the administrative burden as today these additional attributes are being created by expensive clinical resources manually —
over and over again by each hospital. The SCWorx EMR management system creates one vernacular for each hospital so they see the data in a manner that suits them —
and then creates a universal vernacular so they can see their performance against other like institutions.
Charge Description Master Management — The Charge Description Master (CDM) Management module assists healthcare providers by integrating the CDM data into
the workflow of the hospitals purchasing systems so that the latest costs can be automatically updated against the hospitals charging systems. The CDM data provided
SCWorx is made more accurate and the resulting data is integrated to the Item Master for real-time delivery to the EMR — this data is the last remaining piece of
information that is consumed by the EMR and passed ultimately to the patient billing systems. SCWorx provides real-time integration, automation and management of
Item Master File, Clinical Information Systems and the Charge Description Master.
Contract Management — SCWorx’s Contract Management Module assists healthcare providers to establish an efficient contract management system and to provide first
class care to patients, while reducing operating costs, assuring adherence to compliance requirements, and mitigating risk. By linking the Item Master File to the
healthcare providers contract management system and procedures, SCWorx simplifies the way contracts are managed from start to finish by streamlining the processes
of creating, routing, reviewing and approving contracts. SCWorx delivers a data warehouse platform which integrates item master management, spend analysis, and
contract management. These solutions enable financial staff across the healthcare provider to drill down quickly and deeply into actionable and real-time financial data
and key performance indicators to improve revenue realization and staff efficiency. This suite of solutions includes the ability to automatically push price changes to a
contract, compliance for standard and non-standard products, contract compliance and optimization reporting, reliable cost data for current and alternate products, cost
performance metrics, matching purchase order price to contract and contract repository.
Request For Proposal (“RFP”) Automation — With the reality of shrinking operating margins, increasing operating expenses and decreasing insurance reimbursements,
hospitals must evaluate all major expenditures. In addition, requirements for provable quality of service supported by trackable metrics now frequently necessitate the
search for better options available in the marketplace. Since hospital-based provider subsidies are often a major expense item and since there are often perceived
opportunities for quality improvement, it is a reasonable practice for hospital leadership to carefully evaluate all of their current hospital-based services and associated
financial support before each contract renegotiation. The proliferation of large regional and national providers, with their ability to derive benefits from economies of
scale, have made RFPs much more of a competitive process. Hospital administrators, however, often rely on poor or conflicting data when creating an RFP. Through the
integration and utilization of the SSOT SCWorx automates the RFP process and makes it more accurate. SCWorx automates the core sourcing processes with the
intention to accelerate cycle times, surveys and confirms business preferred processes, designs and builds a flow chart for the current and desired workflows, cross
references bid analysis, implements bid scoring, customizes software to support automation and customizes the report writer and output documents.
Integration of Acquired Businesses — The agnostic design of the SCWorx solution enables rapid deployment of a virtual Item Master File to quickly and easily allow
combining healthcare providers to share information and achieve cost synergies and interoperability without large and cumbersome upgrades or implementations. During
the consolidation of healthcare providers, SCWorx cleans the data and makes the data available to the disparate systems. In addition, M&A activity requires in-depth
reporting for comparison of Group Purchasing Organization (“GPO”) contract overlap. When healthcare providers that use different GPOs merge, or are acquired, there
is a lack of information to compare contracts. SCWorx provides information for comparative purposes to solve these issues rapidly.
Rebate Management — Frequently, vendors use rebates and incentives as a key part of their pricing strategy and structure when selling to hospitals. This tactic makes
pricing more attractive to healthcare providers. When tracked through Accounts Payable, and issued correctly, rebates can help healthcare organization save money. At
any large healthcare provider, vendor rebates can be difficult to manage since they require a multi-step process to track dollars earned, credits issued, and monies paid.
Rebates frequently cause tracking challenges for Accounts Payable departments. Inconsistent tracking is the primary problem for loss of savings with vendor rebate
programs. SCWorx’s Rebate Management Module enables healthcare providers to correctly calculate and track rebates provided by healthcare provider vendors.
Purchasing or Contracting departments monitor rebates by creating and maintaining a Rebates Master List which is provided to the Accounts Payable department. To
assist in this cumbersome process, SCWorx provides information from the SSOT, such as historical data, frequent updates, advanced administrative fee reporting,
purchase rebate tracking, early payment/discount management and Vendor Master Data alignment.
10
•
•
Big Data Analytics Model — SCWorx provides an in-depth, easy-to-use web portal for display, reporting and analysis of the information contained within the SCWorx
data warehouse. SCWorx’s analytics solution enables healthcare providers to view benchmarking information, quickly add new items to the SSOT and identify cost
savings through this real-time and on-demand solution. In addition to simplifying the item add process, SCWorx provides peer comparison reporting against similar
healthcare providers and a list of informative reports for business measurement, such as spend trend analysis, contract gap analysis, market price comparison, etc. The
SCWorx product line is a simplified user experience and visual display for the hospital employee which does not require access to the SCWorx application.
Data Integration and Warehousing — Healthcare providers maintain a significant amount of data. In many cases the data is not useful for analytics since the data is held
within an individual “silo.” SCWorx establishes an expandable, data warehouse of items that have been normalized, repaired and enriched as the SSOT for useful
benchmarking, interoperability and analytics. SCWorx’s data warehouse allows healthcare providers to effectively use the data contained in their environment and
efficiently establish the supply chain as a leading driver of revenue cycle management. The data warehouse is updated as frequently as every five minutes without
intervention.
Clients and Strategic Partners
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 and the continued focus is to assist healthcare providers with issues they have pertaining to data interoperability. SCWorx
provides these solutions through a combination of direct sales and relationships with strategic partners.
Our major clients include the following hospitals and health care providers: CAPTIS, Vanderbilt University Medical Center, Mercy Health, Providence Health & Services,
University of Chicago Medical Center, and the University of Vermont Medical Center, among others.
Competition
SCWorx competes against a variety of vendors and smaller companies which provide solutions in the specific markets we address. Our principal competitors include:
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purchasing departments that have limited budgets and may be attempting to manually repair the item master file;
large companies with a long list of products and services and small companies which may provide item master normalization and data cleanse services; and
software companies or service providers, as well as small, specialized vendors, that provide complementary or competitive solutions in benchmarking or data
analytics and data warehousing that may compete with our offerings.
Some of our actual and perceived competitors have advantages over us, such as longer operating histories, greater financial, technical, marketing or other resources, stronger
brand and business user recognition, larger intellectual property portfolios, broader distribution and presence, and competitive pricing. In addition, our industry is evolving
rapidly and is becoming increasingly competitive.
Barriers to entry to this market include technological and application sophistication, the ability to offer a proven product, creating and utilizing a well-established client base and
distribution channels, brand recognition, the ability to provide agnostic interoperability and to operate on a variety of MMIS, EMR and financial platforms, the ability to
integrate with pre-existing systems and capital for sustained development and marketing activities.
SCWorx believes that these obstacles taken together represent a moderate to high-level barrier to entry. The principal competitive factors in our markets are product features,
functionality and support, product depth and breadth (number of items in the central data warehouse), flexibility, ease of deployment and use, total cost of ownership and time to
value. We believe that we generally compete favorably on the basis of these factors. For example, besides our agnostic interoperability, additional key strengths include the
SCWorx data warehouse, which exceeds 12 million items, SCWorx Big Data analytics and benchmarking.
Contracts, License and Service Fees
SCWorx enters into agreements with its clients that specify the scope of the solution to be installed and/or services to be provided by SCWorx, as well as the agreed-upon
aggregate price, applicable duration and the timetable for the associated licenses and services.
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For clients purchasing software to be installed locally or provided on a SaaS model, these are multi-element arrangements that include a term license granting the right to access
the applicable software functionality (whether installed locally at the client site or the right to use the Company’s solutions as a part of SaaS services), terms regarding
maintenance and support services, terms for any third-party components such as infrastructure and software, and professional services for implementation, integration, process
engineering, optimization and training, as well as fees and payment terms for each of the foregoing. If the client purchases solutions on a long-term license model, the client
may be billed the license fee up front or on a monthly or quarterly basis. Maintenance and support are provided on a term basis for separate fees, with an initial term of typically
three to five years. The license, maintenance and support fee is charged annually in advance, commencing either upon contract execution or deployment of the solution in live
production. If the client purchases solutions on a term-based model, the client is billed periodically a combined access fee for a specified term, typically three to five years in
length.
SCWorx also generally provides software and SaaS clients professional services for implementation, integration, process engineering, and optimization and training. These
services and the associated fees are separate from the license, maintenance and access fees. Professional services are provided on either a fixed-fee or hourly arrangements
billable to clients based on agreed-to payment milestones (fixed fee) or monthly payment structure on hours incurred (hourly). These services can either be included at the time
the related SaaS solution is licensed as part of the initial purchase agreement or added on afterward as an addendum to the existing agreement for services required after the
initial implementation.
For one-time data normalization services clients, these normalization services are provided either through a stand-alone services agreement or services addendum to an existing
master agreement with the client. These normalization services are available as either a one-time service or recurring monthly, quarterly or annual review structure. These
services are typically provided on a per item basis. Payment typically occurs upon completion of the applicable normalization project. The commencement of revenue
recognition varies depending on the size and complexity of the system and/or services involved, the implementation or performance schedule requested by the client and usage
by clients of SaaS for software-based components. SCWorx’s agreements are generally non-cancelable but provide that the client may terminate its agreement upon a material
breach by SCWorx and/or or may delay certain aspects of the installation or associated payments in such events. SCWorx does allow for termination for convenience in certain
situations. SCWorx also includes trial or evaluation periods for certain clients, especially for new or modified solutions. Therefore, it is difficult for SCWorx to accurately
predict the revenue it expects to achieve in any particular period, and a termination or installation delay of one or more phases of an agreement, or the failure of SCWorx to
procure additional agreements, could have a material adverse effect on SCWorx’s business, financial condition, and results of operations. Historically, SCWorx has not
experienced a material amount of contract cancellations; however, SCWorx sometimes experiences delays during contract implementation and SCWorx accounts for them
accordingly.
Third Party License Fees
SCWorx incorporates software licensed from various third-party vendors into its proprietary software. Stand-alone third-party software is also required to operate certain of
SCWorx’s proprietary software and/or SaaS services. SCWorx licenses these software products and pays the required license fees when such software is delivered to clients.
CageTix Ticketing Platform
Currently, the majority of paid tickets for regional MMA events is sold by the fighters appearing on the event fight card. Referred to as “fighter consigned” tickets, sales are
generally made in face-to-face cash transactions. Our CageTix event ticketing platform allows regional promoters to control the ticketing sales chain. The CageTix platform can
provide significant benefits to regional promotions, including the security of credit/debit card sales processing, immediate revenue recognition, and real time sales reporting.
Property
The Company does not own any real property. The principal executive offices are located at an office complex in New York, New York, consisting of shared office space that
we are leasing. The lease had an original one-year term that commenced on December 1, 2015, which was renewed until November 30, 2018 and now is under a month-to-
month lease agreement. The lease allows for the limited use of private offices, conference rooms, mail handling, videoconferencing, and certain other business services.
In conjunction with the acquisition of SCWorx Corp on February 1, 2019, the Company assumed a lease for office space in Greenwich, Connecticut. The lease expires in March
2020.
Government Regulation
The Company believes that governmental regulation is not material to its ticketing business or SCWorx’s business operations. Our MMA events were regulated at the state
level by the athletic commission in each state where our promotions are conducted. The commissions are concerned primarily with the introduction and enforcement of safety
rules and oversee MMA in much the same way as they do for boxing events.
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Intellectual Property
We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary
technology by entering into confidentiality agreements, invention assignment agreements and work for hire agreements with our employees and contractors, and confidentiality
agreements with third parties. We further control the use of our proprietary technology and intellectual property through provisions in our websites’ terms of use.
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the
United States or other countries in which we seek protection of our marks or our copyrighted works. Also, the efforts we have taken to protect our proprietary rights may not be
sufficient or effective. Any significant impairment of our intellectual property rights may harm our business or our ability to compete.
Seasonality
We don’t believe that SCWorx’s revenues are impacted by seasonality.
Our MMA business has historically experienced a negative seasonal impact on revenues during the months of June, July and August when attendance is lower at scheduled
events than during the balance of the year. As a result, we generally scheduled fewer events during this period, which resulted in less revenue during these periods compared to
other periods during the year.
Employees
As of December 31, 2018, we had 2 employees. As of the closing of the acquisition on February 1, 2019, the Company had 4 employees, of whom 2 are in management and
finance and 2 are in operations. We mainly utilize independent contractors for maintenance of our database and customer software installation.
Facilities
The Company does not own any real property. The principal executive offices are located at an office complex in New York, New York, consisting of shared office space that
we are leasing. The lease had an original one-year term that commenced on December 1, 2015, which was renewed until November 30, 2018 and now is under a month-to-
month lease agreement. The lease allows for the limited use of private offices, conference rooms, mail handling, videoconferencing, and certain other business services.
In November 2016, the Company entered a sublease agreement for office and video production space in Cherry Hill, New Jersey. The lease expires on June 30, 2019. In June
2018, the Company abandoned the Cherry Hill space and in January 2019 negotiated a settlement to exit the sublease.
With the acquisition of Fight Club OC, the Company assumed a lease for office space in Orange County, California. The lease expired in September 2018 and was included in
the sale of Fight Club OC.
Legal Proceedings
In conducting our business, we may become involved in legal proceedings. We will accrue a liability for such matters when it is probable that a liability has been incurred and
the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range
is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for
example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
In April and May 2017, two purported securities class action complaints-Shapiro v. Alliance MMA, Inc., No. 1:17-cv-2583 (D.N.J.), and Shulman v. Alliance MMA, Inc., No.
1:17-cv-3282 (S.D.N.Y.)-were filed against the Company and certain of its officers in the United States District Court for the District of New Jersey and the United States
District Court for the Southern District of New York, respectively. The complaints alleged that the defendants violated certain provisions of the federal securities laws and
purported to seek damages in an amount to be alleged on behalf of a class of shareholders who purchased the Company’s common stock pursuant or traceable to the Company’s
initial public offering. In July 2017, the plaintiffs in the New York action voluntarily dismissed their claim and, on March 8, 2018, the parties reached a settlement to the New
Jersey action in which the insurance carrier for our directors and officers liability insurance policy has agreed to cover Alliance’s financial obligations under the settlement
arrangement, less a deductible of $250,000.
In October 2017, a shareholder derivative claim based on the same facts that were alleged in the class action complaints was filed against the directors of the Company in the
District Court for the District New Jersey; however, a complaint was not served on the defendants and, on February 2, 2018 the claim was dismissed by the District Court.
In June 2018, the landlord of our Cherry Hill, New Jersey office filed suit against the Company for non-payment of rent. Currently the Company is in negotiations to settle the
remaining payments due under the lease. The Company recorded $167,000 of expense related to the lease within discontinued operations - general and administrative for the
cost of the remaining payments under the lease agreement. This amount is accrued for at December 31, 2018 within the current liabilities - discontinued operations balance. In
January 2019, the Company entered into a settlement agreement with respect to this litigation, and paid the landlord $75,000 and issued warrants to purchase 20,250 shares of
common stock at an exercise price of $3.42 per share.
In June 2018, the Company’s former President, Robert Haydak, filed suit against the Company. The Company and Mr. Haydak resolved the suit effective July 2018 with the
Company agreeing on a cash settlement of $50,000, and delivery of certain MMA promotion fixed assets. The Company has accrued the settlement as of December 31, 2018
which is included within net loss from discontinued operations, net of tax, and current liabilities - discontinued operations balance. In February 2019, the Company paid Mr.
Haydak the $50,000 called for by the settlement agreement and obtained a release of all claims thereunder.
On December 19, 2018, the Company’s former Chief Executive Officer (“CEO”), Robert L. Mazzeo, who resigned on May 25, 2018, served a complaint against the Company
in the United States District Court for the Sothern District of NY. Mazzeo alleges that he (i) was fraudulently induced to become the CEO of the Company and (ii) entered into
an employment contract with the Company and that the Company breached said alleged contract. Mazzeo seeks damages in “excess of $500,000.” The Company believes that
the lawsuit is frivolous and violative of Rule 11 of the Federal Rules of Civil Procedure. The Company filed an answer to the complaint on February 5, 2019, and, in addition to
mounting a vigorous defense, the company has filed a counterclaim against Mazzeo alleging breach of fiduciary duty.
Available Information
Our primary website address is www.scworx.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are filed with the U.S. Securities and Exchange
Commission (SEC). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC.
Such reports and other information filed by us with the SEC are available free of charge on our website at www.scworx.com when such reports become available on the SEC’s
website. The public may read and copy any materials filed by SCWorx Corp. with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington,
DC 20549 on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC at www.sec.gov. The contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these websites are
intended to be inactive textual references only.
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Item 1A. Risk Factors
Certain factors could have a material adverse effect on our business, financial condition, results of operations and prospects. You should consider carefully the risks and
uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related
notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties of which we are unaware, or that we currently believe are
not material, may also become important factors that adversely affect our business, financial condition, results of operations and prospects. If any of the following risks occurs,
our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could
decline, and you could lose part or all of your investment.
We may not be able to maintain sufficient capital to continue as a going concern.
For the year ended December 31, 2018, our revenue was approximately $150,000 and we had a net loss of approximately $14.6 million. For the year ended December 31, 2017,
our revenues were approximately $221,000, and we had a net loss of approximately $12.0 million. At December 31, 2018, we had an accumulated deficit of approximately
$31.3 million. At December 31, 2018, our ability to continue as a going concern was dependent upon completing the acquisition of SCWorx.
As a result of the recently consummated convertible note and Preferred Stock financings, as of December 19, 2018, the Company had approximately $5.4 million of restricted
cash, which under the operative documents was required to be held in reserve pending the closing of the Acquisition. In addition, as of December 31, 2018, SCWorx was
required to provide additional advances of $215,000 under the SPA, as amended. These advances were made in January of 2019.
With the completion of the SCWorx acquisition and related financings, the Company currently has approximately $3.0 million in cash on hand. Although the Company has
historically generated operating losses and negative operating cash flows, with the completion of the SCWorx acquisition, the Company expects that the combined company will
generate operating profits and positive operating cash flows.
The Company believes that these positive operating cash flows, coupled with the cash on hand, are such that, as of the date of this report, the Company has sufficient cash to
support the business for at least the one-year period following the date of this report.
A failure by us to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business and operating results.
Maintaining effective internal control over financial reporting is necessary for us to produce accurate and complete financial reports and to help prevent financial fraud. In
addition, such control is required in order to maintain the listing of our common stock on the Nasdaq Capital Market. While we have undertaken remedial steps to improve our
financial reporting process, including the implementation of a firm-wide accounting information system that collects, stores and processes financial and accounting data on a
consolidated basis for use in meeting our reporting obligations, there are no assurances that our internal control over financial reporting has been effective at any time since
then. For the year ended December 31, 2018, the Company did not have effective controls over financial reporting. Our management has identified material weakness in our
internal controls related to deficiency in the design of internal controls and segregation of duties.
If we are unable to maintain adequate internal controls or fail to correct material weaknesses in such controls noted by our management or our independent registered public
accounting firm, our business and operating results could be adversely affected, we could again fail to meet our obligations to report our operating results accurately and
completely and our continued listing on the Nasdaq Capital Market could be jeopardized.
Complying with the laws and regulations affecting public companies will increase our costs and the demands on management and could harm our operating results.
As a public company and particularly after we cease to be an “emerging growth company,” we incur significant legal, accounting, and other expenses. In addition, the Sarbanes-
Oxley Act and rules subsequently implemented by the SEC and the Nasdaq Capital Market impose various requirements on public companies, including requiring changes in
corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations
have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time-
consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may
be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it
more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or as executive officers.
If we do not manage our growth effectively, our revenue, business and operating results may be harmed.
Our expansion strategy includes the possible acquisitions of other SaaS companies. We may not be able to identify, secure and manage future acquisitions successfully. The
acquisition of SCWorx and any future businesses may require a greater than anticipated investment of operational and financial resources as we seek to institute uniform
standards and controls across acquired businesses. Acquisitions may also result in the diversion of management and resources, increases in administrative costs, including those
relating to the assimilation of new employees, and costs associated with any financings undertaken in connection with such acquisitions. We cannot assure you that any
acquisition we undertake, including those we have already made, will be successful. Future growth will also place additional demands on our management, sales, and marketing
resources, and may require us to hire and train additional employees. We will need to expand and upgrade our systems and infrastructure to accommodate our growth, and we
may not have the resources to do so in the time frames required. The failure to manage our growth effectively will materially and adversely affect our business, financial
condition and results of operations.
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We may be unable to implement our strategy of acquiring additional companies and such acquisitions may subject us to additional unknown risks.
We may make future acquisitions of SaaS companies in markets that we do not serve now. We may not be able to reach agreements with such companies on favorable terms or
at all. In completing acquisitions, we rely upon the representations and warranties and indemnities made by the sellers with respect to each acquisition as well as our own due
diligence investigation. We cannot assure you that such representations and warranties will be true and correct or that our due diligence will uncover all materially adverse facts
relating to the operations and financial condition of the acquired companies or their businesses. To the extent that we are required to pay for undisclosed obligations of an
acquired company, or if material misrepresentations exist, we may not realize the expected economic benefit from such acquisition and our ability to seek legal recourse from
the seller may be limited.
The value of our goodwill and other intangible assets declined in 2018.
As of December 31, 2018, there was no goodwill or other intangible assets. In 2018, we recorded intangible assets impairment charges of approximately $231,000. The
impairment was identified as part of management’s review of impairment indicators during the second quarter. Accordingly, it was determined the recoverable value of the
promotion segment was less than the carrying value and therefore, an impairment loss was recorded. We had recorded goodwill in connection with the acquisitions we have
made. We expect to record goodwill for future acquisitions. Our other net intangible assets had included venue relationships, ticketing software, trademarks and brands, fighter
contracts, promoter relationships and sponsor relationships, at cost less accumulated amortization and impairment, and we amortized such assets using a method reflecting the
period(s) in which the economic benefit of the asset is utilized, which we estimated to be three to ten years.
We evaluate goodwill at least annually, and will do so more frequently if events or circumstances indicate that impairment may have occurred. Many of the assumptions and
estimates that we make in order to estimate the fair value of our intangible assets directly impact the results of impairment testing, including an estimate of future expected
revenues, earnings and cash flows, and the discount rates applied to expected cash flows. We are able to influence the outcome and ultimate results based on the assumptions and
estimates we choose for testing. To avoid undue influence, we have set criteria that are followed in making assumptions and estimates. The determination of whether goodwill or
acquired intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of our
reporting unit. Changes in our strategy or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets.
Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of indebtedness and increased amortization expense.
Future acquisitions are likely to result in issuances of equity securities, which will be dilutive to the equity interests of existing stockholders, and may involve the incurrence of
debt, which will require us to maintain cash flows sufficient to make payments of principal and interest, the assumption of known and unknown liabilities, and the amortization
of expenses related to intangible assets, all of which could have an adverse effect on our business, financial condition and results of operations. For example, the acquisition of
SCWorx resulted in a change of control of the Company involving the issuance of approximately 5.3 million post-split adjusted shares of common stock and 190,000 shares of
Series A Preferred Stock, convertible into 500,000 post-split adjusted shares of common stock (subject to adjustment), and the issuance of warrants to purchase an additional
250,000 post-split adjusted shares of common stock, at an exercise price of $5.70 per share.
We may become involved in litigation which could harm the value of our business.
Because of the nature of our business and the exit from lines of business, there is a risk of litigation. Any litigation could cause us to incur substantial expenses whether or not
we prevail, which would add to our costs and affect the capital available for our operations. For example, we were recently sued by our former CEO.
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Economic uncertainty impacts our business and financial results and a renewed recession could materially affect us in the future.
Periods of economic slowdown or recession could lead to a reduction in demand for our software and services, which in turn could reduce our revenues and results of operations
and adversely affect our financial position. Our business will be dependent upon business discretionary spending and therefore is affected by business confidence as well as the
future performance of the United States and global economies. As a result, our results of operations are susceptible to economic slowdowns and recessions.
We depend on the services of key executives, and the loss of these executives could materially harm our business and our strategic direction if we were unable to replace
them with executives of equal experience and capabilities.
Our future success significantly depends on the continued service and performance of our key management personnel, especially our new CEO and SCWorx founder, Marc
Schessel. We cannot prevent members of senior management from terminating their employment with us even if we have an employment agreement with them. Losing the
services of members of senior management could materially harm our business until a suitable replacement is found, and such replacement may not have equal experience and
capabilities. We have not purchased life insurance covering any members of our senior management.
The markets in which we operate are highly competitive, rapidly changing and increasingly fragmented, and we may not be able to compete effectively, especially against
competitors with greater financial resources or marketplace presence.
We face competition from other SaaS companies. Many of the companies with which we will compete have greater financial and technical resources than are available to us.
Our failure to compete effectively could result in a significant loss of customers, which could adversely affect our operating results.
Our limited operating history makes forecasting our revenues and expenses difficult.
Revenues and operating results are difficult to forecast accurately because of our limited operating history as a combined business, which commenced in February of 2019, and
because SCWorx’s results generally depend on our ability to secure term service/license agreements, which are subject to varying degrees of uncertainty. As a result, we may be
unable to adjust our spending appropriately to compensate for any unexpected revenue shortfall, which may result in substantial losses and a lower market price for our common
stock.
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We may need additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on reasonable terms
when required, or at all.
In order for us to grow and execute our business plan successfully, we may require additional financing which may not be available on acceptable terms or at all. If such
financing is available, it may be dilutive to the equity interests of existing stockholders. Failure to obtain financing will have a material adverse effect on our financial position.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the operation or growth of our
business could be significantly impaired and our operating results may be harmed.
If we fail to meet the continued listing standards and corporate governance requirements for Nasdaq Capital Market companies, we may be subject to de-listing.
Our common stock is currently listed on the Nasdaq Capital Market. In order to maintain this listing, we are required to comply with various continued listing standards,
including corporate governance requirements, set forth in the Nasdaq Listing Rules. These standards and requirements include, but are not limited to, maintaining a minimum
bid price for our common stock, as well as having a majority of our Board members qualify as independent. If we fail to meet any one of these requirements for an extended
period of time, we will be subject to possible de-listing.
Our common stock may be affected by limited trading volume and price fluctuations, which could adversely impact the value of our common stock and our ability to grow
our business.
There has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our
common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common
stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy
or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to enter the market
periodically in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market
for our common stock will be stable or that our share price will appreciate over time.
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Our stock price may be volatile .
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control,
including the following:
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our ability to obtain working capital financing;
additions or departures of key personnel;
sales of our common stock;
our ability to execute our business plan;
operating results that fall below expectations;
regulatory developments; and
economic and other external factors.
In addition, the securities markets from time to time experience significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
The periodic availability of shares for sale upon the expiration of any statutory holding period or lockup agreements, could create a circumstance commonly referred to as an
“overhang”, in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also
could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable
or appropriate. We are required under the Series A Preferred Stock documents to register under the Securities Act of 1933 the shares of common stock underlying the preferred
stock and related warrants. Once this registration statement goes effective, a substantial number of additional shares of common stock will likely become freely tradable which
could adversely affect the trading price of our common stock.
We may be unable to establish, protect or enforce our intellectual property rights adequately.
Our success will depend in part on our ability to establish, protect and enforce our intellectual property and other proprietary rights. Our inability to protect our tradenames,
service marks and other intellectual property rights from infringement, piracy, counterfeiting or other unauthorized use could negatively affect our business. If we fail to
establish, protect or enforce our intellectual property rights, we may lose an important advantage in the market in which we compete. Our intellectual property rights may not be
sufficient to help us maintain our position in the market and our competitive advantages. Monitoring unauthorized uses of and enforcing our intellectual property rights can be
difficult and costly. Legal intellectual property actions are inherently uncertain and may not be successful, and may require a substantial amount of resources and management
attention.
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Changes in laws, regulations and other requirements could adversely affect our business, results of operations or financial condition.
We are subject to the laws, regulations and other requirements of the jurisdictions in which we operate. Changes to these laws could have a material adverse impact on the
revenue, profit or the operation of our business.
Disruptions in our information technology systems or security breaches of confidential customer information or personal employee information could have an adverse
impact on our operations.
Our operations are dependent upon the integrity, security and consistent operation of various information technology systems and data centers that process transactions,
communication systems and various other software applications used throughout our operations. Disruptions in these systems could have an adverse impact on our operations.
We could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to losses due to
disruption in our business operations.
In addition, our information technology systems are subject to the risk of infiltration or data theft. The techniques used to obtain unauthorized access, disable or degrade service,
or sabotage information technology systems change frequently and may be difficult to detect or prevent over long periods of time. Moreover, the hardware, software or
applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our
information systems. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud or deception aimed at our employees, contractors or
temporary staff. In the event that the security of our information systems is compromised, confidential information could be misappropriated and system disruptions could
occur. Any such misappropriation or disruption could cause significant harm to our reputation, lead to a loss of sales or profits or cause us to incur significant costs to reimburse
third parties for damages.
Our current insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by our insurance.
We believe we maintain insurance coverage that is customary for businesses of our size and type; however, we may be unable to insure against certain types of losses or claims,
or the cost of such insurance may be prohibitive. For example, although we carry insurance for breaches of our computer network security, there can be no assurance that such
insurance will cover all potential losses or claims or that the dollar limits of such insurance will be sufficient to provide full coverage against all losses or claims. Uninsured
losses or claims, if they occur, could have a material adverse effect on our financial condition, business and results of operations.
We may be required to pay for the defense of our clients, officers, or directors in accordance with certain indemnification provisions.
The Company provides indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from the use of
the Company’s services. 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 ability to make a reasonable estimate of the amount of loss. To date, no such
claims have been filed against the Company and, as a result, 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 has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and
may enable the Company to recover a portion of any such payments.
19
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company does not own any real property. The principal executive offices are located at an office complex in New York, New York, consisting of shared office space that
we are leasing. The lease had an original one-year term that commenced on December 1, 2015, which was renewed until November 30, 2018 and now is under a month-to-
month lease agreement. The lease allows for the limited use of private offices, conference rooms, mail handling, videoconferencing, and certain other business services.
In November 2016, the Company entered a sublease agreement for office and video production space in Cherry Hill, New Jersey. The lease expires on June 30, 2019. In June
2018, the Company abandoned the Cherry Hill space and in January 2019 negotiated a settlement to exit the sublease. The expected settlement costs were accrued as of
December 31, 2018, and included in current liabilities - discontinued operations.
With the acquisition of Fight Club OC, the Company assumed a lease for office space in Orange County, California. The lease expired in September 2018 and was included in
the sale of Fight Club OC.
We believe that our facilities are adequate for our current needs.
Item 3. Legal Proceedings
In conducting our business, we may become involved in legal proceedings. We will accrue a liability for such matters when it is probable that a liability has been incurred and
the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range
is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for
example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
In April and May 2017, two purported securities class action complaints-Shapiro v. Alliance MMA, Inc., No. 1:17-cv-2583 (D.N.J.), and Shulman v. Alliance MMA, Inc., No.
1:17-cv-3282 (S.D.N.Y.)-were filed against the Company and certain of its officers in the United States District Court for the District of New Jersey and the United States
District Court for the Southern District of New York, respectively. The complaints alleged that the defendants violated certain provisions of the federal securities laws and
purported to seek damages in an amount to be alleged on behalf of a class of shareholders who purchased the Company’s common stock pursuant or traceable to the Company’s
initial public offering. In July 2017, the plaintiffs in the New York action voluntarily dismissed their claim and, on March 8, 2018, the parties reached a settlement to the New
Jersey action in which the insurance carrier for our directors and officers liability insurance policy has agreed to cover Alliance’s financial obligations under the settlement
arrangement, less a deductible of $250,000. The complaint was dismissed in October 2018.
In October 2017, a shareholder derivative claim based on the same facts that were alleged in the class action complaints was filed against the directors of the Company in the
District Court for the District New Jersey; however, a complaint was not served on the defendants and, on February 2, 2018 the claim was dismissed by the District Court.
In June 2018, the landlord of our Cherry Hill, New Jersey office filed suit against the Company for non-payment of rent. The Company has been in negotiations to settle the
remaining payments due under the lease. The Company recorded $167,000 of expense related to the lease within net loss from discontinued operations, net of tax, for the cost of
the remaining payments under the lease agreement. This amount is accrued for at December 31, 2018 within the current liabilities - discontinued operations balance. The
Company settled this litigation in January 2019 by paying $75,000 in cash and issuing warrants to purchase 20,250 common shares at an exercise price of $3.42 per share.
In June 2018, the Company’s former President, Robert Haydak, filed suit against the Company. The Company and Mr. Haydak resolved the suit effective July 2018 with the
Company agreeing on a cash settlement of $50,000, and delivery of certain MMA promotion fixed assets. The Company has accrued the settlement as of December 31, 2018
which is included within net loss from discontinued operations, net of tax, and current liabilities - discontinued operations balance. In February 2019, the company paid Mr.
Haydak $50,000 and obtained a further release of all claims under the settlement agreement effective July 2018.
On December 19, 2018, the Company’s former Chief Executive Officer (“CEO”), Robert L. Mazzeo, who resigned on May 25, 2018, served a complaint against the Company
in the United States District Court for the Southern District of NY. Mazzeo alleges that he (i) was fraudulently induced to become the CEO of the Company and (ii) entered into
an employment contract with the Company and that the Company breached said alleged contract. Mazzeo seeks damages in “excess of $500,000.” The Company believes that
the lawsuit is frivolous and violative of Rule 11 of the Federal Rules of Civil Procedure. The Company filed an answer to the complaint on February 5, 2019, and, in addition to
mounting a vigorous defense, the Company filed a counterclaim against Mazzeo alleging breach of fiduciary duty.
Item 4. Mine Safety Disclosures
Not applicable.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock has been listed on the Nasdaq Capital Market under the symbol “AMMA” since October 6, 2016. Our symbol was changed to “WORX” on February 4,
2019 in connection with the closing of the SCWorx acquisition. The following table sets forth for the indicated periods the high and low closing prices for AMMA’s pre-stock
split adjusted common stock as reported on the NASDAQ Capital Market.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders of Record
2018
2017
High
Low
High
Low
$
$
$
$
1.50
0.62
0.42
0.38
$
$
$
$
0.45 $
0.31 $
0.16 $
0.16 $
3.97 $
2.68 $
2.40 $
2.05 $
2.60
0.89
0.96
1.16
As of March 29, 2019, there were 6,563,195 outstanding shares of common stock held by 102 stockholders of record.
Dividends
We have never declared or paid any cash dividends on our shares of common stock, and we do not expect to pay cash dividends in the foreseeable future. We anticipate that we
will retain any earnings to support operations and to finance the growth and development of our business. Any future determination relating to our dividend policy will be made
at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and
other factors the Board of Directors may deem relevant. Furthermore, our ability to pay dividends is limited by the Delaware General Corporation Law, which provides that a
corporation may pay dividends only out of existing “surplus,” which is defined as the amount by which a corporation’s net assets exceeds its stated capital.
See Note 9 – Stockholder’s Equity in the accompanying consolidated financial statements for a non–cash dividend related to the decrease in the exercise price of certain
warrants.
21
Item 6. Selected Financial Data
The Company is a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this Item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes
included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. In addition to our historical consolidated financial
information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs which involves risk, uncertainty and assumptions. Our
actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed
below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, “Risk Factors.”
Overview
As described elsewhere in this Annual Report on Form 10-K, as of December 31, 2018, the Company had disposed of all its MMA promotion businesses and the sports
management businesses and has been focused on the operations of CageTix and the closing the SCWorx acquisition and related financing transactions. The acquisition of
SCWorx was completed on February 1, 2019. Consequently, the historical discussion contained in our Management’s Discussion and Analysis of Financial Condition and
Results of Operations is focused on the business of the Company prior to the acquisition of SCWorx, while the forward looking discussions are focused primarily on the
business of SCWorx, which is the primary operating business of the Company going forward.
Our Business
Our operations are currently centered on the business of SCWorx, our recently acquired SaaS business. The Company is also maintaining its MMA ticketing platform, CageTix,
which generates revenue from ticket services to third party event promoters.
22
Results of Operations – Alliance MMA
We have had significant events that have occurred in 2018 and 2017 that affect the comparability of our consolidated financial statements. The key events and their financial
impacts were due primarily to the exit / disposal of the following businesses:
•
•
•
•
•
•
•
•
•
•
•
•
•
CFFC
HFC
COGA
Shogun
V3
ITFS
Fight Time
NFC
FCOC
Victory
ASM
GFL
SuckerPunch
The Company is currently focused on its recently acquired SCWorx, SaaS business, and its CageTix business.
Revenues
Our historical revenue has been derived primarily from ticketing services through CageTix.
The following table presents our historical operating activities and discontinued operations results for the years indicated:
Revenue
Gross Margin
Operating expenses:
General and administrative
Impairment – intangible assets
Professional and consulting fees
Total operating expenses
Loss from operations
Interest expense
Gain on fair value of warrants
Loss on fair value of derivatives
Loss from operations before income taxes
Income tax benefit
Net loss from continuing operations
Net loss from discontinued operations, net of tax
Net loss
Year Ended
Year Ended
December 31, 2018 December 31, 2017
$
220,709
220,709
150,089 $
150,089
2,201,412
231,037
1,300,939
3,733,388
(3,583,299)
258,800
(59,000)
4,400
(3,787,499)
-
(3,787,499)
(10,804,747)
(14,592,246) $
2,062,229
-
1,329,539
3,391,768
(3,171,059)
-
-
-
(3,171,059)
-
(3,171,059)
(8,807,504)
(11,978,563)
$
Revenue for the year ended December 31, 2018 was approximately $150,000, compared to approximately $221,000 for the same period in 2017. The decrease in revenue was
primarily related to our limited working capital to support the businesses.
Our future revenues will be derived principally from our new SaaS business, the acquisition of which was consummated on February 1, 2019. As a result, we expect our
revenues to grow substantially in 2019 compared to 2018.
23
Expenses
General and administrative expenses increased approximately $139,000 to $2.2 million for the year ended December 31, 2018, as compared to $2.1 million in the same period
of 2017. Salary and wages decreased $73,000 from the reduction in personnel associated with businesses that were disposed of in 2018. Insurance increased by $216,000 due to
an increase in D&O insurance. Travel decreased by $213,000 due to the cessation of our promotion and athlete management businesses. Other expenses increased by $188,000
due to interest expense. Stock-based compensation increased by $222,000 related to vesting of equity awards. Interest expense increased to $259,000 due primarily to interest on
the SCWorx Convertible Notes and non-cash interest amortization related to the discount associated with derivative liabilities.
Impairment charges decreased approximately $231,000 for the year ended December 31, 2018, compared to a $0 for the same period of 2017, as we impaired remaining
intangible assets for a charge of $231,000.
There was no income tax expense for the years ended December 31, 2018 and 2017.
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 December 31, 2018, the Company completed the accounting for tax effects of the Tax Act under ASC 740. For the year ended December 31, 2017, the Company
recorded an adjustment for the reduction of the Company’s U.S. corporate income tax rate to 21% effective January 1, 2018. No adjustments related to the federal tax rate
reduction were made to the deferred tax liability balance subsequent to December 31, 2017.
Our future expenses will be related principally to our new SaaS business, the acquisition of which was consummated on February 1, 2019. As a result, we expect our expenses
to grow substantially in 2019, compared to 2018, as we ramp up our newly acquired SaaS business. In February 2019, the Company granted an aggregate of 425,000 restricted
stock units, of which an aggregate 325,000 were granted to management and vest quarterly over the next three years, and 100,000 were issued to a consultant and vest quarterly
over one year. The Company will recognize an aggregate $3.2 million of stock based compensation over 36 months from the grant date, $1.5 million of which will be
recognized during the first 12 months, with the remaining $1.7 million to be recognized over the next 24 months. The Company also granted an additional 525,000 RSUs which
are subject to performance vesting, of which an aggregate of 225,000 were issued to our management and 300,000 were issued to a consultant. The Company will recognize
stock based compensation in an amount equal to the product of the number of RSUs vesting and the grant date fair value of $6.47 per share, if and when once it becomes likely
that the performance metrics are to be met. See Note 12 - Subsequent Events in the accompanying consolidated financial statements.
24
Liquidity and Capital Resources
The following discussion of AMMA’s Liquidity and Capital Resources with regard to historical sources and uses of cash is not indicative of the future sources and uses of cash
by the combined Company after giving effect to the acquisition of SCWorx.
Our operations have generated negative cash flows since inception, Consequently, our primary source of cash has been from the issuance of common stock in conjunction with
our Initial Public Offering (“IPO”) completed in October 2016, sales of our common stock and warrants to purchase common stock issued in private placements in July, August
and October 2017 and in a public offering in January 2018, advances in April and May of 2018 under promissory notes with two of our former board members and a
shareholder, and the $1,035,000 of convertible notes financings provided by SCWorx through December 31, 2018.
The Company has signed a number of new customer agreements resulting in approximately $1.9 million of additional revenue anticipated to be recognized in 2019.
SCWorx Convertible Note Financing
On December 18, 2018, the Securities Purchase Agreement with SCWorx dated June 28, 2018 was amended (as amended, the “SPA”) to increase the amount SCWorx could
purchase by $250,000 to up to $1.25 million, of which $750,000 had previously been funded, leaving an additional $500,000 to be funded. The conversion/exercise price of the
additional $500,000 convertible note is $3.80 per share on a post-split adjusted basis.
As of December 31, 2018, pursuant to the SPA, SCWorx had purchased convertible notes in the aggregate amount of $1,035,000, convertible into 180,970 post-split shares
(258,598 shares after giving effect to the January 25, 2019 reduction in conversion price to $4.09 per share), and warrants to purchase an aggregate 45,243 shares of common
stock. These notes bear interest at 10% per annum, mature one year from the date of issue and are subject to automatic conversion upon consummation of the Company’s
acquisition of SCWorx. Since December 31, 2018, SCWorx purchased the remaining $215,000 in convertible notes bringing the aggregate amount purchased to $1,250,000,
reflected in the SPA.
Series A Preferred Stock Unit Financing
On December 18, 2018, the Company closed $5.5 million in aggregate proceeds from the sale of (i) units comprised of 550,000 shares of convertible preferred stock and
warrants to purchase 723,684 post-split shares of common stock (the “Preferred Stock Units”). The face value of the Preferred stock is convertible into shares of common stock
at a conversion price of $3.80 per share on a post-split adjusted basis (subject to adjustment) and the warrant exercise price is $5.70 per share. In addition, on February 1, 2019,
we issued Preferred Stock Units, comprised of approximately 67,500 shares of convertible Preferred Stock and warrants to purchase 88,816 shares of common stock to certain
of our creditors in satisfaction of approximately $676,000 of indebtedness.
The amount of cash raised from sale of Preferred Stock Units was required to be kept in a reserve account pending the closing of the Acquisition. On February 1, 2019, the
closing of the SCWorx acquisition, these funds were released and available to fund the business of the newly combined company.
As a result of the recent convertible notes and Preferred Stock financing, as of the date of this Report, we have approximately $3.0 million in cash on hand.
During the year ended December 31, 2018, our principal uses of cash consisted of paying for operating expenses and outstanding payables.
As disclosed above, in conjunction with the common stock offering completed in January 2018, the Company issued warrants with a provision requiring the Company to pay
the warrant holder the Black-Scholes value of the warrant upon a fundamental transaction. On August 20, 2018, the Company entered into the SEA with SCWorx which upon
closing qualified as a fundamental transaction within meaning of the warrant agreement. For illustration purposes only, given the stock price at announcement of approximately
$4.40, the Black - Scholes value was approximately $2.68 per share based upon today’s volatility and risk-free interest rate. As of the date hereof, there were approximately
56,000 (post-split) warrants outstanding which are subject to this Black - Scholes payout provision.
Consolidated cash flows data:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash and restricted cash
25
Year Ended
2018
2017
$
$
(3,578,445) $
(21,849)
8,988,457
5,388,163 $
(5,828,277)
(1,008,950)
2,312,500
(4,524,727)
The operations of the Company through December 31, 2018 have resulted in losses. Beginning in the first quarter of 2018, the Company began a cost reduction plan resulting in
the termination of employment of a number of executives and other personnel, renegotiating or terminating contracts and similar cost cutting activities. Given the acquisition of
SCWorx, management believes that the Company has increased liquidity and will begin to generate positive operating cash flows during 2019 with the completion of the
SCWorx acquisition.
Operating Activities
Net cash used in operating activities from continuing operations was $5.2 million for the year ended December 31, 2017, mainly related to the net loss of $12.0 million,
discontinued operations loss of $5.6 million, non-cash stock-based compensation of $517,000 related to various equity awards to employees and non-employees, and increase in
accounts payable and accrued liabilities of $670,000.
Net cash used in operating activities from discontinued operations was $671,000 for the year ended December 31, 2017, mainly related to payments in discontinued operations
liabilities.
Net cash used in operating activities from continuing operations was $2.6 million for the year ended December 31, 2018, mainly related to the net loss of $14.6 million,
discontinued operations loss of $10.8 million, increase in prepaid expenses of $200,000, non-cash impairment charge of $231,037 related to acquired intangible assets, non-cash
amortization of $41,000 related to acquired intangible assets, non-cash stock-based compensation of $739,000 related to various equity awards to employees and non-
employees, non-cash payment on legal invoices of $136,500 and an increase in accounts payable of $246,000.
Given the acquisition of SCWorx, management believes that the Company will begin to generate net income and positive operating cash flows during 2019.
Investing Activities
Net cash used in investing activities was $1.0 million for the year ended December 31, 2017, related to the acquisitions of Sucker Punch, Fight Time, NFC, Fight Club OC,
Victory Fighting Championship and Sheffield video library assets totaling $835,000 in the aggregate and capital assets of $165,000.
Net cash used in investing activities was approximately $22,000 for the year ended December 31, 2018.
We expect cash used in investing activities to increase during 2019, compared to 2018, as a result of the acquisition of SCWorx, and development of new SaaS based products.
Financing Activities
Net cash provided by financing activities was $2.3 million for the year ended December 31, 2017, primarily related to the sale of common stock and warrants to purchase
common stock with proceeds of $2.0 million, and $300,000 from borrowings from notes payable.
Cash provided by financing activities was $9.0 million for the year ended December 31, 2018, primarily related to the proceeds from the sale of common stock, warrants to
purchase common stock totaling $2.3 million. In addition, we received proceeds from notes payable, less repayments, of $1.2 million. In addition, $5.5 million of restricted cash
was received in relation to the Series A preferred stock sale in December 2018, that was released to the Company in February of 2019. The Company capitalized $100,000 of
deal related expenses in connection with the Preferred stock offering.
Currently, we do not expect our financing activities to be a significant source of cash in 2019.
26
Contractual Cash Obligations
See Note 8— Commitments and Contingencies in the accompanying Consolidated Financial Statements for additional detail.
Off-Balance Sheet Arrangements
As of December 31, 2018, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements. These
consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States which requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. By their nature,
these estimates and judgments are subject to an inherent degree of uncertainty. We evaluate our estimates based on our historical experience and various other assumptions that
are believed to be reasonable under the circumstances. These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, range of
possible outcomes of acquisition earn-out accruals, the assessment of useful lives and the recoverability of property, plant and equipment, the valuation and recognition of
stock-based compensation expense, recognition and measurement of deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and others. Actual
results could differ from those estimates, and material effects on our consolidated operating results and consolidated financial position may result. See Note 3–Summary of
Significant Accounting Policies in the accompanying Consolidated Financial Statements, for a full description of our accounting policies.
27
Revenue Recognition
Ticket Service Revenue (Current Operations)
The Company acts as a ticket agent for third-party ticket sales and charges a fee per transaction for collecting the cash on ticket sales and remits the remaining net amount to the
third-party promoter upon completion of the event or request from the promoter. The Company’s ticket service fee is recognized on a net basis, when it satisfies the performance
obligation by transferring control of the purchased ticket to a customer.
Promotion Revenue (Discontinued Operations)
The Company recognized revenue, net of sales tax, when it satisfied a performance obligation by transferring control over a product or service to a customer. Revenue from
admission, sponsorship, pay per view (“PPV”), apparel, and concession were recognized at a point in time when an event was exhibited to a customer live or PPV, and when a
customer took possession of apparel or food and beverage offerings. Promotion revenue is a component of discontinued operations.
Fighter Commission Revenue (Discontinued Operations)
The Company recognized revenue when it satisfied a performance obligation by transferring control over a product or service to a customer. The Company recognized
commission revenue upon the completion of a contracted athlete’s performance.
Business Combinations
The Company includes the results of operations of the businesses that it has acquired in its consolidated results as of the respective dates of acquisition.
The Company allocates the fair value of the purchase consideration of its acquisitions 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. The primary items that
generate goodwill include the value of the synergies between the acquired businesses and Alliance as well as the acquired assembled workforce, neither of which qualifies as an
identifiable intangible asset. The fair value of contingent consideration associated with acquisitions is remeasured each reporting period and adjusted accordingly. Acquisition
and integration related costs are recognized separately from the business combination and are expensed as incurred.
Goodwill
Goodwill is recorded 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 of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. The Company first assesses
qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. 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 is less than its carrying amount, then the quantitative goodwill impairment test is
unnecessary. If, based on the qualitative assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the
Company proceeds to perform the quantitative goodwill impairment test. The Company first determines the fair value of a reporting unit using weighted results derived from an
income approach and a market approach. The income approach is estimated through the discounted cash flow method based on assumptions about future conditions such as
future revenue growth rates, new product and technology introductions, gross margins, operating expenses, discount rates, future economic and market conditions, and other
assumptions. The market approach estimates the fair value of the Company’s equity by utilizing the market comparable method which is based on revenue multiples from
comparable companies in similar lines of business. The Company then compares the derived fair value of a reporting unit with its carrying amount. If the carrying value of a
reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting
unit.
28
For the year ended December 31, 2017, the Company recorded a goodwill impairment of $2.4 million within the Company’s discontinued operations in relation to the GFL and
Fight Time reporting units. For the year ended December 31, 2018, the Company Recorded a goodwill impairment of $5.9 million as a component of the Company’s
discontinued operations related to the remaining MMA promotions and Athlete management business. The Company had no goodwill at December 31, 2018.
Purchased Identified Intangible Assets
Identified finite-lived intangible assets consisted of acquired video library intellectual property, venue contracts/relationships, ticketing software, tradenames, fighter contracts,
promoter relationships and sponsor relationships resulting from business combinations. The Company’s identified intangible assets were amortized on a straight-line basis over
their estimated useful lives, ranging from two to ten years. The Company makes judgments about the recoverability of finite-lived intangible assets whenever facts and
circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist,
the Company assesses recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives
against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than
originally estimated, the Company would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. The Company evaluates
the carrying value of indefinite-lived intangible assets on an annual basis, and an impairment charge would be recognized to the extent that the carrying amount of such assets
exceeds their estimated fair value. For further discussion of goodwill and identified intangible assets, see Note 6–Goodwill and Purchased Identified Intangible Assets.
For the year ended December 31, 2018, the Company recorded an intangible assets impairment of approximately $231,000 related to its MMA ticketing service business, and
approximately $182,546 related to the athlete management business recorded as a component of net loss from discontinued operations, net of tax.
For the year ended December 31, 2017, the Company recorded an intangible impairment of $893,000 related to the impairment of all video library assets acquired from GFL,
the promotion businesses, and asset purchases, as well as the venue relationship and trade-name of the Fight Time Promotion. This expense is included as a component of net
loss from discontinued operations, net of tax.
Loss Contingencies
The Company records a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is
reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the notes to the consolidated financial statements. The Company
reviews the developments in our contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related possible losses
disclosed. The Company makes adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of
legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount.
Stock-Based Compensation
The Company accounts for stock-based compensation expense in accordance with the authoritative guidance on share-based payments. The Company early adopted Accounting
Standard Update (“ASU”) No. 2017-11, Earnings per share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). Under
the provisions of the guidance, stock-based compensation expense is measured at the grant date based on the fair value of the option or warrant 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 on share-based payments also requires that the Company measure and recognize stock-based compensation expense upon modification of the term of
the stock award. The stock-based compensation expense for such modification is the sum of any unamortized expense of the award before modification and the modification
expense. The modification expense is the incremental amount of the fair value of the award before the modification and the fair value of the award after the modification,
measured on the date of modification. In the case when the modification results in a longer requisite period than in the original award, the Company has elected to apply the pool
method where the aggregate of the unamortized expense and the modification expense is amortized over the new requisite period on a straight-line basis. In addition, any
forfeiture will be based on the original requisite period prior to the modification.
29
Income Taxes
The Company uses the 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.
A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not
some portion or all of the deferred tax assets will not be realized.
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.
Recent Accounting Pronouncements
See Note 3 — Recently Issued Accounting Pronouncements in the accompanying consolidated financial statements for a full description of recent accounting pronouncements
including the respective expected dates of adoption.
30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements are included in Part IV, Item 15 (a) (1) of this Report.
31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
Management conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2018, the end of the period covered by this Annual Report on Form 10-K, as
required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The Disclosure Controls evaluation was done under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, based on the 2013 framework and criteria established by the Committee of Sponsoring Organizations of the
Treadway Commission. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls
and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, due to deficiencies in the design of internal controls and lack of segregation of duties, our Disclosure Controls were not effective as of December 31, 2018, such
that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding disclosure.
Management Report on Internal Controls over Financial Reporting
Our management has identified material weaknesses in our internal controls related to deficiencies in the design of internal controls and segregation of duties. Management is
planning to meet with the Audit Committee to discuss remediation efforts, which are expected to be resolved during 2019, or until such time as management is able to conclude
that its remediation efforts are designed and operating effectively.
Notwithstanding the foregoing, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements
included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in
conformity with accounting principles generally accepted in the United States.
We may in the future identify other material weaknesses or significant deficiencies in connection with our internal control over financial reporting. Material weaknesses and
significant deficiencies that may be identified in the future will need to be addressed as part of our quarterly and annual evaluations of our internal controls over financial
reporting under Sections 302 and 404 of the Sarbanes-Oxley Act. Any future disclosures of a material weakness, or errors as a result of a material weakness, could result in a
negative reaction in the financial markets and a decrease in the price of our common stock.
Changes in Internal Control over Financial Reporting.
During the quarter ended December 31, 2018, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange
Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
32
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table presents information with respect to our officers, directors and significant employees as of the date of filing of this Report:
Name
Current
Marc S. Schessel
John Price
Ira Ritter
Frank Knuettel II
Charles K. Miller
Robert Christie
Background of officers and directors
Age
56
49
70
52
58
65
Position(s)
Chief Executive Officer and Chairman of the Board of Directors
Chief Financial Officer, Treasurer and Secretary
Director
Director
Director
Director
The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s principal
occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Marc S. Schessel
Mr. Schessel, 56, is SCWorx’s founder and Chairman and Chief Executive Officer. He founded SCWorx’s predecessor (Primrose LLC) in 2012 and has been Chairman and
CEO of SCWorx since then. Commencing his work in Supply Chain during his ten years in the Marine Corps, Marc was awarded the Naval Achievement medal along with the
Naval Commendation medal for services rendered in creating the first automated supply and logistics software (M triple S) which was ultimately put in service at leading
corporations such as Sears and IBM. Since leaving the Marine Corps, Marc has continued his work in refining programmatic solutions for the most complex and critical supply
chains in the country — the healthcare industry. Working in all facets of the Healthcare Supply Chain, Marc spent over ten years as a Vice President of Supply Chain for a large
NYC based Integrated Delivery Network before forming his own consultancy — focused on delivering automated solutions to Providers, B2B e-commerce companies (GHX),
tier one consulting firms, GPO’s, distributors, payors and manufacturers. Marc also served as a consultant to the UN — developing an automated Emergency Medical Response
program that, based on the event, forecasts the items, quantities and logistical delivery networks crucial for responders, allowing countries by region to better plan, stock and
store critical supplies.
John Price
Mr. Price, 49, was President until the closing of the SCWorx acquisition, and remains Chief Financial Officer of the Company. He became President on June 6, 2018 and CFO
in August 2016. Prior to joining the Company in 2016, Mr. Price was Chief Financial Officer of MusclePharm Corporation, a publicly-traded nutritional supplement company.
Prior to joining MusclePharm in 2013, Mr. Price served as vice president of finance — North America at Opera Software, a Norwegian public company focused on digital
advertising. From 2011 to 2013, he served as vice president of finance and corporate controller GCT Semiconductor. From 2004 to 2011, Mr. Price served in various roles at
Tessera Technologies including VP of Finance & Corporate Controller. Prior to Tessera Technologies, Mr. Price served various roles at Ernst &Young LLP, now EY. Mr. Price
served nearly three years in the San Jose, California office and nearly five years in the Pittsburgh, Pennsylvania office of EY. Mr. Price has been a certified public accountant
(currently inactive) since 2000 and attended Pennsylvania State University, where he earned a Bachelor of Science Degree in Accounting.
33
Ira Ritter
Mr. Ritter, 70, has extensive experience creating, building and managing diverse business enterprises. In 2004, Mr. Ritter co-founded Ritter Pharmaceuticals, of which he has
since been Chief Strategic Officer and Chairman of the Board of Directors. The company went public on the Nasdaq in 2015. He served on the Board of Vitavis Laboratories
Inc., a biotechnology firm, from 2014 until it was sold in 2017. In addition, he has provided corporate management, strategic planning and financial consulting for a wide range
of market segments. In the health and beauty sector, Mr. Ritter was President and Vice-Chairman of Quality King Inc, distributor for health care products with $5 billion in
annual revenues (ranked the 18th largest privately held company, Forbes Top 100 List). Simultaneously, he worked as President and Chairman of Rockwood, a business he
developed that produced private label HBA products for major national retailers including GNC and K-Mart. In the entertainment sector he served as Chairman of ON-TV, a
division of Oak Industries (NYSE Company), where he managed the television division initiating exclusive broadcasts of Los Angeles, Chicago, and New York professional
baseball, basketball, and hockey games. During 1980 – 1985, he produced the first televised home shopping program and directed development of the largest “pay-per-view”
channel system for its time. In the finance field, Mr. Ritter served on the board of directors for the Martin Lawrence Art Galleries (NYSE Company). During his 20 years as a
publisher, he produced best-selling monthly national consumer magazines and books. He has a long history of public service that includes appointments by three Governors to
several State of California Commissions, including eight years served as Commissioner on the California Prison Industry Authority. In 1981, Mr. Ritter was honored with the
City of Hope’s Man of the Year award. He serves on the Advisory Board of Pepperdine University's Graziadio School of Business, Department of Social Entrepreneurship.
And, he has been a guest lecturer at USC Marshall Business School.
Frank Knuettel II
Mr. Knuettel, 52, is the Chief Strategy Officer of MJardin Group, Inc., a global Canadian based cannabis management platform with extensive experience in cultivation,
processing, distribution and retail (MJAR). He started at MJardin as CFO, where he managed the public listing on the Canadian Securities Exchange and helped orchestrate the
merger leading to his current position. Prior to joining MJardin, he held numerous CFO positions at public companies, including Aqua Metals, Inc. (AQMS), a
hydrometallurgical lead recycling operation, and Marathon Patent Group, Inc. (MARA), a patent licensing and enforcement business. Prior to joining Marathon, Mr. Knuettel
served as the Chief Financial Officer of IP Commerce, Inc., a cloud-based operator of an electronic payment platform. Additionally, Mr. Knuettel has held numerous board
positions, at both public companies and non-profit institutions. Mr. Knuettel received his BA with honors in Economics from Tufts University and holds an MBA in Finance
and Entrepreneurial Management from The Wharton School at the University of Pennsylvania.
Charles K. Miller
Mr. Miller, 58, joined the Company’s board on October 24, 2018. He has been a member of the board of directors of Intercloud Systems, Inc., a publicly traded IT
infrastructure services company, since November 2012. In addition, he has, since June 2017, acted as an independent business consultant. He was the Chief Financial Officer of
Tekmark Global Solutions, LLC, a provider of information technology, communications and consulting services, from September 1997 until June 2017. Since May 2017, he
has been a director of Notis Global, Inc., a diversified holding company, in the industrial hemp industry, that manufactures, markets and sells hemp derivative products such as
cannabidiol (“CBD”) distillate and isolate. Mr. Miller graduated from Rider University with a Bachelor of Science in Accounting and an MBA. Mr. Miller is a Certified Public
Accountant and boasts more than three decades of experience.
Robert Christie
Mr. Christie, 65, from 2004 through 2014, was the President and CEO of The 3E Company, the leading Global Environmental Compliance Company in the world. With over
7,000 customers, 3E helped companies, throughout the world, manage the ever changing environmental regulations that effected their products and services. 3E utilizes a SaaS
based software and complex regulatory database to service its customers. Since 2015, Mr. Christie has been consulting for various Private Equity firms throughout North
America assisting them in acquiring companies in the Governance, Risk and Compliance space (GRC) as well as the Supply Chain marketplace. In addition, he has since 2010
served as a Trustee at Rider University. He also serves on the Facility, Business Development and Executive Committees at Rider. Since 2008, Mr. Christie has served as a
Director at Alternative Technology, a supplier of distribution systems and technology. Since 2016, he has served on the Board of Directors of Enterknol LLC. Enterknol is a
SaaS based compliance solution within the Energy Sector helping various energy companies buy and sell energy competitively. Mr. Christie also served as a Director at Ithos
LLC from 2016 through July 2018. Ithos is a the leading regulatory and Supply Chain compliance solution within the Global Cosmetic space providing a complex SaaS based
software coupled with regulatory data. While serving as a Director at Ithos, he also served as their Director of Development.
34
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or
persons performing similar functions and also to other employees. Our Code of Business Conduct can be found on the Company’s website at www.scworx.com.
Family Relationships
There are no family relationships between any of our directors, executive officers or significant employees.
Involvement in Certain Legal Proceedings
During the past ten years, none of our officers, directors, significant employees or control persons have been involved in any legal proceedings as described in Item 401(f) of
Regulation S-K.
Board Composition
The Board of Directors consists of five directors. Each director will serve in office until our 2019 annual meeting of stockholders or until their successors have been duly elected
and qualified, or until the earlier of their respective deaths, resignations, or retirements.
Our certificate of incorporation provides that that the number of authorized directors will be determined in accordance with our bylaws. Our bylaws provide that the number of
authorized directors shall be determined from time to time by a resolution of the Board of Directors and any vacancies in our board and newly created directorships may be
filled only by our Board of Directors.
Term of Office
All of our directors are elected on an annual basis to serve until the next annual meeting of shareholders or until their earlier death, resignation or removal.
35
Committees of the Board of Directors
Our Board of Directors has established an audit committee, a compensation committee and a nominating and governance committee. Each of these committees will operate
under a charter that has been approved by our Board of Directors.
Audit Committee
The Company has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee has
authority to review our financial records, engage with our independent auditors, recommend policies with respect to financial reporting to the Board of Directors and investigate
all aspects of our business. The members of the audit committee are Mr. Miller, Mr. Christie, Mr. Ritter and Mr. Knuettel. The audit committee consists exclusively of directors
who are financially literate. In addition, Mr. Miller will be considered an “audit committee financial expert” as defined by the SEC’s rules and regulations. All members of the
Audit Committee currently satisfy the independence requirements and other established criteria of Nasdaq.
Compensation Committee
The Compensation Committee oversees our executive compensation and recommends various incentives for key employees to encourage and reward increased corporate
financial performance, productivity and innovation. The members of the compensation committee are Mr. Miller, Mr. Christie, Mr. Ritter and Mr. Knuettel.
Nominating and Governance Committee
The Nominating and Corporate Governance Committee identifies and nominates candidates for membership on the Board of Directors, oversees Board of Directors’
committees, advises the Board of Directors on corporate governance matters and any related matters required by the federal securities laws. The members of the Nominating
Committee are Mr. Miller, Mr. Christie, Mr. Ritter and Mr. Knuettel, and all currently satisfy the independence requirements and other established criteria of Nasdaq.
The Nominating and Governance Committee will consider stockholder recommendations for candidates for the Board of Directors.
Our bylaws provide that, in order for a stockholder’s nomination of a candidate for the board to be properly brought before an annual meeting of the stockholders, the
stockholder’s nomination must be delivered to the Secretary of the company no later than 120 days prior to the one-year anniversary date of the prior year’s annual meeting.
Charters for all three committees are available on our website at www.scworx.com.
Changes in Nominating Procedures
None.
36
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to
file with the SEC initial statements of beneficial ownership, statements of changes in beneficial ownership and annual statements of changes in beneficial ownership with respect
to their ownership of the Company’s securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with the
applicable reporting requirements under Section 16(a) of the Exchange Act, and without conducting an independent investigation of our own, we believe that with respect to the
fiscal year ended December 31, 2018, our officers and directors, and all of the persons known to us to beneficially own more than 10% of our common stock filed all required
reports on a timely basis except as follows: Burt Watson made two late filings, each reporting a single transaction, Joe Gamberale made one late filing, reporting a single
transaction, and failed to file a report with regard to a single transaction, Joel Tracy failed to file a report with regard to a single transaction, Charles Miller made one late filing,
reporting a single transaction, and John Price made two late filings, each with regard to a single transaction, and failed to file a report with regard to a single transaction.
Item 11. Executive Compensation
The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2018 and 2017 awarded to, earned by
or paid to our executive officers. Since this table relates to 2017 and 2018, it does not specify the compensation of the persons who became executive officers in connection with
the acquisition of SCWorx, effective February 1, 2019. The value attributable to any option awards and stock awards reflects the grant date fair values of stock awards
calculated in accordance with FASB Accounting Standards Codification Topic 718. As described further in Note 9 - Stockholders’ Equity to our consolidated year-end
financial statements, the assumptions made in the valuation of these option awards and stock awards is set forth therein.
Name and Principal Position
Year
Salary
($)
Bonus
Payments
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Plan
All Other
Compensation
($)
Compensation
($)
Total
($)
Current
John Price (1)
Chief Financial Officer
Former
Paul K. Danner, III (2)
Former CEO, Chairman
Robert L. Mazzeo (3)
Former CEO
Ira S. Rainess (4)
Former President
Robert Haydak (5)
Former President
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
175,000
175,000
25,000
100,000
58,333
179,375
—
—
50,000
75,462
21,904
170,000
—
—
—
—
—
10,000
—
—
—
—
—
—
—
—
—
—
—
—
122,316
—
—
—
—
77,500
38,500
53,306
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
90,000
200,545
10,000
12,500
50,000
—
322,316
275,000
58,333
179,375
90,000
278,045
98,500
151,268
71,904
170,000
(1) Mr. Price was appointed CFO on August 3, 2016 and was President from June 2018 until February 1, 2019.
(2) Mr. Danner was appointed CEO on May 11, 2016 and resigned as CEO on February 7, 2018.
(3) Mr. Mazzeo was appointed CEO on February 7, 2018 and resigned on May 25, 2018. Prior to this date, Mr. Mazzeo served as legal counsel and received monthly legal
consulting fees which are included in All Other Compensation.
(4) Mr. Rainess was hired as Executive Vice President, Business Affairs on May 15, 2017, appointed President on February 15, 2018 and the Company terminated his
employment agreement on December 24, 2018. Previously, Mr. Rainess served as an independent consultant and received monthly legal consulting fees which are included
in All Other Compensation.
(5) Mr. Haydak was appointed President on September 30, 2016. On February 7, 2018, the Company terminated Mr. Haydak’s employment agreement and agreed to pay Mr.
Haydak $50,000 of cash and return the CFFC promotion and certain fixed assets to Mr. Haydak.
37
Employment Agreements
Current
On August 3, 2016, we entered into an employment agreement with John Price (the “Price Employment Agreement”), whereby Mr. Price agreed to serve as our Chief Financial
Officer for a period of three years, subject to renewal, in consideration for an annual salary of $175,000. Additionally, under the terms of the Price Employment Agreement, Mr.
Price was eligible for merit-based increases to his compensation as established by the Board of Directors in its sole discretion. The Price Employment Agreement also provided
for discretionary performance-based bonuses provided that in his first year of employment the bonus totaled $25,000 per quarter. In connection with the acquisition of SCWorx,
(i) this Agreement was terminated, and the Company and Mr. Price entered into a new employment agreement, all effective February 1, 2019 and (ii) the company entered into
an employment agreement with Marc S. Schessel, the CEO of the Company.
Directors’ Compensation
The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2018 and 2017 awarded to, earned by
or paid to our directors. The value attributable to any stock option awards reflects the grant date fair values of stock awards calculated in accordance with ASC Topic 718.
Fees
Earned or
paid in
cash
($)
Year
Stock
awards
($)
Option
awards
($)
Non-equity
incentive
plan
compensation
($)
Non-qualified
deferred
compensation
earnings
($)
All other
compensation
($)
Total
($)
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
—
—
—
—
—
—
56,400
133,200
—
—
—
—
—
—
17,039
—
—
—
—
—
—
—
—
—
93,175
—
—
—
38,175
—
57,263
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
50,000
—
—
—
—
—
93,175
—
17,039
—
38,175
—
163,663
133,200
—
—
—
—
Name
Current
Joseph Gamberale (1)
Director
Charles K. Miller (6)
Director
Joel D. Tracy (3)
Director
Burt Watson (4)
Director
Former
Mark D. Shefts (5)
Former Director
Renzo Gracie (2)
Former Director
(1) Joseph Gamberale was appointed as a Director on February 12, 2015, and resigned on February 1, 2019.
(2) Renzo Gracie was appointed as a Director on September 30, 2016, and resigned on May 23, 2018.
(3) Joel Tracy was appointed as a Director on September 30, 2016, and resigned on February 1, 2019.
(4) Burt Watson was appointed as a Director on September 30, 2016, and resigned on February 1, 2019.
(5) Mark Shefts was appointed as a Director on September 30, 2016 and resigned on October 24, 2017.
(6) Charles K. Miller was appointed as a Director on October 24, 2018.
38
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 29, 2019: (i) by each of our directors, (ii) by each of the
named executive officers, (iii) by all of our executive officers and directors as a group, and (iv) by each person or entity known by us to beneficially own more than five percent
(5%) of any class of our outstanding shares. As of March 29, 2019, there were 6,563,195 split adjusted shares of our common stock outstanding.
Amount and Nature of Beneficial Ownership as of March 29, 2019 (1)
(split adjusted)
Named Executive
Officers and Directors
Current (as of February 1, 2019)
Marc Schessel
John Price
Ira Ritter
Frank Knuettel II
Charles K. Miller
Robert Christie
Directors and Executive Officers as a Group (6 persons)
Former
Robert L. Mazzeo
Ira S. Rainess
Paul K. Danner, III
Joseph Gamberale (2)
Renzo Gracie
Joel D. Tracy (3)
Burt Watson
Robert J. Haydak, Jr (4)
Mark D. Shefts (5)
Common
Stock
Options/
Warrants
Total
Percentage
Ownership
1,032,606
—
—
—
3,289
—
1,035,895
—
—
7,895
32,694
3,509
17,645
878
13,571
45,988
—
34,211
—
—
—
—
34,211
6,579
23,686
—
261,078
—
8,994
—
—
25,154
1,032,606
34,211
—
—
3,289
—
1,070,106
6,579
23,686
7,895
293,772
3,509
26,639
878
13,571
71,142
15.7
*
*
*
*
*
16.3
*
*
*
4.5
*
*
*
*
*
*
Represents beneficial ownership of less than 1% of our outstanding stock.
(1)
In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock that may be acquired upon the
exercise of stock options within 60 days of March 30, 2019. In determining the percent of common stock owned by a person or entity on March 30, 2019, (a) the numerator is
the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days of March 30, 2019 upon the exercise of
stock options, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on March 30, 2019 and (ii) the total number of shares that the beneficial
owner may acquire upon exercise of stock options within 60 days of March 30, 2019. Unless otherwise indicated, the address of each of the individuals and entities named
below is c/o SCWorx Corp., 590 Madison Avenue, 21 st Floor, New York, New York 10022.
(2) Of the 32,694 common shares, 13,781 shares are held directly and 18,913 shares held by Ivy Equity Investor, LLC., which is controlled by Mr. Gamberale. The address of
Ivy Equity Investors, LLC is 2 East 55th Street, Suite 1111, New York, New York 10022. The 261,078 shares includes the right to acquire 151,502 shares upon conversion
of Series A Preferred Stock, 75,751 shares upon exercise of warrants related to the Series A Preferred stock and 33,825 shares issuable upon exercise of options.
(3)
In addition to the 9,730 shares of common stock held directly, also includes 7,895 shares of common stock held by a relation of Mr. Tracy. Mr. Tracy has voting and
disposition power over the shares.
(4)
In addition to the 5,439 shares of common stock held directly, also includes 8,132 shares of common stock held by the BRH Trust. The sole trustee of the BRH Trust is Mr.
Haydak’s spouse, Maria Haydak. The sole beneficiary of the BRH Trust is Mr. Haydak’s minor child. Mr. Haydak disclaims beneficial ownership of such shares except to the
extent of any pecuniary interest therein.
(5)
In addition to the 11,704 shares of common stock held directly, also includes 7,968 shares held by the Rushcap Group, Inc., of which Mr. Shefts and his spouse, Wanda
Shefts, are the sole stockholders. Mr. Shefts has voting and dispositive power over the shares held by the Rushcap Group, Inc.
39
Employee Grants of Plan Based Awards and Outstanding Equity Awards at Fiscal Year-End
Prior to the completion of our initial public offering, our Board of Directors adopted the Alliance MMA 2016 Equity Incentive Plan (the “2016 Plan”) pursuant to which the
Company may grant shares of our common stock to the Company’s directors, officers, employees or consultants. Our stockholders approved the 2016 Plan at our annual
meeting of stockholders held September 1, 2017, and on January 30, 2019 approved the addition of 3,000,000 post-split shares to be added to the 2016 Plan. Unless earlier
terminated by the Board of Directors, the 2016 plan will terminate, and no further awards may be granted, after July 30, 2026.
As of December 31, 2018, the following sets forth the stock option awards to officers of the Company.
Outstanding Equity Awards at December 31, 2018 (split adjusted)
Equity compensation
plans not approved
by shareholders
Equity Awards
Equity compensation
plans approved
by shareholders
Number of
securities
underlying
unexercised
options
exercisable (#)
Number of
securities
underlying
unexercised
options
not exercisable (#)
Number of
securities
underlying
unexercised
options (#)
Number of
securities
underlying
unexercised
options
not exercisable
Options
exercise price
($)
Option
expiration date
—
—
—
1,019
—
—
—
—
—
—
—
—
—
—
40
10,526
10,526
13,159
—
6,579
— $
— $
— $
— $
— $
6.84
3.42
5.89
June 2023
August 2023
September 2023
5.89
February 1, 2022
28.50
December 2020
—
—
5,264 $
18,422 $
24.70
4.75
May 2020
December 2021
Current Officer:
John Price
First Award
Second Award
Third Award
Former Officers:
James Byrne
Robert L. Mazzeo
Ira S. Rainess
First Award
Second Award
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
Notes Payable-Related Party
On April 10, 2018, the Company borrowed a total of $300,000 from two of its board members, Joseph Gamberale and Joel Tracy, pursuant to promissory notes of $150,000,
respectively. The notes bear interest at 12% annually and matured May 21, 2018. Mr. Gamberale personally guaranteed Mr. Tracy’s note.
Interest expense for the year ended December 31, 2018 was approximately $12,000 for the note with Mr. Gamberale, and $14,000 for Mr. Tracy’s note.
On May 21, 2018 Mr. Gamberale agreed to extend the maturity to August 31, 2018. The repayment of this note was subordinate to a $200,000 promissory note of May 9, 2018.
In July 2018, Mr. Gamberale agreed to convert his note to common shares (at a rate of $.3725 [$7.0775] per share) and warrants (25% warrant coverage with an exercise price
of $.3725 [$7.0775] per share) (same terms as the SCWorx convertible notes). In October 2018, this arrangement was amended and Mr. Gamberale chose to participate in the
preferred stock placement. As of the date of this report, the note has been converted into shares of the Company’s Series A Preferred Stock and related common stock purchase
warrants, on the same terms as the preferred stock investors.
On May 21, 2018 Mr. Tracy agreed to extend the maturity to December 31, 2018. In November, Mr. Tracy chose to participate in the preferred stock sale. As of the date of this
report, the note has been converted into shares of the Company’s Series A Preferred Stock and related common stock purchase warrants, on the same terms as the preferred
stock investors .
Director Independence
The rules of the Nasdaq Capital Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one
year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and
governance committees be independent. Under the Nasdaq Rules, a director will qualify as an independent director only if, in the opinion of our Board of Directors, that person
does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also require that
audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act, as amended. In order to be considered independent for purposes of
Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any
other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an
affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules require that our
Board of Directors must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation we pay to the director
and any affiliations with the Company.
Our Board of Directors undertook a review of the composition of our Board of Directors and its committees and the independence of each director. Based upon information
requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined
that each of our directors other than Mr. Danner and Mr. Watson was independent based on the definition of independence in the Nasdaq listing standards. In conjunction with
the SCWorx acquisition, the AMMA board, other than Mr. Miller, resigned. Our new Board of Directors has determined that each of our directors other than Marc Schessel,
CEO, is independent based upon the definition of independence in the Nasdaq listing standard.
Item 14. Principal Accountant Fees and Services
The Audit Committee of the Board of Directors has selected Friedman LLP (“Friedman”), an independent registered public accounting firm, to audit the financial statements of
the Company for the year ending December 31, 2018. Friedman has served as our independent registered public accounting firm since January 2016.
Principal Accountant Fees and Services
During 2018 and 2017, fees for services provided by Friedman were as follows:
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Total
2018
2017
365,951 $
—
—
—
365,951 $
367,795
—
—
—
367,795
$
$
41
Audit Fees include amounts related to the audit of the Company’s annual consolidated financial statements and internal control over financial reporting, and quarterly review of
the consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q.
Audit Related Fees include amounts related to accounting consultations and services.
Tax Fees include fees billed for tax compliance, tax advice and tax planning services.
All Other Fees
There were no other fees billed by Friedman for services rendered to the Company, other than the services described above, in 2018 and 2017. The Audit Committee has
determined that the rendering of non-audit services by Friedman was compatible with maintaining their independence.
The Audit Committee pre-approves all audit and permissible non-audit services provided by the Company’s independent registered public accounting firm. These services may
include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular
service or category of services. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the
extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis. During 2018, services provided by Friedman were pre-approved by the Audit Committee in
accordance with this policy.
42
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this report:
(1) Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The consolidated financial statements listed in the
accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.
(2) Financial Statement Schedules. Schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission
of the schedule or because the information required is given in the consolidated financial statements or the notes thereto.
(3) Exhibits. The information required by this Item 15 is incorporated by reference to the Index to Exhibits accompanying this Annual Report on Form 10-K.
43
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
SCWorx Corp. (f/k/a Alliance MMA, Inc.)
By:
/s/ Marc S. Schessel
Marc S. Schessel
Chief Executive Officer
April 1, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and
on the dates indicated.
/s/ Marc S. Schessel
Marc S. Schessel
Chief Executive Officer and Director (Principal Executive Officer)
April 1, 2019
/s/ John Price
John Price, Chief Financial Officer
(Principal Accounting and Financial Officer)
April 1, 2019
/s/ Ira E. Ritter
Ira E. Ritter, Director
April 1, 2019
/s/ Francis Knuettel II
Francis Knuettel II, Director
April 1, 2019
/s/ Charles K. Miller
Charles K. Miller, Director
April 1, 2019
/s/ Robert Christie
Robert Christie, Director
April 1, 2019
44
Index to Consolidated Financial Statements
SCWorx Corp.
(f/k/a ALLIANCE MMA, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
45
F-1
F-2
F-3
F-4
F-5
F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of SCWorx Corp. (f/k/a Alliance MMA, Inc.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SCWorx Corp. (f/k/a Alliance MMA, Inc.) (the “Company”) as of December 31, 2018 and 2017, and the
related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the years in the two-year period ended December 31, 2018, and the
related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended
December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor since 2016.
Marlton, New Jersey
April 1, 2019
F-1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash
Restricted cash
Accounts receivable, net
Prepaid and other assets
Current assets - discontinued operations
Total current assets
Intangible assets, net
Long-term assets - discontinued operations
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Preferred stock deposit
Notes payable - related party
Notes payable
Convertible notes payable, net of $106,700 discount
Derivative liability
Warrants liability
Current liabilities - discontinued operations
Total current liabilities
Long-term deferred tax liabilities - discontinued operations
TOTAL LIABILITIES
Commitments and contingencies
Stockholders’ (Deficit) Equity:
$
$
$
December 31,
2018
December 31,
2017
30,011 $
5,401,000
32,181
200,000
—
5,663,192
—
—
5,663,192 $
1,064,728 $
5,501,000
300,000
200,000
928,300
13,800
88,000
475,054
8,570,882
—
8,570,882
42,848
—
—
—
602,386
645,234
271,870
8,838,224
9,755,328
843,554
—
—
300,000
—
—
—
453,352
1,596,906
23,943
1,620,849
Preferred stock, $10 face value; 940,000 shares authorized; No shares issued and outstanding
Common stock, $.001 par value; 45,000,000 shares authorized; 17,494,852 [920,782] and 12,662,974 [666,472] shares
issued and outstanding, respectively [Bracketed amounts represent shares reflective of a one-for-nineteen reverse stock
split on February 1, 2019]
Additional paid-in capital
Accumulated deficit
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
921
28,408,048
(31,316,659)
(2,907,690)
5,663,192 $
666
24,658,226
(16,524,413)
8,134,479
9,755,328
$
The accompanying notes are an integral part of these consolidated financial statements.
F-2
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue, net
Operating expenses:
General and administrative
Impairment - intangible assets
Professional and consulting fees
Total operating expenses
Loss from operations
Interest expense
Gain on fair value of warrants
Loss on fair value of derivatives
Loss before income taxes
Income tax benefit
Net loss from continuing operations
Net loss from discontinued operations, net of tax
Net loss
Non-cash dividend
Adjusted net loss applicable to common stockholders
Before Reverse Stock Split:
Loss per share
Loss from continuing operations
Basic and diluted
Loss from discontinued operations
Basic and diluted
Adjusted net loss applicable to common shareholders
Basic and diluted
Weighted average number of shares used in per share calculation, basic and diluted
Reflective of One-for-nineteen Reverse Stock Split:
Loss per share
Loss from continuing operations
Basic and diluted
Loss from discontinued operations
Basic and diluted
Adjusted net loss applicable to common shareholders
Basic and diluted
Weighted average number of shares used in per share calculation, basic and diluted
Year Ended
December 31,
2018
Year Ended
December 31,
2017
$
150,089
$
220,709
2,201,412
231,037
1,300,939
3,733,388
(3,583,299)
258,800
(59,000)
4,400
(3,787,499)
—
(3,787,499)
(10,804,747)
(14,592,246)
200,000
(14,792,246)
$
2,062,229
—
1,329,539
3,391,768
(3,171,059)
—
—
—
(3,171,059)
—
(3,171,059)
(8,807,504)
(11,978,563)
—
(11,978,563)
(0.26)
$
(0.30)
(0.70)
$
(0.82)
(0.96)
$
(1.12)
15,460,391
10,679,898
(4.90)
$
(5.64)
(13.28)
$
(15.67)
(18.18)
$
(21.31)
813,705
562,100
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
Before Reverse Stock Split
Reflective of Reverse Stock Split
Balance—December 31, 2016
9,022,308
$
9,022
$
Common Stock
Shares
Amount
Additional
Paid-in
Capital
18,248,582
121,442
427,155
—
—
—
—
—
—
Common Stock
Shares
Amount
474,858
$
475
$
Additional
Paid-in
Capital
18,257,129
Accumulated
Deficit
(4,545,850) $
$
Total
Stockholders’
(Deficit)
Equity
13,711,754
Stock based compensation related to
employee stock option grants
Stock based compensation related to
employee stock option grant -
discontinued operations
Issuance of common stock related to
acquisition of discontinued
operations
Stock based compensation related to
warrant issued for consulting
services
Stock based compensation related to
common stock issued for consulting
services
Issuance of common stock units and
warrants related to private
placement
Stock based compensation related to
option award for consulting services
Net loss
Balance—December 31, 2017
Stock based compensation related to
employee and board of directors
stock option grants
Stock based compensation related to
employee stock option grant -
discontinued operations
Stock based compensation related to
repricing of employee warrant grant
– discontinued operations
Stock based compensation related to
issuance of common shares to
former employees - discontinued
operations
Stock based compensation related to
issuance of shares in relation to legal
settlement with shareholder
Stock based compensation related to
warrants issued for consulting
services
Stock based compensation related to
common shares and warrants issued
to debt holder
Non-cash dividend
Issuance of common stock related to
public offering
Exercise of common stock warrants
Exercise of common stock options
Issuance of common stock to vendor
Net loss
Balance—December 31, 2018
1,621,905
1,622
3,443,168
85,363
—
—
169,401
—
150,000
150
148,350
7,895
1,868,761
1,869
2,010,631
—
—
12,662,974
$
—
—
12,663
$
77,500
—
24,646,229
98,356
—
—
666,472
$
—
—
—
—
—
—
—
368,423
243,987
10,000
—
143,630
—
—
—
—
794,483
794
239,206
41,815
—
200,000
—
2,200,000
1,056,750
80,645
500,000
—
17,494,852
$
—
200
—
2,200
1,057
80
500
—
17,494
$
63,580
—
66,300
200,000
1,943,800
305,400
24,920
136,000
—
28,391,475
10,526
—
115,791
55,618
4,244
26,316
—
920,782
$
—
—
85
—
8
98
—
—
666
—
—
—
—
42
—
11
—
116
56
4
26
—
921
$
121,442
427,155
3,444,705
169,401
148,492
2,012,402
77,500
—
24,658,226
$
—
—
—
—
—
—
—
(11,978,563)
(16,524,413) $
$
368,423
243,987
10,000
143,630
239,958
63,580
66,489
200,000
1,945,884
306,401
24,996
136,474
—
28,408,048
—
—
—
—
—
—
—
(200,000)
—
—
—
—
(14,592,246)
(31,316,659) $
$
121,442
427,155
3,444,790
169,401
148,500
2,012,500
77,500
(11,978,563)
8,134,479
368,423
243,987
10,000
143,630
240,000
63,580
66,500
—
1,946,000
306,457
25,000
136,500
(14,592,246)
(2,907,690)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of intangible assets and goodwill
Amortization of acquired intangibles
Stock-based compensation
Issuance of common stock to vendor as payment on invoices
Non cash interest expense
Gain on fair value of warrants
Loss on fair value of derivatives
Loss from discontinued operations
Changes in operating assets and liabilities:
Accounts receivable
Prepaid and other assets
Accounts payable and accrued liabilities
Net cash used in operating activities - continuing operations
Net cash used in operating activities - discontinued operations
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities - discontinued operations
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
Proceeds from notes payable
Proceeds from convertible notes payable
Proceeds from note payable – related party
Repayments on notes payable
Proceeds from exercise of options and warrants
Proceeds from sale of preferred stock, held on deposit
Net cash provided by financing activities
NET INCREASE (DECREASE) IN CASH
CASH AND RESTRICTED CASH — BEGINNING OF YEAR
CASH AND RESTRICTED CASH — END OF YEAR
CASH AND RESTRICTED CASH CONSIST OF THE FOLLOWING
BEGINNING OF YEAR
Cash
Restricted cash
END OF YEAR
Cash
Restricted cash
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash dividend
Exercise of stock option in settlement of payable balance
Stock issued in conjunction with acquisition of Victory Fighting Championship
Stock issued in conjunction with acquisition of Fight Club OC
Stock issued in conjunction with acquisition of National Fighting Championships
Stock issued in conjunction with acquisition of Fight Time Promotions
Stock issued in conjunction with acquisition of SuckerPunch
Stock issued in conjunction with acquisition of Sheffield Video Library
Debt discount associated with warrants and derivative liabilities
Year
Ended
December 31,
2018
Year
Ended
December 31,
2017
$
(14,592,246) $
(11,978,563)
231,037
40,833
738,503
136,500
49,700
(59,000)
4,400
10,804,747
(32,181)
(200,000)
246,174
(2,631,533)
(946,912)
(3,578,445)
(21,849)
(21,849)
1,946,000
290,000
1,035,000
300,000
(390,000)
306,457
5,501,000
8,988,457
5,388,163
42,848
5,431,011 $
—
76,183
516,843
—
—
—
—
8,807,504
—
—
670,024
(1,908,009)
(3,920,268)
(5,828,277)
(1,008,950)
(1,008,950)
2,012,500
300,000
—
—
—
—
—
2,312,500
(4,524,727)
4,567,575
42,848
42,848 $
—
42,848 $
4,567,575
—
4,567,575
30,011 $
5,401,000
5,431,011 $
45,625 $
— $
200,000 $
25,000
—
—
—
—
—
—
156,400
42,848
—
42,848
—
—
—
—
642,938
810,810
366,227
287,468
1,328,847
8,500
—
$
$
$
$
$
$
$
$
In addition, as a result of the one-for-nineteen reverse stock split effected on February 1, 2019, common stock par value was reduced and additional paid-in capital was
increased by $16,573 and $11,997 as of December 31, 2018 and 2017, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business
Nature of Business
Alliance MMA, Inc. (“Alliance” or the “Company”) was a sports media company formed in Delaware in February 2015. The Company completed its Initial Public Offering
(“IPO”) in October 2016 and began to execute its initial business strategy to acquire regional Mixed Material Arts (“MMA”) promotions to form a professional MMA fight
league. A total of ten regional MMA promotions were acquired. Additionally, the Company acquired a ticketing software business focused on the MMA industry, a sports
management business, and video production and distribution company to complement the MMA fight league.
Alliance acquired the following businesses to execute its initial business strategy:
Promotions
·
·
·
·
·
·
·
·
·
·
CFFC Promotions (“CFFC”);
Hoosier Fight Club (“HFC”);
COmbat GAmes MMA (“COGA”);
Shogun Fights (“Shogun”);
V3 Fights (“V3”);
Iron Tiger Fight Series (“IT Fight Series” or “ITFS”);
Fight Time Promotions (“Fight Time”);
National Fighting Championships (“NFC”);
Fight Club Orange County (“FCOC” or “Fight Club OC”); and
Victory Fighting Championship (“Victory”).
Ticketing
·
CageTix
Sports Management
·
SuckerPunch Holdings, Inc. (“SuckerPunch”)
Video Production and Distribution
·
Go Fight Net, Inc. (“GFL”)
As an adjunct to the promotion business, Alliance provided video distribution and media archiving through Alliance Sports Media (“ASM”) formerly GFL.
Change in Management and Cessation of MMA Promotion, Sports Management and Video Production and Distribution Operations
On February 7, 2018, the Company’s Chief Executive Officer, Paul Danner, resigned his position but remained Chairman of the Board and Director through May 1, 2018. Also,
on February 7, 2018, the Company terminated the employment of the Company’s President, Robert Haydak, and Chief Marketing Officer, James Byrne and named Robert
Mazzeo as the Company’s acting Chief Executive Officer. Effective May 23, 2018, board of directors’ member, Renzo Gracie, resigned. On May 24, 2018, Robert Mazzeo
resigned as Chief Executive Officer. On May 25, 2018, management and the Board of Directors committed the Company to an exit/disposal plan of the MMA promotion
business because it did not believe the MMA business unit could generate sufficient operating cash flows to fund the ongoing operations. On June 6, 2018, the Company’s board
of directors appointed John Price, the Company’s Chief Financial Officer, Co-President of the Company. On September 13, 2018, management and the board of directors
extended the exit/disposal plan to the Sports Management business unit because it did not believe it could generate positive operating cash flows. On September 26, 2018 the
Company entered an agreement to sell SuckerPunch to its former owners. The effective date of the sale transaction was July 1, 2018. On December 24, 2018, the Company and
Co-President, Ira Rainess, agreed to terminate Mr. Rainess’ employment agreement.
F-6
As of the date of this filing, the Company has disposed of the following businesses:
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
·
·
·
·
·
·
·
·
·
·
·
·
·
CFFC
HFC
COGA
Shogun
V3
ITFS
Fight Time
NFC
FCOC
Victory
ASM
GFL
SuckerPunch
The Company has been focused on its CageTix business and completing the acquisition of SCWorx Corp., which was closed on February 1, 2019.
SCWorx Acquisition and Related Transactions
In June 2018, the Company entered into a Securities Purchase Agreement with SCWorx Acquisition Corp. (n/k/a SCWorx Corp.) (“SCWorx”), as amended December 18, 2018
(“SPA”), under which it agreed to sell up to $1.25 million in principal amount of convertible notes and warrants to purchase up to 1,128,356 [59,387] shares of common stock.
The initial $750,000 tranche of the notes is convertible into shares of common stock at a conversion price of $0.3725 [$7.0775] and the related 503,356 [26,492] warrants have
an exercise price of $0.3725 [$7.0775]. The conversion price on the $750,000 convertible note was reduced to $0.215 per share in January 2019. The remaining $500,000
tranche of the notes is convertible into shares of common stock at a conversion price of $0.20 [$3.80] and the related 625,000 [32,895] warrants have an exercise price of $0.30
[$5.70]. See Note 12–Subsequent Events. These notes automatically converted into Company common stock upon the closing of the SCWorx acquisition on February 1, 2019.
Pursuant to the SPA, between June 29, 2018 and October 16, 2018, the Company sold SCWorx convertible notes in the aggregate principal amount of $750,000 and warrants to
purchase 503,356 [26,492] shares of common stock, for an aggregate purchase price of $750,000. Each of the notes bears interest at 10% annually and have a one year term.
Each of the warrants has an exercise price of $0.3725 [$7.0775], a term of five years and were vested upon grant. These notes automatically converted into Company common
stock upon the closing of the SCWorx acquisition on February 1, 2019.
On August 20, 2018, the Company entered into a Stock Exchange Agreement with SCWorx, as amended December 18, 2018 (“SEA”). Under the SEA, the Company agreed to
purchase from the SCWorx shareholders all the issued and outstanding capital stock of SCWorx, in exchange for which the Company agreed to issue at the closing (i)
100,000,000 shares of Company common stock to the SCWorx stockholders and (ii) 190,000 Series A Preferred Stock Units ($1.9 million face value) (“Series A Preferred
Units”) to an SCWorx creditor in satisfaction of approximately $1.9 million of indebtedness. The Series A Preferred Units are comprised of 190,000 shares of Series A
preferred stock, convertible into shares of common stock at a conversion price of $0.20 [$3.80] per share, subject to adjustment, and warrants to purchase 4,750,000 [250,000]
shares of common stock, with an exercise price of $0.30 [$5.70] per share, subject to adjustment. Upon consummation of the transaction on February 1, 2019, SCWorx is
wholly owned by the Company.
F-7
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the SPA, between November 16, 2018 and December 31, 2018, the Company sold SCWorx additional convertible notes in the aggregate principal amount of
$275,000 and warrants to purchase 356,250 [18,750] shares of common stock, for an aggregate purchase price of $275,000. Each of the Notes bears interest at 10% annually
and matures one year form the issue date. These warrants have an exercise price of $0.30 [$5.70], a term of five years and were vested upon grant. This brings the total amount
funded by SCWorx to $1,035,000 as of December 31, 2018. These notes automatically converted into Company common stock upon the closing of the SCWorx acquisition on
February 1, 2019. See Note 12–Subsequent Events.
On December 18, 2018, the Company closed $5.5 million in aggregate proceeds from the sale of Series A Preferred Units comprised of 550,000 shares of Series A preferred
stock (face value $10 per share) and warrants to purchase 13,750,000 [723,684] shares of common stock. The face value of the Series A preferred stock will, upon stockholder
approval of the sale of the Series A Preferred Units, be convertible into shares of common stock at a conversion price of $0.20 [$3.80] per share, subject to adjustment, and the
warrants have an exercise price of $0.30 [$5.70] per share, subject to adjustment. In addition, the Company issued Series A Preferred Units, comprised of approximately 67,500
shares of Series A preferred stock ($675,000 aggregate face value) and warrants to purchase 1,687,500 [88,816] shares of common stock to Company creditors in satisfaction of
approximately $675,000 of indebtedness.
The amount of cash raised from sale of Series A Preferred Stock Units was required to be kept in a reserve account pending the closing of the SCWorx Corp. acquisition. As a
result, the Company has recognized restricted cash of $5,401,000 and preferred stock deposit of $5,501,000 in the accompanying consolidated balance sheet as of December 31,
2018.
In anticipation of the acquisition of SCWorx Corp., the Company filed an original listing application with the Nasdaq Capital Market to list the common stock of the combined
company. On or about January 31, 2019, the Nasdaq approved the listing of the Company’s common stock (on a combined basis with SCWorx), with the result being that the
Company’s common stock is now newly listed on the Nasdaq Capital Market.
On February 1, 2019, the Company completed the acquisition of SCWorx, 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 [bracketed amounts represent post-split adjusted shares or per share amounts].
F-8
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Liquidity and Going Concern
Liquidity and Going Concern
The Company’s primary need for liquidity is to fund the working capital needs of the business, and general corporate purposes. The Company has historically incurred losses
and experienced negative operating cash flows since the inception of operations in October 2016.
As a result of the recently consummated convertible notes and Series A Preferred Units financings, as of December 19, 2018, the Company had approximately $5.4 million in
restricted cash on hand, which under the operative documents was required to be held in reserve pending the closing of the SCWorx acquisition. In addition, as of December 31,
2018, SCWorx was required to provide additional advances of $215,000 under the SPA, as amended. These advances were made in January of 2019.
With the completion of the SCWorx acquisition and related financings, the Company had approximately $5.4 million of restricted cash at a bank. Although the Company has
historically generated operating losses and negative operating cash flows, with the completion of the SCWorx acquisition, the Company expects that the combined company will
generate operating profits and positive operating cash flows.
The Company believes that these positive operating cash flows, funding from the completed issuances, satisfaction of substantially all outstanding liabilities, and coupled with
cash on hand of $3.0 million, are such that, as of the date of this report, the Company has sufficient cash to support the business for at least the one year period following the
release date of these consolidated financial statements.
Note 3. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”). The consolidated financial statements include the accounts of Alliance MMA, Inc. and its wholly-owned subsidiary, Go Fight Net, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
In connection with acquisition of SCWorx, the Company effected a one-for-nineteen reverse stock split of the Company’s common stock. The reverse stock split became
effective on February 1, 2019. The par value and authorized shares of common stock were not adjusted as a result of the reverse stock split. All share and per share amounts in
the notes to the consolidated financial statements show [bracketed amounts] which reflects this reverse stock split. As a result, all bracketed common stock share amounts have
been reduced by a factor of nineteen, and all bracketed common stock per share amounts have been increased by a factor of nineteen, or as otherwise described in the tables.
Use of Estimates
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. These estimates relate to revenue recognition, the assessment of recoverability of goodwill and
intangible assets, range of possible outcomes of acquisition earn-out accruals, 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.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations on
discontinued operations.
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 (“FDIC”) up to $250,000. There were no amounts in excess of the FDIC insured
limit for both the years ended December 31, 2018 and 2017, respectively.
Fair Value of Financial Instruments
Management applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the
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.
Loss Contingencies
The Company records a liability when the Company believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If the Company
determines that a loss is reasonably possible, and the loss or range of loss can be estimated, the Company discloses the possible loss in the notes to the consolidated financial
statements. The Company reviews the developments in our contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and
related possible losses disclosed. The Company adjusts provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice
of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount.
Legal costs associated with loss contingencies are accrued based upon legal expenses incurred by the end of the reporting period.
Allowance 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 a 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 uncollectible accounts may differ from the Company’s
estimates. At December 31, 2018 and 2017, there were no allowances.
Revenue Recognition
Ticketing Service Revenue (Current Operations)
The Company acts as a ticket agent for third-party ticket sales and charges a fee per transaction for collecting the cash on ticket sales and remits the remaining net amount to the
third-party promoter upon completion of the event or request from the promoter. The Company’s ticket service fee is recognized, on a net basis, when it satisfies the
performance obligation by transferring control of the purchased ticket to a customer.
Promotions Revenue (Discontinued Operations)
The Company recognized revenue, net of sales tax, when it satisfied a performance obligation by transferring control over a product or service to a customer. Revenue from
admission, sponsorship, pay per view (“PPV”), apparel, and concession were recognized at a point in time when an event was exhibited to a customer live or PPV, and when a
customer took possession of apparel or food and beverage offerings. Promotions revenue is a component of discontinued operations.
F-9
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sports Management and Video Production and Distribution Revenue (Discontinued Operations)
The Company recognized revenue when it satisfied a performance obligation by transferring control over a product or service to a customer. The Company recognized
commission revenue upon the completion of a contracted athlete’s performance.
Business Combinations
The Company includes the results of operations of the businesses that it has acquired in its consolidated results as of the respective dates of acquisition.
The Company allocates the fair value of the purchase consideration of its acquisitions 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. The primary items that
generate goodwill include the value of the synergies between the acquired businesses and the Company as well as the acquired assembled workforce, neither of which qualifies
as an identifiable intangible asset. The fair value of contingent consideration associated with acquisitions is remeasured each reporting period and adjusted accordingly.
Acquisition and integration related costs are recognized separately from the business combination and are expensed as incurred.
We allocate goodwill to the reporting units of the business that are expected to benefit from the business combination.
For additional information regarding the Company's acquisitions, see Note 5 - Business Combinations.
Goodwill and Purchased Identified Intangible Assets
Goodwill
Goodwill is recorded 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 of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. The Company first assesses
qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. 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 is less than its carrying amount, then the quantitative goodwill impairment test is
unnecessary. If, based on the qualitative assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the
Company proceeds to perform the quantitative goodwill impairment test. The Company first determines the fair value of a reporting unit using weighted results derived from an
income approach and a market approach. The income approach is estimated through the discounted cash flow method based on assumptions about future conditions such as
future revenue growth rates, new product and technology introductions, gross margins, operating expenses, discount rates, future economic and market conditions, and other
assumptions. The market approach estimates the fair value of the Company’s equity by utilizing the market comparable method which is based on revenue multiples from
comparable companies in similar lines of business. The Company then compares the derived fair value of a reporting unit with its carrying amount. If the carrying value of a
reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting
unit.
For the year ended December 31, 2017, the Company recorded a goodwill impairment of $2.4 million within the Company’s discontinued operations in relation to the GFL and
Fight Time reporting units.
For the year ended December 31, 2018, the Company recorded a goodwill impairment of $5.9 million within the Company’s discontinued operations in relation to the cessation
of the MMA promotion and athlete management businesses. At December 31, 2018, the Company had no goodwill.
Purchased Identified Intangible Assets
Identified finite-lived intangible assets consisted of acquired video library intellectual property, venue contracts/relationships, ticketing software, tradenames, fighter contracts,
promoter relationships and sponsor relationships resulting from business combinations. The Company’s identified intangible assets were amortized on a straight-line basis over
their estimated useful lives, ranging from two to ten years. The Company makes judgments about the recoverability of finite-lived intangible assets whenever facts and
circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist,
the Company assesses recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives
against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than
originally estimated, the Company would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. The Company evaluates
the carrying value of indefinite-lived intangible assets on an annual basis, and an impairment charge would be recognized to the extent that the carrying amount of such assets
exceeds their estimated fair value. For further discussion of goodwill and identified intangible assets, see Note 6–Goodwill and Purchased Identified Intangible Assets.
For the year ended December 31, 2018, the Company recorded an intangible assets impairment of approximately $231,000 related to its MMA ticketing service business, and
approximately $182,546 related to the athlete management business recorded as a component of net loss from discontinued operations, net of tax.
For the year ended December 31, 2017, the Company recorded an intangible impairment of $893,000 related to the impairment of all video library assets acquired from GFL,
the promotion businesses, and asset purchases, as well as the venue relationship and trade-name of the Fight Time Promotion. This expense is included as a component of net
loss from discontinued operations, net of tax.
F-10
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising Costs
There were no advertising costs for the years ended December 31, 2018 and 2017.
Stock-Based Compensation
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 or warrant 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 on share-based payments also requires that the Company measure and recognize stock-based compensation expense upon modification of the term of
the stock award. The stock-based compensation expense for such modification is the sum of any unamortized expense of the award before modification and the modification
expense. The modification expense is the incremental amount of the fair value of the award before the modification and the fair value of the award after the modification,
measured on the date of modification. In the case when the modification results in a longer requisite period than in the original award, the Company has elected to apply the pool
method where the aggregate of the unamortized expense and the modification expense is amortized over the new requisite period on a straight-line basis. In addition, any
forfeiture will be based on the original requisite period prior to the modification.
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 the life of the underlying award. 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 period. The expected levels of achievement are reassessed over the requisite service periods and, to 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 9-Stockholders’ Equity for additional detail.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with 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.
A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not
some portion or all of the deferred tax assets will not be realized.
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.
F-11
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)
(ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt
the standard as of the original effective date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic
606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent
considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The
new standard further requires new disclosures about contracts with customers, including the significant judgments the company has made when applying the guidance. We
adopted the new standard effective January 1, 2018, using the modified retrospective transition method. The adoption of this guidance did not have a material impact on our
consolidated financial statements and our internal controls over financial reporting.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally requires companies to recognize operating
and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified
retrospective basis and early adoption is permitted. We adopted the new standard effective January 1, 2019. Our operating leases, as disclosed in Note 8 - Commitments and
Contingencies, will be subject to the new standard. We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which
will increase our total assets and liabilities.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires
companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-
of-period total amounts shown on the statement of cash flows. We adopted the new standard effective January 1, 2018, using the retrospective transition approach for all periods
presented. The adoption of this guidance is reflected in our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU addresses
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. This ASU is
effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard as
of January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory.” This ASU requires entities to recognize the income tax
consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. For public entities, this ASU is effective for annual reporting periods
beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company adopted this standard as of January 1, 2018 on a
prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01),
which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. We adopted the new standard
effective January 1, 2018, on a prospective basis and the standard did not have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09) which provides
guidance about which changes to the terms or conditions of a share-based payment awarded require an entity to apply modification accounting. The standard is effective for
interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted the standard prospectively and the adoption of
this standard did not have a material impact on our consolidated financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings per Share (Topic 260); Distinguishing from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I)
Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatory Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. Topic 815, Part I of this update addresses the complexity of
accounting for certain financial instruments with down round features. The amendments in Part I of this Update change the classification of certain equity-linked financial
instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as equity instruments, a down
round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing
disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result
of the existence of a down round feature. For freestanding equity-linked classified financial instruments, the amendments require entities that present earnings per share in
accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and a reduction of income available to
common shareholders in basic earnings per share.
F-12
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that are now presented as pending content in the Codification,
to a scope exception. These amendments do not have an accounting effect.
The Company adopted the provisions of the update in its December 31, 2018 consolidated financial statements and elected the retrospective transition method.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(ASU 2017-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which
the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance will be effective for 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 March 2018, the FASB updated the Income Taxes Topic of the Accounting Standards Codification. The amendments were effective upon issuance. The Company does not
expect these amendments to have a material effect on its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, “Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting,” which amends the existing
accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards
to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. The effective date for the standard is for interim periods in
fiscal years beginning after December 15, 2018, with early adoption permitted, but no earlier than the Company’s adoption date of Topic 606. The new guidance is required to
be applied retrospectively with the cumulative effect recognized at the date of initial application. The Company will adopt this new standard in the first quarter of fiscal 2019
and does not expect that the adoption of the standard will have a material impact on its consolidated financial statements.
Note 4. Discontinued Operations
On May 25, 2018, the Company commenced cessation of all the professional MMA promotion operations and supporting functions including ASM and began a plan of
disposition. This action included the termination of all promotion and support employees. As of December 31, 2018, all the MMA promotions were either disposed or ceased
operations. On September 13, 2018, the Company commenced cessation of the Athlete Management operations and began a plan of disposition. This action included the
termination of all Athlete Management employees. During the third quarter of 2018, the Athlete Management business unit was disposed with an effective date of July 1, 2018.
The Company has reported the results of operations and financial position of the discontinued Professional MMA Promotion and Athlete Management businesses in
discontinued operations within the consolidated statements of operations and consolidated balance sheets for all periods presented.
The results from discontinued operations were as follows:
Revenue, net
Cost of revenue
Gross margin
Operating expenses:
General and administrative
Total operating expenses
Loss from operations
Gain on disposal
Loss on disposal
Loss before provision for income tax
Income tax (provision) benefit
Loss from discontinued operations
Year Ended
December 31,
2018
December 31,
2017
$
$
1,663,382 $
(1,084,028)
579,354
4,382,166
4,382,166
(3,802,812)
874,392
(7,900,269)
(10,828,689)
23,942
(10,804,747) $
3,996,521
(2,691,398)
1,305,123
9,424,521
9,424,521
(8,119,398)
—
—
(8,119,398)
688,106
(8,807,504)
As part of the cessation of its professional MMA promotion business in the second quarter 2018, the Company disposed of all long-lived fixed assets and realized a loss on
disposal of approximately $223,000, the Company also impaired or wrote off intangible assets and goodwill and realized a loss on disposal of $6.9 million, wrote off receivables
of $190,000 and other assets of $19,000.
Also during the second quarter 2018, the Company sold all the professional MMA promotion businesses, except for Victory, FT and NFC, to the former business owners and
terminated/settled existing employment agreements. In relation to the promotion business disposals, the Company settled the $310,000 earn-out liability related to the Shogun
acquisition with the issuance of 366,072 [19,267] common stock options with a Black-Scholes value of $94,000, issued 30,000 [1,579] common stock options to a promoter as
severance, and incurred approximately $246,000 of additional liabilities related to severance payments to former employees. The Company realized a gain of approximately
$160,000 related to the settlement of outstanding accounts payable and a gain of approximately $276,000 related to settlement with a promoter of customer prepayments and
recorded a $15,000 receivable from the promoter related to the sale of the business. On July 30, 2018, the Company entered a settlement agreement, effective as of May 31,
2018, with a former employee, in relation to the termination of his employment. The Company agreed to pay the former employee $129,800 and issue a fully vested stock option
grant dated July 30, 2018 for 75,000 [3,947] common shares with a life of 5 years and exercise price of $0.20 [$3.80]. In June 2018, the Company abandoned the Cherry Hill,
New Jersey promotion office and recorded a $167,500 charge for the remaining contractual lease payments. See Note 8 Commitments and Contingencies.
F-13
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the third quarter 2018, the Company continued its disposal plans. In July 2018, the Company entered a separation agreement with a former employee and agreed to pay
$50,000 in exchange for terminating the employment agreement. On September 26, 2018, the Company entered an agreement to sell the Athlete Management business,
SuckerPunch, to the former business owners, the agreement had an effective date of July 1, 2018. The parties agreed to terminate / settle the existing employment agreements.
One of the former employees was paid severance until August 31, 2018 and issued the remaining 108,289 [5,699] common shares held in escrow related to the SuckerPunch
acquisition. The Company recognized a stock-based compensation charge of $31,000 related to the issuance of the 108,289 [5,699] common shares. The other former employee
was paid severance through September 15, 2018 and had his warrant to purchase 93,583 [4,925] common shares repriced from $3.74 [$71.06] to $0.3725 [$7.0775]. The
Company recognized a stock-based compensation charge of $10,000 related to the repricing of the common stock warrant. The Company recognized a $70,000 loss in relation
to the disposal of the SuckerPunch business. In conjunction with the settlement with the former owner of Fight Club OC, Roy Englebrecht, the shares held in escrow were
released as part of the separation agreement. The Company recorded stock based compensation expense of $55,000, the fair value of the shares on the date the agreement was
entered. In September 2018, the Company sold the Victory name and related business assets to a vendor in settlement of an outstanding payable balance of $33,064. In
September 2018, the Company sold Fight Time to the former business owner and terminated the existing settlement arrangement resulting in a gain of $16,667. In October
2018, the Company resolved its outstanding litigation with Mazzeo Song LLP resulting in the Company agreeing to pay $35,000 in settlement of the outstanding payable
balance. The Company realized a $47,000 gain during the third quarter 2018 on the settlement as all invoices had previously been accrued. On November 12, 2018 the
Company entered into a separation agreement with the former promoter of Victory and agreed to issue the 121,699 [6,405] shares held in escrow related to the Victory
acquisition. The effective date of the agreement was September 30, 2018 and as a result the Company recognized $35,000 of stock-based compensation expense.
During the fourth quarter 2018, the Company and Ira Rainess, agreed to terminate the employment agreement and entered a settlement agreement in which the Company agreed
to pay $100,000 in cash and grant an option to acquire 350,000 [18,421] common shares with an exercise price of $0.25 [$4.75]. The Company paid $10,000 upon signing and
the balance in February 2019. The Company recognized a stock-based compensation charge of $38,500 related to the option award. In 2019, the Company settled the lease
liability related to the former office in Cherry Hill, New Jersey for $75,000 cash and issuance of $50,000 of warrants. As a result, the Company realized a gain on the settlement
of $42,475, and is included in the results for the year ended December 31, 2018.
As of December 31, 2018, the Company disposed of all the professional MMA promotion, sports management, and video and distribution businesses.
The current assets, long-term assets, current liabilities and long-term liabilities of discontinued operations were as follows:
Cash
Accounts receivable, net
Other receivables
Current assets - discontinued operations
Property and equipment, net
Intangible assets, net
Goodwill
Long-term assets - discontinued operations
Accounts payable
Accrued liabilities
Current liabilities - discontinued operations
Long-term deferred tax liability
Long-term liabilities - discontinued operations
December 31, 2018
December 31, 2017
— $
—
—
— $
— $
—
—
— $
— $
475,054
475,054 $
— $
— $
305,349
225,787
71,250
602,386
259,463
2,615,224
5,963,537
8,838,224
67,761
385,591
453,352
23,943
23,943
$
$
$
$
$
$
$
$
F-14
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Business Combinations
During 2017, the Company completed several business acquisitions. The Company has included the financial results of these business acquisitions in the consolidated financial
statements from their respective dates of acquisition. Goodwill generated from all business acquisitions was primarily attributable to expected synergies from future growth and
potential monetization opportunities. The Company has since disposed of all these businesses in connection with the exit/disposal plan described elsewhere.
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 year ended December 31, 2018.
The following acquisitions were completed during the year ended December 31, 2017:
SuckerPunch
On January 4, 2017, Alliance 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 [16,184] shares of
Alliance MMA common stock valued at $3.73 [$70.87] 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 [4,925] shares of the Company’s common stock.
Fight Time
On January 18, 2017, Alliance 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 [3,930] shares of the Alliance MMA’s common stock valued at $3.85 [$73.15] per share,
the fair value of Alliance MMA common stock on January 18, 2017.
National Fighting Championships
On May 12, 2017, Alliance 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 [14,384] shares of Alliance MMA
common stock valued at $1.34 [25.46] per share, the fair value of Alliance MMA common stock on May 12, 2017.
Fight Club Orange County
On June 14, 2017, Alliance 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 [36,474] shares of
the Company’s common stock valued at $1.17 [$22.23] per share, the fair value of Alliance MMA common stock on June 14, 2017.
Victory Fighting Championship
On September 28, 2017, Alliance 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 [14,100] shares of the
Company’s common stock valued at $2.40 [$45.60] per share, the fair value of Alliance common stock on September 28, 2017.
F-15
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Final Purchase Allocation - SuckerPunch
As consideration for the acquisition of SuckerPunch, the Company delivered the following amounts of cash and shares of common stock.
SuckerPunch
Cash
Shares
$
357,500
307,487 [16,184]
Warrants
Grant
93,583 [4,925] $
Consideration
Paid
1,686,347
In connection with the acquisition, 108,289 [5,699] shares of the 307,487 [16,184] 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 [5,699]
shares held in escrow would have been forfeited. During the third quarter 2018, Management entered a separation agreement with the former owner of SuckerPunch and
released the shares held under escrow, and recorded stock based compensation expense of $31,000, the fair value of the shares on the date the agreement was entered.
The following table reflects the final allocation of the purchase price for SuckerPunch to identifiable assets, intangible assets, goodwill and identifiable liabilities:
Cash
Accounts receivable, net
Intangible assets
Goodwill
Total identifiable assets
Total identifiable liabilities
Total purchase price
Final Fair Value
—
$
—
210,000
1,522,605
1,732,605
(46,258)
1,686,347
$
$
During the quarter ended June 30, 2018, the Company recognized an impairment charge of the net intangible assets and goodwill and fully wrote off these assets. The
impairment charge is a component of net loss from discontinued operations, net of tax, for the year ended December 31, 2018.
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.
Fight Time
Cash
$
84,000
Shares
74,667 [3,930] $
Consideration
Paid
371,468
In connection with the business acquisition, 28,000 [1,474] shares of the 74,667 [3,930] 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. If the gross profit of Fight Time was less than $60,000 during fiscal year 2017, all 28,000 [1,474]
shares held in escrow were to be forfeited. During the first quarter 2018, the Company 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:
Cash
Accounts receivable, net
Intangible assets
Goodwill
Total identifiable assets
Total identifiable liabilities
Total purchase price
Final Fair Value
—
$
—
140,000
231,468
371,468
—
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.
F-16
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NFC
$
140,000
273,304 [14,384] $
506,227
Cash
Shares
Consideration
Paid
In connection with the business acquisition, 81,991 [4,315] shares of the 273,304 [14,384] 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 [4,315] shares held in escrow will be forfeited. The Company entered in to a separation agreement during the fourth quarter 2018, with an effective
date of October 1, 2018 and released all the shares held in escrow. The Company recorded a stock based compensation charge of $22,630 related to the release of 81,991
[4,315] shares, based upon the fair value of the shares on the date the agreement was entered.
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:
Cash
Accounts receivable, net
Fixed assets
Intangible assets
Goodwill
Total identifiable assets
Total identifiable liabilities
Total purchase price
Final Fair Value
—
$
—
20,000
180,000
306,227
506,227
—
506,227
$
$
In conjunction with the cessation of the MMA operations, the Company wrote off the residual intangible and tangible assets which is included as a component of net loss from
discontinued operations, net of tax, for the year ended December 31, 2018.
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.
Fight Club OC
$
207,900
693,000 [36,474] $
1,018,710
Cash
Shares
Consideration
Paid
Among the assets purchased is a cash balance of $159,000 related to customer deposits on ticket sales for future 2017 MMA promotion events. In connection with the business
acquisition, 258,818 [13,622] shares of the 693,000 [36,474] 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 was less than $148,500 during the 12-month period following
the acquisition, all 258,818 [13,622] shares held in escrow would have been forfeited. In conjunction with the settlement with the former owner of Fight Club OC, Roy
Englebrecht, the shares held in escrow were released as part of the separation agreement. The Company recorded stock based compensation expense of $55,000, the fair value
of the shares on the date the agreement was entered.
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:
Cash
Accounts receivable, net
Intangible assets
Goodwill
Total identifiable assets
Total identifiable liabilities
Total purchase price
Final Fair Value
159,000
$
—
270,000
748,710
1,177,710
(159,000)
1,018,710
$
$
In conjunction with the cessation of the MMA operations, the Company wrote off the residual intangible and tangible assets which is included as a component of net loss from
discontinued operations, net of tax, for the year ended December 31, 2018.
F-17
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Victory Fighting Championship
$
180,000
267,891 [14,100] $
822,938
Cash
Shares
Consideration
Paid
In connection with the business acquisition, 121,699 [6,405] shares of the 267,891 [14,100] 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 [6,405] shares held in escrow would have been forfeited. Additionally, 146,192 [7,694] 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. During the third
quarter 2018, the Company entered a separation agreement with the former owner of Victory and released the shares held under escrow, and recorded stock based compensation
expense of $35,000, the fair value of the shares on the date the agreement was entered.
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:
Cash
Accounts receivable, net
Fixed assets
Intangible assets
Goodwill
Total identifiable assets
Total identifiable liabilities
Total purchase price
Final Fair Value
—
$
32,180
30,000
290,000
578,167
930,347
(107,409)
822,938
$
$
In conjunction with the cessation of the MMA operations, the Company wrote off the residual intangible and tangible assets which is included as a component of net loss from
discontinued operations, net of tax, for the year ended December 31, 2018.
F-18
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Goodwill and Purchased Identifiable Intangible Assets
Goodwill
In May 2018, the Company ceased all professional MMA promotion operations and committed to an exit/disposal plan of the promotion businesses. In September 2018, the
Company ceased all sports management operations and extended its exit/disposal plan to SuckerPunch. In conjunction with the discontinued operations, $5,963,537 of goodwill
was classified as a component of long term assets - discontinued operations within the December 31, 2017, consolidated balance sheet, which was subsequently impaired during
2018 and is included as a component of net loss from discontinued operations, net of tax. See Note 4 - Discontinued Operations.
Intangible Assets
During the second quarter of 2018, the Company recorded an intangible impairment charge of $231,037 related to the write down of the ticketing software and promoter
relationships acquired intangible assets from the CageTix business acquisitions, which is included as a component of operating expenses for the year ended December 31, 2018.
During the second quarter of 2018, the Company recorded an intangible impairment charge of $182,546 related to the write down of the trademark and brand, fighter contracts,
and sponsor relationships acquired intangible assets from the SuckerPunch business acquisitions, which is included as a component of net loss from discontinued operations,
net of tax, for the year ended December 31, 2018.
F-19
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Identified intangible assets consist of the following:
Intangible assets
Ticketing software
Promoter relationships
Total intangible assets
Useful Life
3 years
6 years
$
$
December 31, 2018
Gross
Assets
Accumulated
Amortization Impairment
Net
Gross
Assets
December 31, 2017
Accumulated
Amortization
90,000 $
277,099
367,099 $
(52,500) $
(83,562)
(136,062) $
(37,500) $
(193,537)
(231,037) $
— $
—
— $
90,000 $
277,099
367,099 $
(37,500) $
(57,729)
(95,229) $
Net
52,500
219,370
271,870
Amortization expense for the year ended December 31, 2018 and 2017, was $40,833 and $76,183, respectively.
In May 2018, the Company ceased all professional MMA promotion operations and committed to an exit/disposal plan of the promotion business. On September 13, 2018, the
Company ceased operations of the Sports Management business and began a plan of disposition. In conjunction with the discontinued operations, $2.6 million of intangible
assets, net, were classified as long term assets - discontinued operations within the December 31, 2017, consolidated balance sheet, which were disposed of during the second
quarter of 2018.
As of December 31, 2018, there were no intangible assets.
Note 7. Debt
Notes Payable
In December 2017, the Company issued a promissory note to an individual for $300,000 of borrowings for operating capital leading up to the Company’s public offering in
January 2018. The note had a maturity of 30 days, an annual interest rate of 40%, and was paid in full at maturity in January 2018 including interest of $45,000. The note was
personally guaranteed by Joseph Gamberale, a board member of the Company at the time.
In May 2018, the Company issued a promissory note to an individual for $90,000 of borrowings for operating capital. The note had a maturity of June 30, 2018, an annual
interest rate of 6%, and was paid in full in June 2018, including interest of $625. The note was secured by our common shares in SuckerPunch.
On May 9, 2018, the Company borrowed $200,000 from an individual pursuant to a promissory note. The note bears interest at 40% annually and initially matured on June 25,
2018. In June 2018, the note holder agreed to extend the maturity to December 31, 2018. In September 2018, the Company agreed to issue the note holder 200,000 [10,526]
common shares with a fair value of $58,000 and 50,000 [2,632] warrants with an exercise price of $0.29 [$5.51], term of 5 years, and Black-Scholes fair value of $8,500, which
is a component of stock based compensation, in exchange for the note holder’s agreement to convert all interest under the loan into common stock and extend the note to
December 31, 2018. Mr. Gamberale personally guaranteed the note and Mr. Gamberale and Mr. Tracy agreed to subordinate their existing notes to the repayment of this note.
Interest expense for the year ended December 31, 2018 was approximately $50,000.
Convertible Notes Payable
On June 28, 2018, the Company entered into an SPA with SCWorx, under which the Company agreed to sell up to $1.0 million in principal amount of convertible notes and
warrants to purchase up to 671,142 [35,323] shares of common stock. The notes were originally convertible into shares of common stock at a conversion price of $0.3725
[$7.0775] and bore interest at 10% annually. The warrants were originally exercisable for shares of common stock at an exercise price of $0.3725 [$7.0775].
Under the SPA, SCWorx agreed to fund (i) $500,000 at the initial closing, (ii) a second tranche of $250,000 upon the signing of a business combination agreement with the
Company and (iii) a third tranche of $250,000 upon mutual agreement of the Company and SCWorx.
On December 18, 2018, SCWorx agreed to increase the total amount of principal from $1.0 million $1.25 million and to reduce the conversion price of the final $500,000
installment of the aggregate $1,250,000 note purchase to $0.20 [$3.80] per share. The warrant exercise price for the related warrants to purchase 625,000 [32,895,] shares was
reduced to $0.30 [$5.70] per share.
Pursuant to the SCWorx SPA, during 2018, the Company sold SCWorx convertible notes in the principal amount of $1,035,000 and warrants to purchase an aggregate of
859,606 [45,242] shares of common stock, for an aggregate purchase price of approximately $1,035,000. The note for $750,000 bears interest at 10% annually and matures on
July 31, 2019. This note was amended in January 2019 to reduce the conversion price to $0.215 [$4.09] per share. The related warrant to acquire 503,356 [26,492] common
shares has an exercise price of $0.3725 [$7.0775], a term of five years and was vested upon grant. The note for $275,000 has a conversion price of $0.20 [$3.80], bears interest
at 10% annually and matures on June 22, 2019. The warrant to acquire 356,250 [18,750] common shares has an exercise price of $0.30 [$5.70], a term of five years and was
vested upon grant.
The Company has accounted for the amendment of its convertible promissory notes as a modification, not an extinguishment, under GAAP.
Warrants Liability
The Company has recorded a derivative warrant liability in relation to the contingent put option upon the occurrence of a “fundamental transaction”, as defined. The fair value
of the derivative warrant liability (and related debt discount) at the date of issuance was determined using the Black-Scholes option pricing model, which was deemed not to be
materially different than the fair value as would have been determined using an open simulation model such as the Monte Carlo. The Black-Scholes model uses a combination
of observable inputs (Level 2) and unobservable inputs (Level 3) in calculating fair value.
F-20
The assumptions used to measure the fair value of the warrants as of their issuance date and as of December 31, 2018 were as follows:
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Risk-Free Interest Rate
Expected Dividend Yield
Expected Volatility
Term
Fair Market Value of Common Stock
Issuance Date
December 31, 2018
2.73%
0%
91.95%
5 years
0.3275
$
2.51%
0%
91.95%
4.97 years
0.16
$
The values of the derivative warrant liability at issuance and as of December 31, 2018 were $147,000 and $88,000, respectively, resulting in a gain on change in fair value of
$59,000.
Derivative Liability
The Company has recorded a derivative liability in relation to the contingent put option within its convertible note agreements, upon the occurrence of a “fundamental
transaction”, as defined. The fair value of the derivative liability (and related debt discount) at the date of issuance was determined using the Black-Scholes option pricing
model, which was deemed not to be materially different than the fair value as would have been determined using an open simulation model such as the Monte Carlo. The Black-
Scholes model uses a combination of observable inputs (Level 2) and unobservable inputs (Level 3) in calculating fair value.
The assumptions used to measure the fair value of the derivatives as of their related convertible notes’ issuance date and as of December 31, 2018 were as follows:
Risk-Free Interest Rate
Expected Dividend Yield
Expected Volatility
Term
Fair Market Value of Common Stock
Issuance Date
December 31, 2018
2.33%
0%
140.79%
1 year
0.3324
$
2.63%
0%
117.07%
.99 year
0.1619
$
The values of the derivative liability at issuance and as of December 31, 2018 were $9,000 and $13,800, respectively, resulting in a loss on change in fair value of $4,400.
Additional Information
The SCWorx acquisition closed on February 1, 2019 and the principal and accrued interest converted in to shares of the Company’s common stock.
The Company applied a portion of the proceeds from the note to repay the aforementioned $90,000 promissory note. Accordingly, the lien on the capital stock of SuckerPunch
Entertainment was released.
Interest expense, for borrowings under the various SCWorx notes, for the year ended December 31, 2018 was approximately $108,000.
The Company recorded non – cash interest expense in the amounts of $45,000 and $4,700 in relation to amortization of debt discount on the warrants and derivative liabilities,
respectively.
Related Party Promissory Notes
On April 10, 2018, the Company borrowed a total of $300,000 from two of its former board members, Joseph Gamberale and Joel Tracy, pursuant to promissory notes of
$150,000, respectively. The notes bear interest at 12% annually and matured May 21, 2018. Mr. Gamberale personally guaranteed Mr. Tracy’s note.
Interest expense for the year ended December 31, 2018 was approximately $12,000 for the note with Mr. Gamberale and $14,000 for Mr. Tracy’s note.
On May 21, 2018 Mr. Gamberale agreed to extend the maturity to August 31, 2018. The repayment of this note was subordinate to the $200,000 promissory note of May 9,
2018. In July 2018, Mr. Gamberale agreed to convert his note to common shares (at a rate of $.3725 [$7.0775] per share) and warrants (25% warrant coverage with an exercise
price of $.3725 [$7.0775] per share) (same as the original terms of the first $750,000 of the SCWorx investment). In October 2018, this arrangement was amended and Mr.
Gamberale chose to participate in the Series A Preferred Stock placement. As of the date of this report, the note and accrued interest has been converted into shares of the
Company’s Series A Preferred Stock and related warrants.
On May 21, 2018 Mr. Tracy agreed to extend the maturity to December 31, 2018. In November, Mr. Tracy chose to participate in the Series A Preferred Stock placement. As of
the date of this report, the note and accrued interest has been converted into shares of the Company’s preferred stock.
F-21
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Commitments and Contingencies
Operating Leases
The Company does not own any real property. The Company’s principal executive offices are located at an office complex in New York, New York, comprised of
approximately twenty thousand square feet of shared office space and services that we are leasing. The lease had an original one-year term that commenced on December 1,
2015, which was renewed until November 30, 2018 and currently is under a month-to-month arrangement. The lease allows for the limited use of private offices, conference
rooms, mail handling, videoconferencing, and certain other business services.
In November 2016, the Company entered a sublease agreement for office and video production space in Cherry Hill, New Jersey. The lease originally expired on June 30, 2019.
In June 2018, the Company abandoned the facility and on June 21, 2018 the sub-landlord filed suit against the Company for non-payment of rent. In January 2019, the
Company settled the suit and agreed to pay $75,000 and issue warrants having a Black-Scholes value of $50,000. The Company had previously accrued the amount due of
$167,475 as a result of the settlement, the Company realized a gain on the settlement of $42,475, which is included in the discontinued operations results for the year ended
December 31, 2018
With the acquisition of FCOC, the Company originally assumed a lease for office space in Orange County, California. The lease originally expired in September 2018. In
conjunction with the discontinued operations the Company agreed to sell Fight Club OC to the former owner Roy Englebrecht which included the Orange County, California
office lease.
Lease expense for the Cherry Hill, New Jersey and Orange County, CA facilities is included as a component of net loss from discontinued operations, net of tax.
Each of the acquired businesses operated from home offices or shared office space arrangements.
Warrants
In conjunction with the stock offering completed in January 2018, the Company issued warrants with a provision requiring the Company to pay the warrant holder the Black -
Scholes value of the warrant upon a fundamental transaction. On August 20, 2018, the Company entered into a Stock Exchange Agreement with SCWorx. which upon the
closing in February 2019, qualified as a fundamental transaction within the meaning of the warrant agreement. The stock price at the time of announcement was approximately
$0.20 [$3.80], the Black - Scholes value would approximate $2.68 per share based upon volatility and risk-free interest rate. As of the date of this report, there were
approximately 1,060,000 [55,790] warrants outstanding which are subject to this Black - Scholes payout provision.
Contingencies
Legal Proceedings
In conducting our business, we may become involved in legal proceedings. We will accrue a liability for such matters when it is probable that a liability has been incurred and
the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range
is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for
example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
In April and May 2017, respectively, two purported securities class action complaints-Shapiro v. Alliance MMA, Inc., No. 1:17-cv-2583 (D.N.J.), and Shulman v. Alliance
MMA, Inc. , No. 1:17-cv-3282 (S.D.N.Y.)-were filed against the Company and certain of its officers in the United States District Court for the District of New Jersey and the
United States District Court for the Southern District of New York, respectively. The complaints alleged that the defendants violated certain provisions of the federal securities
laws, and purported to seek damages in an amount to be alleged on behalf of a class of shareholders who purchased the Company’s common stock pursuant or traceable to the
Company’s initial public offering. In July 2017, the plaintiffs in the New York action voluntarily dismissed their claim and, on March 8, 2018, the parties reached a settlement
to the New Jersey action in which the carrier for our directors and officers liability insurance policy has agreed to cover Alliance’s financial obligations, including legal fees,
under the settlement arrangement, subject to our payment of a deductible of $250,000, which has been paid in full as of the date of this report. The complaint was dismissed in
October 2018.
F-22
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2017, a shareholder derivative claim based on the same facts that were alleged in the class action complaints was filed against the directors of the Company in the
District Court for the District New Jersey; however, a complaint was not served on the defendants and, on February 2, 2018 the claim was dismissed by the District Court.
In June 2018, the landlord of our Cherry Hill, New Jersey office filed suit against the Company for non-payment of rent. The Company successfully negotiated a settlement of
$75,000 and issuance of a warrant to acquire 384,750 [20,250] shares. The Company originally recorded $167,000 of expense related to the lease within net loss from
discontinued operations, net of tax, for the cost of the remaining payments under the lease agreement. In January 2019, the Company settled the suit by agreeing to pay $75,000
of cash and issue $50,000 (Black-Scholes value) of warrants to acquire common stock.
In June 2018, the Company’s former President, Robert Haydak, filed suit against the Company. The Company and Mr. Haydak resolved the suit effective July 2018 with the
Company agreeing on a cash settlement of $50,000, and delivery of certain MMA promotion fixed assets. The Company accrued the settlement which is included within net
loss from discontinued operations, net of tax, and current liabilities - discontinued operations balance as of December 31, 2018. The Company paid the amount owed during
February 2019.
On December 19, 2018, the Company’s former CEO, Robert L. Mazzeo, who resigned on May 25, 2018, served a complaint against the Company in the United States District
Court for the Southern District of NY. Mazzeo alleges that he (i) was fraudulently induced to become the CEO of the Company and (ii) entered into an employment contract
with the Company and that the Company breached said alleged contract. Mazzeo seeks damages in “excess of $500,000.” The Company believes that the lawsuit is frivolous
and violative of Rule 11 of the Federal Rules of Civil Procedure. The Company filed an answer to the complaint on February 5, 2019, and in addition to mounting a vigorous
defense, filed counter claims alleging breach of fiduciary duty.
Most Favored Nation Issuance
On October 19, 2018, the Company issued Red Diamond Partners 794,483 [41,815] shares of common stock in consideration of a “most favored nation” clause contained in a
common stock subscription agreement. Under a clause in the subscription agreement, if the Company issued lower priced securities subsequent to the sale to the investor, then
the Company would be required to re-price the investor’s shares to the lower price and issue additional shares accordingly. In relation to the settlement agreement the parties
terminated the original agreement. A non-cash dividend of $200,000 was changed on the consolidated statement of operations for the year ended December 31, 2018, in regards
to this re-pricing.
Earn Out
Management evaluated the financial performance of CFFC, COGA, HFC, Shogun, V3, CageTix, and IT Fight Series in 2017 compared to the earn out thresholds as described in
the respective Asset Purchase Agreements. Based upon management’s estimates, the Company recorded an earn out liability in 2017 of approximately $310,000 related to
Shogun’s financial results. In conjunction with the cessation of the professional MMA promotions, the Company sold the Shogun promotion to the former owner and settled the
earn out liability with the issuance of 366,072 [19,267] options with an exercise price of $0.35 [$6.65] per option and Black-Scholes value of $94,000. None of the other
businesses met their earn out targets during 2018.
Note 9. Stockholders’ Equity
Stock Offering
On January 9, 2018, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, acting as sole book-running manager (the
“Underwriter”), for a secondary public offering (the “Offering”) of a combination of 2,150,000 [113,158] shares of common stock, par value $0.001 per share (the “Common
Stock”) of the Company, and 1,935,000 [101,842] warrants to purchase 1,935,000 [101,842] shares of common stock (the “Warrants”). Each share of common stock was sold in
combination with a warrant to purchase 0.90 [0.05] shares of common stock. The Warrants have a five-year term and an original exercise price of $1.10 [$20.90] per share.
The warrants have a price adjustment provision (“ratchet”) in cases where the Company sells common stock or settles liabilities with equity, at a lower price than is reflected in
the Warrants. During June, July and August, the Company completed qualifying transactions under the SCWorx note resulting in the Warrant exercise price being adjusted to
$0.31 [$5.89] in June and $0.29 [$5.51] in July, which is the lowest amount the warrant can be repriced to. Based upon ASU 2017-11, the decrease in the exercise price of the
warrant has been fair valued at approximately $190,000 and accounted for as a non-cash dividend within the consolidated balance sheet. The warrant also has a provision
requiring the Company to pay the warrant holders the Black-Scholes value of the warrant upon consummation of a fundamental transaction. On August 20, 2018, the Company
entered a stock exchange agreement with SCWorx which, upon closing, meets this definition. For illustration purposes only, the stock price at closing was $4.40, the Black-
Scholes value was approximately $2.68 per share. As of the date this filing, there were approximately 1,060,000 [56,000] warrants outstanding which are subject to this Black-
Scholes payout provision.
The Offering price was $1.00 [$19.00] per share of Common Stock and related Warrant and the Underwriter had agreed to purchase the shares of Common Stock and related
Warrants from the Company at a 7.0% discount to the Offering price. In addition, the Company granted to the Underwriter a 45-day option to purchase up to an additional
322,500 [16,974] shares of Common Stock and/or 290,250 [15,276] Warrants to purchase 290,250 [15,276] shares of Common Stock at the same price to cover over-
allotments, if any. The underwriter exercised this option is February 2018 resulting in an additional $50,000 from the sale and issuance of 50,000 [2,632] shares and 272,500
[14,342] warrants. The Underwriting Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing,
indemnification obligations of the Company and the Underwriter, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and
termination provisions.
F-23
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The gross proceeds to the Company from the Offering and overallotment were approximately $2.2 million before underwriting discounts and commissions and other offering
expenses.
The Offering was made pursuant to an effective shelf registration statement on Form S-3 that was declared effective by the Securities and Exchange Commission on December
1, 2017 and a prospectus supplement, dated January 9, 2018, together with the accompanying base prospectus.
One of our former board members, Joseph Gamberale, participated in the offering and acquired 25,000 [1,316] units which included 22,500 [1,184] warrants.
Common Stock Private Placements
In July 2017, the board of directors approved the issuance of up to $2.5 million of our common stock in one or more private placements.
In July 2017, Board members and an employee executed subscription agreements for 513,761 [27,040] units at a purchase price of $1.09 [$20.71] per unit. In August 2017, the
Company determined that the amount raised through such sales was insufficient to meet its current needs, and accordingly solicited subscription agreements from third parties
for 965,000 [50,789] units at $1.00 [$19.00] per unit. Each unit sold in these placements consists of one restricted share of AMMA common stock and a warrant to acquire one
share of common stock at an exercise price of $1.50 [$28.50] per share. The Company issued all 1,478,761 [77,830] shares of common stock sold in these placements on
August 29, 2017.
In October and November 2017, the Company solicited subscription agreements from third parties for 390,000 [20,526] units at $1.25 [$23.75] per unit. Each unit sold in the
placement consists of one restricted share of AMMA common stock and a warrant to acquire one half a share of common stock, 195,000 [10,263] shares in total, at an exercise
price of $1.75 [$33.25] per share.
The warrant issued with the October common stock placement included a price ratchet provision for cases where the Company sells common stock or settles liabilities with
equity, at a lower price than is reflected in the warrants. The Company completed a transaction which resulted in the warrant exercise price being adjusted to $1.10 [$20.90].
Based upon ASU 2017-11, the decrease in the exercise price of the warrant has been fair valued at approximately $10,000 and accounted for as a non-cash dividend within the
consolidated balance sheet. There is no further reduction to the exercise price as this provision has expired.
Common Stock Grant
In February 2017, the Company entered a consulting arrangement with DC Consulting for management consulting services with a term of one year and included the grant of
150,000 [7,895] shares subject to board of director approval. In July 2017, the Company issued the 150,000 [7,895] restricted shares to DC Consulting under the arrangement
and recognized stock-based compensation of approximately $148,000, the fair value of the shares on the date of issuance.
Option Grants
In August 2016, the Company entered into an employment agreement with John Price as the Company’s Chief Financial Officer. In connection with Mr. Price’s employment he
was awarded a stock option grant to acquire 200,000 [10,526] shares of the Company’s common stock. The stock option had a term of ten years, an exercise price of $4.50
[$85.50], and a grant date fair value of $364,326, and vested one third of the shares on the one year anniversary of the grant date and one third annually thereafter. The
Company recognized $61,000 of stock-based compensation expense during the second quarter of 2018. On June 6, 2018, the Company cancelled the original stock option grant
and issued a new stock option grant to acquire 200,000 [10,526] shares of the Company’s common stock. The stock option has a term of five years, an exercise price of $0.36
[$6.84], was vested upon grant, and had a grant date fair value of $42,000. The Company determined the fair value of the stock option using the Black - Scholes model. On
September 13, 2018, the Company awarded John Price, then the Company’s President and CFO, a stock option to acquire 250,000 [13,158] shares of the Company’s common
stock. The option has a term of five years, an exercise price of $0.31 [$5.89], and a grant date fair value of $55,000, and was fully-vested upon grant. The Company determined
the fair value of the stock option using the Black-Scholes model.
On February 1, 2017, the Company entered into an employment agreement with James Byrne as the Company’s Chief Marketing Officer. In connection with Mr. Byrne’s
employment he was awarded a stock option grant to acquire 100,000 [5,263] shares of the Company’s common stock. The stock option had a term of 5 years, an exercise price
of $3.55 [$67.45], and a grant date fair value of $247,882, and was fully-vested upon grant. The Company determined the fair value of the stock option using the Black-Scholes
model. In February 2018, Mr. Byrne was terminated, and in May 2018, the Company entered a separation agreement for $25,000 and agreed to cancel Mr. Byrne’s existing
stock option grant and issue a new award. On June 27, 2018, the Company issued a stock option grant outside the 2016 Equity Incentive Plan to acquire 100,000 [5,263] shares
of the Company’s common stock. The stock option has a term of 5 years, an exercise price of $0.31 [$5.89] per share, was vested upon grant, and had a grant date fair value of
$17,000. The Company determined the fair value of the stock option using the Black- Scholes model.
On May 25, 2018, the Company commenced the cessation of the professional MMA promotion business. In relation to the disposal of the Iron Tiger Fight Series promotion, the
Company awarded the former owner, Scott Sheeley, a stock option grant to acquire 30,000 [1,579] shares of the Company’s common stock. The stock option has a term of five
years, an exercise price of $0.35 [$6.65] and a Black - Scholes value of $7,674, which is included as a component of net loss from discontinued operations, net of taxes.
In December 2018, the Company entered into an employment termination agreement with Ira Rainess. In connection with Mr. Rainess’ termination he was awarded a stock
option grant to acquire 350,000 [18,421] shares of the Company’s common stock. The stock option had a term of 3 years, exercise price of $0.25 [$4.75], and a grant date fair
value of $38,500 and was fully vested upon grant. The Company determined the fair value of the stock option using the Black-Scholes model.
F-24
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plan
On December 19, 2016, the board of directors of the Company awarded stock option grants under the 2016 Equity Incentive Plan to four employees to acquire an aggregate of
200,000 [10,526] shares of the Company’s common stock. The stock options had a term of 10 years and an exercise price of $3.56 [$67.64] per share, vested annually over
three years in three equal tranches and had a grant date fair value of $497,840. The Company determined the fair value of the stock options using the Black-Scholes model. Each
award was accepted by the recipient during the first quarter 2017 at which point the Company began to recognize stock-based compensation expense. In May 2018, in
conjunction with the cessation of the professional MMA business, three of the employees were terminated, and 100,000 [5,263] unvested options were returned to the plan as
forfeited. During the third quarter an additional 50,000 [2,632] unvested options were returned to the plan as forfeited.
On May 15, 2017, the Company entered into an employment agreement with Ira Rainess as the Company’s EVP of Business Affairs. In connection with Mr. Rainess’
employment, in September 2017, he was awarded a stock option grant to acquire 100,000 [5,263] shares of the Company’s common stock. The stock option has a term of 3
years, an exercise price of $1.30 [$24.70], and a grant date fair value of $53,306, and vests one half of the shares on the one year anniversary of the grant date and one half on
the second anniversary. The Company determined the fair value of the stock option using the Black-Scholes model.
On December 17, 2017, the Company awarded Robert Mazzeo, the Company’s external General Counsel at that time, a stock option grant to acquire 125,000 [6,579] shares of
the Company’s common stock. The option had a term of three years, an exercise price of $1.50 [$28.50], and a grant date fair value of $77,500, and was fully-vested upon grant.
The Company determined the fair value of the stock option using the Black-Scholes model.
In March 2018, the board of directors authorized stock option grants to Robert Mazzeo, CEO and Ira Rainess EVP of Business Affairs. Mazzeo and Mr. Rainess were each
awarded options to acquire 250,000 [13,158] shares with an exercise price of $0.53 [$10.07] and vested upon grant. As of the date of this report the option agreements had not
been issued. As both Mr. Mazzeo and Mr. Rainess are no longer employed by the Company and the option was not issued, and the period to exercise the awards expired, the
Company cancelled the option grants during the fourth quarter of 2018.
As disclosed above, in December 2018, the Company entered into an employment termination agreement with Ira Rainess. In connection with Mr. Rainess’ termination he was
awarded a stock option grant to acquire 350,000 [18,421] shares of the Company’s common stock. The stock option had a term of 3 years, exercise price of $0.25 [$4.75], and a
grant date fair value of $38,500 and was fully vested upon grant. The Company determined the fair value of the stock option using the Black-Scholes model.
On May 25, 2018, the Company commenced cessation of the professional MMA promotion business. In relation to the disposal of the Shogun promotion, the Company
awarded the former owner, John Rallo, a stock option grant to acquire 366,072 [19,267] shares of the Company’s common stock. The stock option was vested upon grant, has a
term of five years, an exercise price of $0.35 [$6.65] and a Black-Scholes value of $94,000. The option award was issued as settlement of the $310,000 earn-out, the Company
realized a gain of $216,000, which is included as a component of net loss from discontinued operations, net of taxes.
On June 6, 2018, the Company awarded Burt Watson, the Company’s Vice President of Operations, a stock option grant to acquire 75,000 [3,947] shares of the Company’s
common stock. The option has a term of five years, an exercise price of $0.36 [$6.84], and a grant date fair value of $19,100, and was fully-vested upon grant. The Company
determined the fair value of the stock option using the Black-Scholes model.
On June 6, 2018, the Company awarded each of its directors, Joe Gamberale, Joel Tracy and Burt Watson, a stock option grant to acquire 150,000 [7,895] shares of the
Company’s common stock. Each option has a term of five years, an exercise price of $0.36 [$6.84], and a grant date fair value of $38,000, and was fully-vested upon grant. The
Company determined the fair value of the stock option using the Black-Scholes model.
On July 30, 2018, in relation to the disposal of the CFFC promotion, the Company awarded the former owner, Michael Constantino, a stock option grant to acquire 75,000
[3,947] shares of the Company’s common stock. The stock option has a term of five years, an exercise price of $0.20 [$3.80] and a grant date fair value of $10,500 and was
fully-vested upon grant. The Company determined the fair value of the stock option using the Black-Scholes Model. The grant date fair value is included as a component of net
loss from discontinued operations, net of taxes. The effective date of the agreement was May 31, 2018.
On August 14, 2018, the Company awarded John Price, the Company’s President and CFO, a stock option grant to acquire 200,000 [10,526] shares of the Company’s common
stock. The option has a term of five years, an exercise price of $0.18 [$3.42], and a grant date fair value of $25,000, and was fully-vested upon grant. The Company determined
the fair value of the stock option using the Black-Scholes model.
On September 13, 2018, the Company awarded John Price, the Company’s President and CFO, a stock option grant to acquire 250,000 [13,158] shares of the Company’s
common stock. The option has a term of five years, an exercise price of $0.31 [$5.89], and a grant date fair value of $55,000, and was fully-vested upon grant. The Company
determined the fair value of the stock option using the Black-Scholes model.
F-25
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 13, 2018, the Company awarded Joseph Gamberale, the Company’s board member, a stock option grant to acquire 250,000 [13,158] shares of the Company’s
common stock. The option has a term of five years, an exercise price of $0.31 [$5.89], and a grant date fair value of $55,000, and was fully-vested upon grant. The Company
determined the fair value of the stock option using the Black-Scholes model.
On September 13, 2018, the Company awarded Jason Schneider, the Company’s Vice President of Operations, a stock option grant to acquire 75,000 [3,947] shares of the
Company’s common stock. The option has a term of five years, an exercise price of $0.31 [$5.89], and a grant date fair value of $16,500, and was fully-vested upon grant. The
Company determined the fair value of the stock option using the Black-Scholes model.
On January 30, 2019, the shareholders of the Company approved an increase in number of shares available under the 2016 Equity Incentive Plan to 3,000,000 shares (split
adjusted).
Warrant Grants
On January 4, 2017, in connection with the acquisition of SuckerPunch, the Company entered an employment agreement with Bryan Hamper as Managing Director. Mr.
Hamper was awarded a warrant to acquire 93,583 [4,925] shares of the Company’s common stock. The warrant has a term of 5 years, an exercise price of $3.74 [$71.06], and a
grant date fair value of $181,920, and was fully-vested upon grant and is included as a component of the SuckerPunch purchase price. The Company determined the fair value of
the warrant using the Black-Scholes model. In September 2018, the Company disposed of SuckerPunch and agreed to reprice the warrant to acquire 93,583 [4,925] common
shares to $0.3725 [$7.0775] per share. The Company recognized a stock based compensation expense of $10,000 related to the repricing.
On March 10, 2017, the Company entered into a service agreement with World Wide Holdings and issued a warrant to acquire 250,000 [13,158] shares of the Company’s
common stock. The warrant has an exercise price of $4.50 [$85.50], term of three years and vest in equal one third increments on April 1, July 1 and October 1, 2017. The
Company determined the fair value of the warrant to be $169,000 which was expensed in the second quarter of 2017. The Company determined the fair value of the warrant
using the Black-Scholes model.
On January 12, 2018, the Company entered into a service agreement with National Services, LLC (“National”), and issued a warrant to acquire 100,000 [5,263] shares of the
Company’s common stock. The warrant has an exercise price of $1.10 [$20.90], term of five years and was vested upon grant. The service agreement allowed National to earn
up to 300,000 [15,789] additional warrants, each with an exercise price of $1.10 [$20.90] and five-year term, based upon achieving certain designated milestones. The
Company terminated the agreement during the third quarter 2018 and issued no additional warrants. The Company determined the fair value of the warrant to be $38,000 which
was expensed in the first quarter of 2018. The Company determined the fair value of the warrant using the Black-Scholes model.
On April 11, 2018, the Company entered into a service agreement with a consultant, and issued a warrant to acquire 100,000 [5,263] shares of the Company’s common stock.
The warrant has an exercise price of $1.10 [$20.90], term of five years and was vested upon grant. The Company determined the fair value of the warrant using the Black-
Scholes model and determined the value to be $25,580, which was expensed during the second quarter of 2018.
In May 2018, the Company issued a promissory note to Joel D. Tracy, a director, for $200,000 of borrowings for operating capital. In September 2018, the Company agreed to
issue the note holder 200,000 [10,526] common shares with a fair value of $58,000 and 50,000 [2,632] warrants with an exercise price of $0.29 [$5.51] and term of five years
and a fair value of $8,500, in exchange for the noteholder’s agreement to convert all interest under the loan into shares of the Company’s common stock, and extend the note to
December 31, 2018. On November 30, 2018, the noteholder agreed to convert the note and accrued interest in the aggregate amount of $250,622.34 into 25,062 Series A
Preferred Shares and warrants which were issued during the first quarter 2019.
During the second, third and fourth quarters of 2018 and first quarter of 2019, the Company issued warrants to SCWorx in relation to the borrowing under note agreements. The
Company issued warrants to purchase 503,356 [26,492] common shares with an exercise price of $0.3725 [$7.0775] per share in relation to the $750,000 note. The Company
also issued warrants to purchase 356,250 [18,750] common shares with an exercise price of $0.30 [$5.70] per share, in relation to the $500,000 note.
F-26
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The number of shares of the Company’s common stock that are issuable pursuant to warrant and stock option grants with time-based vesting as of December 31, 2018 are:
Before reverse stock split
Balance at December 31, 2017
Granted
Exercised
Cancelled/Forfeited
Balance at December 31, 2018
Exercisable at December 31, 2018
Reflective of one-for-nineteen reverse stock split
Balance at December 31, 2017
Granted
Exercised
Cancelled/Forfeited
Balance at December 31, 2018
Exercisable at December 31, 2018
Warrant Grants
Stock Option Grants
Number of
Shares
Subject to
Warrants
Weighted-Average
Exercise Price Per
Share
Number of
Shares
Subject
to Options
Weighted-Average
Exercise Price
Per Share
2,239,574 $
3,316,856
(1,056,750)
-
4,499,680 $
4,499,680 $
2.54
0.37
0.29
-
1.47
1.47
725,000 $
2,421,072
(80,645)
(500,000)
2,565,427 $
2,544,594 $
3.15
0.31
0.31
3.93
0.41
0.42
Warrant Grants
Stock Option Grants
Number of
Shares
Subject to
Warrants
Weighted-Average
Exercise Price Per
Share
Number of
Shares
Subject
to Options
Weighted-Average
Exercise Price
Per Share
117,872 $
174,571
(55,618)
-
236,825 $
236,825 $
48.23
6.95
5.51
-
27.84
27.84
38,158 $
127,425
(4,244)
(26,316)
135,023 $
133,926 $
59.87
5.87
5.89
67.98
7.70
7.90
As of December 31, 2018 and 2017, the total unrecognized expense for unvested stock options, net of expected forfeitures, was approximately $0 and $564,184, respectively.
Stock-based compensation expense for the years ended December 31, 2018 and 2017 is as follows:
General and administrative expense
Year Ended
December 31,
2018
2017
$
738,503 $
516,843
Stock-based compensation expense for discontinued operations for the year ended December 31, 2018 and 2017 is as follows:
Net loss from discontinued operations, net of tax
Year Ended
December 31,
2018
2017
$
397,617 $
427,155
Stock-based compensation expense categorized by the equity components for the year ended December 31, 2018 and 2017 is as follows:
Stock option awards
Warrants
Common stock
F-27
Year Ended
December 31,
2018
2017
$
$
612,410 $
82,080
441,630
1,136,120 $
626,097
169,401
148,500
943,998
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Net Loss per Share
Basic net loss per share is computed by dividing net loss for the period by the weighted average shares of common stock outstanding during each period. Diluted net loss per
share is computed by dividing net loss for the period by the weighted average shares of common stock, common stock equivalents and potentially dilutive securities outstanding
during each period. The Company uses the treasury stock method to determine whether there is a dilutive effect of outstanding option grants.
The following table sets forth the computation of the Company’s basic and diluted net loss from continuing operations per share and net loss per share for the periods presented:
Net loss from continuing operations
Non-cash dividend
Adjusted net loss from continuing operations applicable to common shareholders
Weighted-average common shares used in computing net loss per share, basic and diluted (pre-split)
Weighted-average common shares used in computing net loss per share, basic and diluted (post-split)
Adjusted net loss per share, basic and diluted
Adjusted net loss per share, basic and diluted reflective of one-for-nineteen reverse stock split
Net loss
Non-cash dividend
Adjusted net loss applicable to common shareholders
Weighted-average common shares used in computing net loss per share, basic and diluted (pre-split)
Weighted-average common shares used in computing net loss per share, basic and diluted (post-split)
Adjusted net loss per share, basic and diluted
Adjusted net loss per share, basic and diluted reflective of one-for-nineteen reverse stock split
Year Ended
December 31,
2018
2017
(3,171,059)
-
(3,171,059)
10,679,898
562,100
(0.30)
(5.64)
(3,787,499) $
(200,000)
(3,987,499) $
15,460,391
813,705
(0.26) $
(4.90) $
Year Ended
December 31,
2018
(14,592,246) $
(200,000)
(14,792,246) $
15,460,391
813,705
2017
(11,978,563)
-
(11,978,563)
10,679,898
562,100
(0.96) $
(18.18) $
(1.12)
(21.31)
$
$
$
$
$
$
$
$
The following securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
Stock options (exercise price $0.18 [$3.42] - $4.50 [$85.50] per share)
Warrants (exercise price $0.30 [$5.70] - $7.43 [$141.17])
Total common stock equivalents
F-28
Year Ended
December 31,
2018
2017
2,565,427
4,499,680
7,065,107
725,000
2,239,574
2,964,574
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. INCOME TAXES
The components of loss before benefit from income taxes for the years ended December 31, 2018 and 2017 are as follows:
Domestic
Foreign
Loss before income taxes
Years ended December 31,
2018
2017
$
$
(3,787,499)
-
(3,787,499)
$
$
(6,499,840)
-
(6,499,840)
The Company incurred income tax expense of $0 and income tax benefit of $0 for the years ended December 31, 2018 and 2017, respectively. The income tax expense (benefit)
for the year ended December 31, 2018 and 2017 includes the following:
Current income tax expense:
U.S. Federal
U.S. State
Total current
Deferred:
U.S. Federal
U.S. State
Total deferred
Total expense (benefit) from income taxes
Year Ended December 31,
2018
2017
$
$
-
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
-
-
The income tax expense (benefit) differs from those computed using the statutory federal tax rate of 21% and 34%, respectively, due to the following:
Expected provision at statutory federal rate
State tax-net of federal benefit
Change in valuation allowance
IPO related costs
Rate change
Goodwill impairment
Other
Year Ended December 31,
2018
2017
(795,375)
-
795,375
-
-
-
-
-
$
$
(2,209,946)
-
775,867
-
1,434,079
-
-
-
$
$
F-29
The effect of temporary differences that gave rise to significant portions of deferred tax assets as of December 31, 2018 and 2017, are as follows:
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets:
Net operating loss carryforwards
Accruals
Share based compensation
Start-up costs
Fixed assets
Intangibles
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Fixed assets
Intangibles
Other
Deferred tax liability
Net deferred tax liability
Year Ended December 31,
2018
2017
5,524,492
-
447,322
-
-
-
848,781
6,820,595
(6,820,595)
-
-
-
-
-
-
$
$
2,145,809
-
272,645
248,348
8,206
370,681
32
3,045,721
(3,045,721)
-
-
-
(23,942)
(23,942)
(23,942)
$
$
As of December 31, 2018, the Company has a federal net operating loss carry-forward of $21.6 million available to offset future taxable income. The Company has state loss
carry-forwards of $13.3 million. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code of
1986, as amended (the “Code”). These net operating loss carry-forwards have expiration dates starting in 2031 through 2037.
The valuation allowance as of December 31, 2018 was $6.8 million. The net change in valuation allowance for the year ended December 31, 2018 was an increase of $3.8
million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets
will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred
income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2018.
As of December 31, 2017, the Company has a federal net operating loss carry-forward of $7.8 million available to offset future taxable income. The Company has state loss
carry-forwards of $4.8 million. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code of
1986, as amended (the “Code”). These net operating loss carry-forwards have expiration dates starting in 2031 through 2037.
The valuation allowance as of December 31, 2017 was $3.0 million. The net change in valuation allowance for the year ended December 31, 2017 was an increase of $1.8
million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets
will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred
income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2018.
The Company has no unrecognized tax benefits during the periods presented within. By statute, all tax years are open to examination by the major taxing jurisdictions to which
the Company is subject.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory
federal income tax rate from 35% to 21% effective January 1, 2018. For the year ended December 31, 2017, the Company remeasured its federal deferred tax balances to reflect
the lower statutory rate, offset by a change in its federal valuation allowance. As of December 31, 2018, the Company has completed its accounting for the tax effects of the Act
and no adjustments have been made to its provisional estimate recorded during the year ended December 31, 2017.
F-30
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Subsequent Events
Special Meeting in Lieu of Annual Meeting of Shareholders
On January 30, 2019, the Company held a Special Meeting in lieu of Annual Meeting of Stockholders, at which the stockholders approved all four nominees for the board of
directors and all other proposals submitted to the stockholders, including the SCWorx acquisition and Series A Preferred Stock financing.
Additional Borrowings Under $1,250,000 SPA
In January 2019, SCWorx provided Alliance MMA $215,000 of additional borrowings under the $1,250,000 note agreement. As of February 1, 2019, SCWorx provided the full
$1,250,000 of borrowings. In connection with the closing of the SCWorx acquisition, described below, the SCWorx convertible notes were automatically converted by their
terms into an aggregate 315,177 post-split adjusted shares of common stock which, along with the related warrants, were distributed to certain SCWorx investors at the
direction of SCWorx.
Series A Preferred Stock Financing
In January 2019, the Company issued 550,000 shares of Series A Preferred Stock and related warrants due to investors, in connection with the closing on December 18, 2018 of
the sale of Series A Preferred Stock Units in the aggregate face amount of $5,500,000. The Series A Preferred Stock is convertible into an aggregate of 1,447,368 post-split
common shares (a post-split conversion price of $3.80 per share) and the related warrants are exercisable for an aggregate of 723,684 post-split common shares, at a post-split
exercise price of $5.70 per share.
In addition, in January 2019, the Company issued 67,500 shares of Series A Preferred Stock and related warrants due to creditors, in satisfaction of indebtedness in the amount
of approximately $676,000. The Series A Preferred Stock is convertible into an aggregate of 177,895 post-split common shares (a post-split conversion price of $3.80 per share)
and the related warrants are exercisable for an aggregate of 88,948 post-split common shares, at a post-split exercise price of $5.70 per share.
Acquisition of SCWorx
On February 1, 2019 (“Closing Date”), the Company completed the acquisition of SCWorx Corp. in a stock for stock exchange transaction pursuant to the share exchange
agreement, dated as of August 20, 2018, as amended by Amendment No. 1 thereto (the “Share Exchange Agreement” or “SEA”). Pursuant to the SEA, the Company acquired
from the existing stockholders of SCWorx Corp. all the issued and outstanding shares of common stock of SCWorx Corp. (the “Acquisition”). In connection with the
Acquisition, the Company effected a one-for-nineteen reverse stock split of its common stock and changed its name to SCWorx Corp. References to SCWorx herein refer to the
company acquired by the Alliance MMA.
In connection with the Acquisition, the Company issued:
(i) 190,000 Series A Preferred Stock Units, comprised of 190,000 shares of Series A Preferred Stock ($10.00 face value per share, convertible into common stock at a post-split
adjusted price per share of $3.80 (subject to adjustment), and warrants to purchase 250,000 post-split adjusted shares of common stock at a post-split adjusted exercise price
of $5.70 per share), in satisfaction of approximately $1.9 Million of SCWorx indebtedness; and
(ii) approximately 5,263,158 post-split adjusted shares of the Company’s common stock, each of which had a value of approximately $4.40 per share, based on the last sale price
of the Company’s common stock on the Closing Date
After giving effect to the Company common stock issued in connection with the Acquisition (but before exercise of outstanding rights to acquire common stock), the Company
had approximately 6,546,216 shares of common stock outstanding on a post-split adjusted basis.
The Company will file the 2017 and 2018 audited financial statements of SCWorx Corp., along with required pro-forma financial information, within 75 days of the closing of
the Acquisition.
In connection with the closing of the Acquisition on February 1, 2019 and as a result of the issuance of the 5,263,158 (post-split adjusted) shares of the Company’s common
stock, there was a change of control of the Company. Upon completion of the Acquisition, Marc S. Schessel, the majority stockholder of SCWorx, beneficially owned
approximately 1,032,603 post-split adjusted shares of the Company’s common stock (15.8% of the issued and outstanding shares, not including shares which were issuable to
Mr. Schessel under the SEA, the right to which was transferred by him and over which Mr. Schessel has neither voting nor investment control). Mr. Schessel was the controlling
shareholder of SCWorx Corp. immediately prior to the Acquisition.
The SEA provided that SCWorx would have the right to designate the officers and directors of the Company upon completion of the Acquisition. As a result, effective as of the
Closing Date, Messrs. Tracy, Gamberale and Watson resigned as directors of the Company and John Price resigned the office of President but will remain as Chief Financial
Officer of SCWorx post-closing.
Immediately prior to their resignation as directors, the Board of Directors appointed the following individuals, designated by SCWorx Corp. pursuant to the SEA, to serve as
directors and officers of the Company post-closing:
Ira Eliot Ritter, Director
Francis Knuettel II, Director
Robert Christie, Director
·
·
·
· Marc S. Schessel, CEO and Director
·
John Price, Chief Financial Officer, Treasurer and Secretary
Charles K. Miller, who was appointed as a director in October 2018, remained as a director of the Company post-closing. At the time of their respective appointments, the
compensation of the officers and directors of the Company had not been agreed upon. On February 13, 2019, the Company’s Compensation Committee recommended, and its
board of directors approved the compensation of the Company’s officers and directors as described below. The Company’s common stock closed at $6.49 per share on February
13, 2019, the grant date for all equity awards recognized in the consolidated financial statements.
F-31
SCWorx Corp.
(f/k/a Alliance MMA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In making all equity awards subject to vesting, including performance-based vesting, the Compensation Committee endeavored to structure management’s equity awards so as
to align management’s interests with the stockholders’ interest in long term value creation.
Officer Compensation
Marc S. Schessel, CEO
John Price, CFO
Annual Cash Compensation
$400,000
Restricted Stock Units
Restricted Stock Units
75,000 RSU
25,000 RSU
$250,000
250,000 RSU
37,500 RSU
Restricted Stock Units
25,000 RSU
37,500 RSU
Restricted Stock Units
25,000 RSU
75,000 RSU
Vesting
N/A
Quarterly over 3 years
Vests if the Company realizes $10M in
new revenue on or before August 15, 2020
Vests if Company’s common stock price
remains at or above $20 per share on a
volume weighted average basis
(“VWAP”) for 15 consecutive trading
days
Vest if the Company’s common stock
price remains at or above $40 per share on
a VWAP basis for 15 consecutive trading
days
The board of directors also approved the form of employment agreement for each of Messrs. Schessel and Price.
Director Compensation
Robert Christie
Francis Knuettel II
Charles Miller
Ira Ritter
Marc Schessel
Annual Cash Compensation
N/A
Stock Options(1)
13,393
N/A
13,393
N/A
13,393
N/A
13,393
N/A
N/A
(1) These options vest in 4 quarterly installments have an exercise price of $6.49 per share and a term of 10 years.
On February 13, 2019, the SCWorx Corp.’s Board of Directors also approved management’s request to retain Joseph Gamberale, as a Consultant.
Gamberale has over 25 years’ experience in the financial services and capital markets sectors. Mr. Gamberale’ Agreement will have a term of two years, subject to earlier
termination. Under the Agreement, Mr. Gamberale’s responsibilities will include overseeing the creation, development and implementation of the Company’s Investor Relations
program, including introductions to high net worth individuals and institutions, the dissemination of investor related information, road show plans, equity conference
presentations, and all other investor relations activities. Additionally Mr. Gamberale will be required to introduce SCWorx’ s service platform to health care institutions.
Mr. Gamberale will receive a combination of cash and equity compensation for his services. In making all of Mr. Gamberale’ equity awards subject to vesting, including
performance-based vesting, the Board of Directors endeavored to structure such awards so as to align Mr. Gamberale’ interests with the stockholders’ interest in long term value
creation.
Mr. Gamberale compensation will be as follows:
Compensation
Amount
Vesting
Cash Compensation
$12,500 per month
N/A
Restricted Stock Units
100,000 RSU
Quarterly over 1 year
Restricted Stock Units
25,000 RSU
Vests if Company’s common stock price remains at or above $10 per share on a volume weighted average basis
(“VWAP”) for 15 consecutive trading days
Restricted Stock Units
50,000 RSU
Vests if Company’s common stock price remains at or above $15 per share on a VWAP basis for 15 consecutive
trading days
Restricted Stock Units
50,000 RSU
Vests if Company’s common stock price remains at or above $20 per share on a VWAP basis for 15 consecutive
trading days
Restricted Stock Units
25,000 RSU
Vests if Company’s common stock price remains at or above $25 per share on a VWAP basis for 15 consecutive
trading days
Restricted Stock Units
50,000 RSU
Vest if the Company’s common stock price remains at or above $30 per share on a VWAP basis for 15
consecutive trading days
Restricted Stock Units
50,000 RSU
Vest if the Company’s common stock price remains at or above $40 per share on a VWAP basis for 15
consecutive trading days
Restricted Stock Units
50,000 RSU
Vest if the Company’s common stock price remains at or above $45 per share on a VWAP basis for 15
consecutive trading days
F-32
Pursuant to the rules and regulations of the SEC, the Company has filed certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may contain
representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i)
may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in
such agreements and are subject to more recent developments, which may not be fully reflected in the Company’s public disclosure, (iii) may reflect the allocation of risk
among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations
and warranties may not describe the Company’s actual state of affairs at the date hereof and should not be relied upon.
EXHIBIT INDEX
Exhibit
Number
3.1
3.3
10.1
10.2
10.3
10.6
10.7
10.8
10.9
Certificate of Incorporation, as amended February 1, 2019*
Description
Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No. 333-213166) filed
with the SEC on August 16, 2016)
Second Amended and Restated 2016 Equity Incentive Plan (Incorporated by reference to Annex A to the Company’s Definitive Proxy Statement filed with the
SEC on January 17, 2019)
Settlement Agreement with Ira Rainess dated December 24, 2018*
Settlement Agreement with Garr Group, Inc. (regarding Cherry Hill lease) dated January 30, 2019*
HFC Agreement with Danielle Vale dated May 31, 2018 (Incorporated by reference to exhibit 10.6 to the Company’s quarterly report for the quarter ended June
30, 2018, filed September 5, 2018)
FCOC Agreement with Roy Englebrecht dated May 31, 2018 (Incorporated by reference to exhibit 10.7 to the Company’s quarterly report for the quarter ended
June 30, 2018, filed September 5, 2018)
COGA Agreement with Joe DeRobbio dated May 31, 2018 (Incorporated by reference to exhibit 10.8 to the Company’s quarterly report for the quarter ended
June 30, 2018, filed September 5, 2018)
V3 Agreement with Nick Harmeier dated May 31, 2018 (Incorporated by reference to exhibit 10.9 to the Company’s quarterly report for the quarter ended June
30, 2018, filed September 5, 2018)
10.10
ITFS Agreement with Scott Sheeley dated May 31, 2018 (Incorporated by reference to exhibit 10.10 to the Company’s quarterly report for the quarter ended
June 30, 2018, filed September 5, 2018)
10.11
Shogun Agreement with John Rallo dated May 31, 2018 (Incorporated by reference to exhibit 10.11 to the Company’s quarterly report for the quarter ended
June 30, 2018, filed September 5, 2018)
10.12
Agreement with Robert Haydak and Maria Haydak dated July 18, 2018 (Incorporated by reference to exhibit 10.12 to the Company’s quarterly report for the
quarter ended June 30, 2018, filed September 5, 2018)
10.13
Securities Purchase Agreement with SCWorx Corp dated June 28, 2018, as amended December 18, 2018 (Incorporated by reference to exhibit 10.1 to the
Company’s current report filed December 19, 2018)
10.14
$275,000 Convertible Note issued to SCWorx dated December 18, 2018 (Incorporated by reference to exhibit 10.2 to the Company’s current report filed
December 19, 2018)
EX-1
10.15
Warrant dated December 18, 2018 issued to SCWorx related to $275,000 convertible note (Incorporated by reference to exhibit 10.3 to the Company’s current
report filed December 19, 2018)
10.16
Share Exchange Agreement with SCWorx Corp dated August 20, 2018, as amended December 18, 2018 (Incorporated by reference to exhibit 10.4 to the
Company’s current report filed December 19, 2018)
10.17
Securities Purchase Agreement for up to $9 million Preferred Stock Units, executed by the registrant December 18, 2018 (Incorporated by reference to exhibit
10.5 to the Company’s current report filed December 19, 2018)
10.18
Certificate of Designations of Series A Convertible Preferred Stock (Incorporated by reference to exhibit 10.6 to the Company’s current report filed December
19, 2018)
10.19
Form of Warrant related to Series A Convertible Preferred Stock (Incorporated by reference to exhibit 10.7 to the Company’s current report filed December 19,
2018)
10.20
10.21
21.1
23.1
31.1
31.2
32.1
101
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Executive Employment Agreement between the Company and John Price, effective February 1, 2019*
Executive Employment Agreement between the Company and Marc Schessel, effective February 1, 2019*
Subsidiaries of the Registrant*
Consent of Friedman LLP*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer*
The following materials from Alliance MMA, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (Extensible
Business Reporting Language):
XBRL Instance Document*
XBRL Taxonomy Extension Schema Document*
XBRL Taxonomy Calculation Linkbase Document*
XBRL Taxonomy Label Linkbase Document *
XBRL Taxonomy Presentation Linkbase Document*
XBRL Taxonomy Extension Definition Document *
*
Filed herewith
EX-2
Delaware
The First State
Exhibit 3.1
Page 1
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED ARE TRUE AND
CORRECT COPIES OF ALL DOCUMENTS ON FILE OF “SCWORX CORP.” AS RECEIVED AND FILED IN THIS OFFICE.
THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:
CERTIFICATE OF INCORPORATION, FILED THE TWELFTH DAY OF FEBRUARY, A.D. 2015, AT 2:49 O`CLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE AFORESAID CERTIFICATE OF INCORPORATION IS THE
FIFTEENTH DAY OF FEBRUARY, A.D. 2015.
CERTIFICATE OF CORRECTION, FILED THE NINTH DAY OF MAY, A.D. 2016, AT 2:28 O`CLOCK P.M.
CERTIFICATE OF RESIGNATION OF APPOINTMENT, FILED THE SEVENTEENTH DAY OF JULY, A.D. 2018, AT 3:06 O`CLOCK P.M.
CERTIFICATE OF REVIVAL, FILED THE THIRTIETH DAY OF NOVEMBER, A.D. 2018, AT 7:18 O`CLOCK P.M.
5692259 8100H
SR# 20192359668
You may verify this certificate online at corp.delaware.gov/authver.shtml
Authentication: 202536165
Date: 03-28-19
Delaware
The First State
Page 2
CERTIFICATE OF DESIGNATION, FILED THE FOURTH DAY OF DECEMBER, A.D. 2018, AT 11:01 O`CLOCK A.M.
CERTIFICATE OF DESIGNATION, FILED THE THIRTY-FIRST DAY OF DECEMBER, A.D. 2018, AT 11:21 O`CLOCK A.M.
CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM "ALLIANCE MMA, INC." TO "SCWORX CORP.", FILED THE FIRST DAY OF
FEBRUARY, A.D. 2019, AT 4:48 O`CLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY CERTIFICATES ON RECORD OF THE
AFORESAID CORPORATION, “SCWORX CORP.”.
5692259 8100H
SR# 20192359668
You may verify this certificate online at corp.delaware.gov/authver.shtml
Authentication: 202536165
Date: 03-28-19
CERTIFICATE OF INCORPORATION
OF
ALLIANCE MMA, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes hereinafter stated, under and pursuant to the provisions of the General Corporation Law of the
State of Delaware, (the "General Corporation Law") does hereby certify as follows:
FIRST: The name of this corporation is ALLIANCE MMA, Inc. (the "Corporation").
Sussex, 19958-7996. The name of its registered agent at such address is Harvard Business Services, Inc.
SECOND: The address of the registered office of the Corporation in the State of Delaware is 16192 Coastal Highway, in the City of Lewes, County of
organized under the General Corporation Law.
THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be
FOURTH: The aggregate number of shares of capital stock which the Corporation shall have authority to issue is 50,000,000 shares, consisting of:
(i) 45,000,000 shares of Common Stock, $0.001 par value per share ("Common Stock"); and
(ii) 5,000 shares of Preferred Stock, $0.001 par value per share ("Preferred Stock").
The Preferred Stock and the Common Stock shall have the rights, preferences and limitations set forth below.
A. COMMON STOCK
1. Dividends and Other Distributions. Except as otherwise provided by the General Corporation Law or this Certificate of Incorporation, the holders of Common
Stock shall share ratably in all dividends as may from time to time be declared by the Board of Directors of the Corporation in respect of the Common Stock out of funds legally
available for the payment thereof and payable in cash, stock or otherwise, and in all other distributions (including, without limitation, the dissolution, liquidation and winding up
of the Corporation), whether in respect of liquidation or dissolution (voluntary or involuntary) or otherwise, after payment of liabilities.
2 . Preemptive Rights. Other than pursuant to a written agreement between the Corporation and a holder of Common Stock, no holder of Common Stock shall
have any preemptive rights with respect to the Common Stock or any other securities of the Corporation, or to any obligations convertible (directly or indirectly) into securities
of the Corporation, whether now or hereafter authorized.
3. Voting Rights. Except as otherwise provided by the General Corporation Law or this Certificate, all of the voting power of the stockholders of the Corporation
shall be vested in the holders of the Common Stock, and each holder of Common Stock shall have one vote for each share held by such holder on all matters voted upon by the
stockholders of the Corporation.
B. PREFERRED STOCK
4 . Issuance and Reissuance. The Preferred Stock may be issued from time to time and in one or more series. By resolution adopted by the affirmative vote of at
least a majority of the total number of Directors then in office, the Board of Directors of the Corporation is authorized to determine or alter the powers, preferences and rights,
and the qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in
any resolution or resolutions of the Board of Directors adopted by the affirmative vote of at least a majority of the total number of Directors then in office, originally fixing the
number of shares constituting any series of Preferred Stock to increase or decrease (but not below the number of shares of any such series of Preferred Stock, then outstanding)
the number of shares of any such series of Preferred Stock and to fix the number of shares of any series of Preferred Stock. In the event that the number of shares of any series
of Preferred Stock shall be so decreased, the shares constituting such decrease shall resume the status which such shares had prior to the adoption of the resolution originally
fixing the number of shares of such series of Preferred Stock subject to the requirements of applicable law. The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the qualifications, limitations and restrictions granted to or imposed upon, any such series of Preferred Stock may be
made dependent upon facts ascertainable outside the resolutions or resolutions providing for the issue of such Preferred Stock, adopted by the affirmative vote of at least a
majority of the total number of Directors then in office, provided that the manner in which such facts shall operate upon the powers, preferences and rights of, and the
qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. Any of the powers, preferences and rights of,
and the qualifications, limitations and restrictions granted to or imposed upon, such series of Preferred Stock is clearly and expressly set forth in the resolution or resolutions
providing for the issue of such series of Preferred Stock adopted by the affirmative vote of at least a majority of the total number of Directors then in office.
5 . Preemptive Rights. Other than pursuant to a written agreement between the Corporation and a holder of Preferred Stock, no holder of Preferred Stock shall
have any preemptive rights with respect to the Common Stock or any other securities of the Corporation, or to any obligations convertible (directly or indirectly) into securities
of the Corporation, whether now or hereafter authorized.
statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
FIFTH: Subject to any additional vote required by the Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by
manner set forth in the Bylaws of the Corporation.
SIXTH: Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the
SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.
2
NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. If the General Corporation Law or any other Jaw of the State of Delaware is amended after approval by the stockholders of
this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director
occurring prior to, such repeal or modification.
TENTH: The following indemnification provisions shall apply to the persons enumerated below.
1 . Right to Indemnification of Directors and Officers. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable Jaw as it
presently exists or may hereafter be amended, any person (an "Indemnified Person") who was or is made or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that such person, or a person for whom such person is
the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnified Person in such
Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 3 of this Article Tenth, the Corporation shall be required to indemnify an
Indemnified Person in connection with a Proceeding (or part thereof) commenced by such Indemnified Person only if the commencement of such Proceeding (or part thereof) by
the Indemnified Person was authorized in advance by the Board of Directors.
2 . Prepayment of Expenses of Directors and Officers. The Corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnified Person in
defending any Proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition
of the Proceeding shall be made only upon receipt of an undertaking by the Indemnified Person to repay all amounts advanced if it should be ultimately determined that the
Indemnified Person is not entitled to be indemnified under this Article Tenth or otherwise.
3 . Claims by Directors and Officers. If a claim for indemnification or advancement of expenses under this Article Tenth is not paid in full within 30 days after a
written claim therefor by the Indemnified Person has been received by the Corporation, the Indemnified Person may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the
Indemnified Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
3
4 . Indemnification of Employees and Agents. The Corporation may indemnify and advance expenses to any person who was or is made or is threatened to be
made or is otherwise involved in any Proceeding by reason of the fact that such person, or a person for whom such person is the legal representative, is or was an employee or
agent of the Corporation or, while an employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses (including attorney's fees) reasonably incurred by such person in connection with such Proceeding. The ultimate
determination of entitlement to indemnification of persons who are non-director or officer employees or agents shall be made in such manner as is determined by the Board of
Directors in its sole discretion. Notwithstanding the foregoing sentence, the Corporation shall not be required to indemnify a person in connection with a Proceeding initiated by
such person if the Proceeding was not authorized in advance by the Board of Directors.
5 . Advancement of Expenses of Employees and Agents. The Corporation may pay the expenses (including attorney's fees) incurred by an employee or agent in
defending any Proceeding in advance of its final disposition on such terms and conditions as may be determined by the Board of Directors.
6 . Non-Exclusivity of Rights. The rights conferred on any person by this Article Tenth shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
7 . Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer or employee of
another corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise.
8 . Insurance. The Board of Directors may, to the full extent permitted by applicable law as it presently exists, or may hereafter be amended from time to time,
authorize an appropriate officer or officers to purchase and maintain at the Corporation's expense insurance: (a) to indemnify the Corporation for any obligation which it
incurs as a result of the indemnification of directors, officers and employees under the provisions of this Article Tenth; and (b) to indemnify or insure directors, officers and
employees against liability in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this Article Tenth.
9. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The rights provided hereunder shall inure to the benefit of any
Indemnified Person and such person's heirs, executors and administrators.
4
ELEVENTH: The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an
opportunity to participate in, any Excluded Opportunity. An "Excluded Opportunity" is any matter, transaction or interest that is presented to, or acquired, created or developed
by, or which otherwise comes into the possession of, any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries.
TWELFTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the
sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action
asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation's stockholders, (iii) any
action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the General Corporation Law or the Corporation's
certificate of incorporation or bylaws or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine,
except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the
Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is
vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any
provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever,
then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article
Twelfth (including, without limitation, each portion of any sentence of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable that is not
itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or
impaired thereby.
THIRTEENTH: The Corporation expressly elects to be governed by Section 203 of the General Corporation Law.
FOURTEENTH: That Joseph Gamberale is to serve as sole director until the first annual meeting of stockholders or until his successors are elected and
qualify. Mr. Gamberale's address is 2 East 55 th Street, Suite 1111, New York, New York 10022. The powers of the undersigned in his capacity as Incorporator shall terminate
upon the filing of this Certificate of Incorporation.
*****
5
IN WITNESS WHEREOF, I have hereunto set my hand this 12th day of February, 2015.
ALLIANCE MMA, INC.
a Delaware corporation
By:
Name:
Its:
/S/ Joseph Gamberale
Joseph Gamberale
Incorporator
6
Alliance MMA, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware.
STATE OF DELAWARE CERTIFICATE OF CORRECTION
DOES HEREBY CERTIFY:
1. The name of the corporation is Alliance MMA, Inc.
2. That a Certificate of Incorporation of Alliance MMA, Inc., was filed by the Secretary of State of Delaware on February 12, 2015 and that said Certificate requires
correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate is contained in Article Fourth and relates to the number of shares of Preferred Stock stated in the Certificate wherein the
Certificate states:
"the aggregate number of shares the corporation is authorized to issue is 50,000,000 shares consisting of (i) 45,000,000 shares of common stock, $0.001 par value
per share ("Common Stock"); and (ii) 5,000 shares of Preferred Stock, $0.001 par value per share ("Preferred Stock")."
4. Article Fourth of the Certificate is corrected to read as follows:
FOURTH: The aggregate number of shares of capital stock which the Corporation shall have authority to issue is 50,000,000 shares, consisting of:
(i) 45,000,000 shares of Common Stock, $0.001 par value per share ("Common Stock"); and
(ii) 5,000,000 shares of Preferred Stock, $0.001 par value per share ("Preferred Stock").
The Preferred Stock and the Common Stock shall have the rights, preferences and limitations set forth below.
IN WITNESS WHEREOF, said corporation has caused this Certificate of Correction this 4th Day of May, A.D. 2016.
By:
Name:
Title: Director / Secretary
/S/ Joseph Gamberale
Joseph Gamberale
7
CERTIFICATE OF RESIGNATION
OF
REGISTERED AGENT
Pursuant to Section 136 of the Delaware General Corporation Law, Harvard Business Services, Inc. does hereby resign as registered agent for:
(198 Companies - See attached List)
Written notice of the resignation was given to the corporations at least 30 days prior to the filing of the certificate by mail to the last known address for the corporations. The
letter was mailed on June 15, 2018.
I, Richard H. Bell, II, Chairman of the Board of Harvard Business Services, Inc. do hereby sign this document to resign as registered agent of the above corporations on this date
of July 17, 2018.
/S/ Richard H. Bell, II
Richard H. Bell, II Chairman of the Board
Harvard Business Services, Inc.
8
Company Name
Bob Bottel & Associates, Inc.
Global Manufacturing Cyber Governance Center, Inc.
SkillTotal Inc.
DineUp Technologies Inc
RescueScript Inc.
Not Just Tea Inc.
Sharearts Inc.
Winograd Brokers Inc.
L2 Solutions Inc.
Fourth Branch Political Consulting Inc.
lmmersive Estates Inc.
Central Inc.
Save To Play Inc.
Trip Owl Inc.
NIOBIUM TECHNOLOGY CORPORATION
Perfect Detox, Inc.
EPIC Consulting Services Inc.
AnTrix Inc.
LGH Marketing Inc.
Rainbow Nutras Inc.
Bioenergy Nutrition Inc.
WEDESQUE INC.
Mineral Radiance, Inc.
Network of Sobriety Inc
ENHANCED ATHLETE INC.
North Texas E-Cycle Inc.
The Fridtjof Nansen Foundation for International Humanitarian Relief
CRF Incident Response Teams, Inc.
Strong Woman Action Network Fund
Taxi to Tomorrow Incorporated
Rural Wireless Association, Inc.
KAMCILI CLUB INC.
Lifeline Pharmaceuticals, Inc.
MEDIPUB SYSTEMS, INC.
JUICEBIB, INC.
MARINE TURK YACHTING CORP.
HAZIRANCO
ATLAS TOURISM CO.
DURAKYACHTING LTD
GREENFIT PLASTIC INC.
DIDEM GORENLI INC.
HAUT YACHTING CO
3DWORKZ LTD.
Earth 7 Inc.
GRAYSON INVESTMENT CORPORATION
Total Core Inc.
9
File Number
3315713
6034202
5862295
6110168
6307401
6809236
5585969
6840445
3395689
6334430
6513452
6594939
6376656
6376660
6210154
5954639
6329623
5976498
6304363
5965385
5965393
6315120
5961549
5477985
6330149
5952522
5968476
6329299
6330368
6329250
3777067
4546417
6323364
2822102
5298308
4640573
5791866
6182511
6083593
5954519
4689353
5594063
5562342
6318113
3587421
6330583
Yunoverse, Inc.
JAMIE AVIATION SERVICES, INC.
DA MOBILE CO.
BSSNexus Global Inc.
Envision 3 Studios Agency, Inc
Go-For Industries Inc.
Cryptographic Flux, Inc.
PIN THERAPEUTICS, INC.
Episcale Corporation
Carlisle Properties Inc.
OHMS Holding Inc.
Starriest Corp.
Taste of Wind Corporation
Colin Chadwick Corporation
STEMFASTIK, INC.
FANTO, LTD.
Time Is Money Logistic Corp.
The Streat INC.
Plush Solutions, Inc.
Urban Cereals, Inc.
Face2Face Mobile Technologies, Inc
HEALTHFLEX LABS, INC.
ActJackCo.
Scalara, Inc.
THE JE&G HOLDING GROUP, INC.
CRG Capital Partners, Inc.
MCCB Healthcare Solutions Inc.
KloudXP, Inc.
DTI MOTORS INC.
DTI SDS INC.
KATIKA, INC.
UVEST International, Inc.
UFETOPLAY INC.
XAdsNet Technology Inc.
DIAGNOSTRA Inc.
Anti-Photoshop Technologies Inc.
Scala Home Fashions Inc.
MENASE YACHTING LIMITED
ROXAN INC.
SORS FOODS INC.
Streaming Wizard Box Inc.
Stax Mobile App, Inc.
VeLatino, Inc.
Dugan Investments Inc.
Response Data Communications Inc.
A6 Aviation Facility Management Inc.
Aeegle Inc.
10
5232406
3743969
5965737
5694363
5164200
6325281
6325302
6311114
5693094
6309513
6304387
6325296
6318208
6316267
6325111
6634080
6317298
6309251
6304489
6125577
6310637
6318373
6307755
5956656
6323574
5692681
6307499
5956354
6318220
6318225
6670257
5971301
5292449
5976234
5426019
5958382
5687189
5920382
5970220
5959430
5692225
5973083
5976413
6315571
5952347
6319640
5632585
Cheaxics Inc.
REGENT AIR INC.
New Mobility Partners Inc.
New Mobility Academy Inc.
Mind Fitness Lab, Inc.
Bosurgi Method, Inc.
Grand Case Beach Club Unit 217 and 202, Inc.
Alliance MMA, Inc.
Save the Daisy, Inc.
Fookvr Inc.
DemoMe Marketing, Inc.
Drinking Bird Technologies Corporation
Icon Holdings, Inc.
Experience Proximity, Inc.
Canyon Oaks Land Services, Inc.
Solis Global Distributors, Inc.
VivoDynamics, Inc.
MAKONI MINNING & STEEL COMPANY
LUXDER INC.
XiaosLab Inc.
Regen Global, Inc.
Location Systems Corporation
SPROWTT CROWDFUNDING INC
SPROWTT HOLDINGS INC
Artistic Home Decors Inc.
uFO Development Group, Inc.
EAST RIVERVIEW, INC.
Belo Mundo Inc.
HEEDHUB INC.
Mercuri Americas Inc.
BARKING BUDDHA PET PRODUCTS INC
LINX CARD, INC.
Xhome Inc.
Endangered Species Revenge Foundation
Re-Medical, Inc.
WEB HOSTING INC
INTERNATIONAL PSYCHOLOGICAL CAPITAL DEVELOPMENT ASSOCIATION
ESSENSCIEN TECHNOLOGY INC
INTERNATIONAL REGISTERED PSYCHOLOGICAL TRAINERS ASSOCIATION
MUMEC, INC.
Uffizi Capital Partners Inc.
R.J. Berarducci Inc.
MEHU Inc.
Camryn Ventures Inc.
David Laurance, Inc.
DIETSCH INTERNATIONAL ASSOCIATES INC.
Advance Safety, INC.
11
6316248
3647128
5960659
5960635
5968415
5968420
3469876
5692259
5967363
5697366
6330935
6304486
5486120
4877596
6302120
5967311
5952540
6580937
5481078
6311548
6318260
5113310
5970280
5970293
6312803
5955371
2095116
5970404
5974510
6308064
5961794
5753885
6304302
5690682
6329720
4564504
5122311
4642138
5363917
6639925
5686876
6315635
6315636
6312284
3627353
4559044
4528682
Axxunlnc
Loonaq Inc.
HOLD PROTECT SERVICE CORP.
My Spirometer, Inc.
lnventmode, Inc.
PFX ENTERPRISES, INC.
PFX MANAGEMENT SERVICES, INC.
NULL HOLDINGS, INC.
Canna Industries Inc.
Kiddom Inc
Micro Farm Corp.
NextEra IT Solutions Inc.
Global Consulting Holdings Inc
Walker Development & Trading Group Inc
FINAL POINT, INC.
World on a Hanger Inc.
Treffer Inc.
T.T.S.H. INC.
Smart Reads Inc.
CleverTea Inc.
Mayim Pure Inc.
Ongus Technology Inc.
Rubin Extensions Inc.
Dynaheat Technology Inc.
YAVAN COMMUTE TECHNOLOGIES Inc.
Smartbox media Inc.
Cell Dynamics, Inc.
Farber Enterprises Inc.
VIA NATURA, INC.
Air Yard Aviation Consultants, Inc.
SmartFlight Holdings Inc.
KIWI VENTURES INC.
MCI - Mediterranium Capital Incorporated
Granja Group, Inc.
Autumn Joi Enterprises, Inc.
Solidarity Corporate Leasing Inc.
NST HOLDINGS GROUP INC.
KNMS Investments Inc.
Clover MC Inc.
Hermit Connection Inc.
Guest TV Interactive Inc.
Skylar Technologies, Inc.
Tesla Nootropics Inc.
Calhoun Ingalls Media Inc.
Westu Inc.
Noun Cybersecurity Inc.
12
4543581
5955577
6324276
6307603
4558567
6498713
6498707
6500076
6315489
5389535
6326664
6323232
4846330
5970243
6637098
5153810
6330302
6326410
6316192
6323202
6323195
6323180
6323193
6323288
6311244
6318566
3465848
5685020
4943883
5974139
6316647
6330255
6318558
6326641
6304257
5972538
4267870
5476355
5483565
6326122
5964359
6326558
6303106
5966658
6310292
6303445
VVIFY, INC.
World Rotocraft, Inc
Asia eTravel Limited
e.Digital Corporation
CS REI, Corporation
S[k]aleUp Ventures, Inc.
Composable Networks Inc.
Technical Development Services Inc
Ascent Business Technology Inc.
Homecoming P.B.C.
autobotanist Inc.
PROJECT JUST PBC
13
6335086
5476582
5972189
2576148
5295206
6312624
6330384
5295569
6326606
6335090
6325625
5691917
The corporation organized under the laws of the State of Delaware, the charter of which was forfeited for failure to obtain a registered agent, now desires to procure a revival of
its charter pursuant to Section 312 of the General Corporation Law of the State of Delaware, and hereby certifies as follows:
STATE OF DELWARE
CERTIIFICATE FOR REVIVAL OF CHARTER
1. The name of the corporation is _______ALLIANCE MMA, INC.________________________________________
and, if different, the name under which the corporation was originally incorporated
________________________________________________________________________________________________
2. The Registered Office of the corporation in the State of Delaware is located at
1209 Orange Street __________________________________________________________________________ (street),
In the City of Wilmington__________________________ , County of__New Castle _____________________________
Zip Code ____19801________
_________________________________________________The Corporation Trust Company_______________________________________________.
the Registered Agent at such address upon whom process against
. The name of
this Corporation may be served
is
3. The date of the filing of the Corporation’s original Certificate of Incorporation in Delaware was 02/12/2015 .
4. The corporation desiring to be revived and so reviewing its certificate of incorporation was organized under the laws of this State.
5. The corporation was duly organized and carried on the business authorized by its charter until the ___16th day of ___August ____A.D.__ 2018___ at which time its
charter became inoperative and forfeited for failure to obtain a registered agent and the certificate for revival is filed by authority of the duly elected directors of the corporation
in accordance with the laws of the State of Delaware.
By:
/S/ John Price
Name:
John Price
14
Authorized Officer
Print or Type
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK OF
ALLIANCE MMA, INC.
I, John Price, hereby certify that I am Chief Financial Officer and Principal Executive Officer of alliance MMA, Inc. (the "Company"), a corporation organized and
existing under the Delaware General Corporation Law (the "DGCL"), and further do hereby certify:
That pursuant to the authority expressly conferred upon the Board of Directors of the Company (the "Board") by the Company's Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), the Board on November 30, 2018, adopted the following resolutions creating a series of shares of Preferred Stock designated as
Series A Convertible Preferred Stock, none of which shares have been issued:
RESOLVED, that the Board designates the Series A Convertible Preferred Stock and the number of shares constituting such series, and fixes the rights, powers,
preferences, privileges and restrictions relating to such series in addition to any set forth in the Certificate of Incorporation as follows:
TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK
1. Designation and Number of Shares. There shall hereby be created and established a series of preferred stock of the Company designated as "Series A
Convertible Preferred Stock" (the "Preferred Shares"). The authorized number of Preferred Shares shall be 900,000 shares. Each Preferred Share shall have $0.001 par value
(the "Par Value"). Capitalized terms not defined herein shall have the meaning as set forth in Section 23 below.
2
. Liquidation. Upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, each holder of
Preferred Shares shall be entitled to receive, for each share thereof, out of assets of the Company legally available therefor, a preferential amount in cash equal to $10.00 per
share. All preferential amounts to be paid to the holders of Preferred Shares in connection with such liquidation , dissolution or winding up shall be paid before the payment or
setting apart for payment of any amount for, or the distribution of any assets of the Company to the holders of any other class or series of capital stock whose terms expressly
provide that the holders of Preferred Shares should receive preferential payment with respect to such distribution (to the extent of such preference) and (ii) the Common Stock.
If upon any such distribution the assets of the Company shall be insufficient to pay the holders of the Preferred Shares (or the holders of any class or series of capital stock
ranking on a parity with the Preferred Shares as to distributions in the event of a liquidation, dissolution or winding up of the Company) the full amounts to which they shall be
entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were
paid in full. Any distribution in connection with the liquidation, dissolution or winding up of the Company, or any bankruptcy or insolvency proceeding, shall be made in cash
to the extent possible. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Company.
15
3 . Dividends. In addition to Sections 5(a) and 11 below, from and after the first date of issuance of any Preferred Shares (the "Initial Issuance Date"),
each holder of a Preferred Share (each, a "Holder" and collectively, the "Holders") shall be entitled to receive dividends ("Dividends") when and as declared by the Board,
from time to time, in its sole discretion, which Dividends shall be paid by the Company out of funds legally available therefor, payable, subject to the conditions and other terms
hereof, in cash as if such Holders had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to
the holders of Common Stock.
4 . Conversion. Provided shareholders having the requisite number of shares of the Company's Common Stock have approved the Purchase Agreement
and all transactions contemplated thereby, including the issuance of the Preferred Shares and shares issuable upon exercise of the Warrant issued pursuant to the Purchase
Agreement and further provided that Nasdaq has issued an approval letter with respect to the Purchase Agreement and the issuance of the Preferred Shares and shares issuable
upon exercise of the Warrants being issued pursuant to the Warrants, each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of
Common Stock (as defined below) on the terms and conditions set forth in this Section 4 (collectively, the "Approvals").
( a ) Holder's Conversion Right. Subject to the provisions of Section 4(e), at any time or times on or after the Approvals, each Holder shall be entitled to
convert any whole number of Preferred Shares into validly issued, fully paid and non-assessable shares of Common Stock in accordance with Section 4(c) at the
Conversion Rate (as defined below).
( b ) Conversion Rate. The number of validly issued, fully paid and non- assessable shares of Common Stock issuable upon conversion of each Preferred
Share pursuant to Section 4(a) shall be determined according to the following formula (the "Conversion Rate"):
Base Amount
Conversion Price
No fractional shares of Common Stock are to be issued upon the conversion of any Preferred Shares. If the issuance would result in the issuance of a fraction of
a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.
(c) Mechanics of Conversion. The conversion of each Preferred Share shall be conducted in the following manner:
(i) Holder's Conversion. To convert a Preferred Share into validly issued, fully paid and non-assessable shares of Common Stock on any date (a
"Conversion Date"), a Holder shall deliver (whether via email or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an
executed notice of conversion of the share(s) of Preferred Shares subject to such conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company. If required by Section 4(c)(vi), within five (5) Trading Days following a conversion of any such Preferred Shares as aforesaid, such Holder
shall surrender to a nationally recognized overnight delivery service for delivery to the Company the original certificates representing the share(s) of Preferred
Shares (the "Preferred Share Certificates") so converted as aforesaid.
16
( i i ) Company's Response. On or before the first (1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall
transmit by email an acknowledgment of confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to such Holder and the
Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein.
On or before the second (2nd
) Trading Day following the date of receipt by the Company of such Conversion Notice, the Company shall (I) provided that the
Transfer Agent is participating in DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which such
Holder shall be entitled to such Holder's or its designee's balance account with DTC through its Deposit/Withdrawal at Custodian system, or (2) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to the address as specified
in such Conversion Notice, a certificate, registered in the name of such Holder or its designee, for the number of shares of Common Stock to which such Holder
shall be entitled. If the number of Preferred Shares represented by the Preferred Share Certificate(s) submitted for conversion pursuant to Section 4(c)(vi) is
greater than the number of Preferred Shares being converted, then the Company shall if requested by such Holder, as soon as practicable and in no event later
than three (3) Trading Days after receipt of the Preferred Share Certificate(s) and at its own expense, issue and deliver to such Holder (or its designee) a new
Preferred Share Certificate representing the number of Preferred Shares not converted.
(iii) Record Holder. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall
be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.
17
(iv) Company's Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, to issue to a Holder within two (2) Trading
Days after the Company's receipt of a Conversion Notice (whether via email or otherwise) (the "Share Delivery Deadline"), a certificate for the number of
shares of Common Stock to which such Holder is entitled and register such shares of Common Stock on the Company's share register or to credit such Holder's
or its designee's balance account with DTC for such number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion of any
Preferred Shares (as the case may be) (a "Conversion Failure"), then, in addition to all other remedies available to such Holder, such Holder, upon written
notice to the Company, may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any Preferred Shares that have not
been converted pursuant to such Holder's Conversion Notice, provided that the voiding of a Conversion Notice shall not affect the Company's obligations to
make any payments which have accrued prior to the date of such notice pursuant to the terms of this Certificate of Designations or otherwise and (y) the
Company shall pay in cash to such Holder on each day after such third (3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 1.5% of the product of (A) the aggregate number of shares of Common Stock not issued to such Holder on a timely basis and to
which the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the
Company could have issued such shares of Common Stock to the Holder without violating Section 4(c). In addition to the foregoing, if within two (2) Trading
Days after the Company's receipt of a Conversion Notice (whether via email or otherwise), the Company shall fail to issue and deliver a certificate to such
Holder and register such shares of Common Stock on the Company's share register or credit such Holder's or its designee's balance account with DTC for the
number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion hereunder (as the case may be), and if on or after such
second (2nd) Trading Day such Holder (or any other Person in respect, or on behalf, of such Holder) purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Holder of all or any portion of the number of shares of Common Stock, or a sale of a number
of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such conversion that such Holder so
anticipated receiving from the Company, then, in addition to all other remedies available to such Holder, the Company shall, within two (2) Business Days after
such Holder's request and in such Holder's discretion, either (i) pay cash to such Holder in an amount equal to such Holder's total purchase price (including
brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other
Person in respect, or on behalf, of such Holder) (the "Buy-In Price"), at which point the Company's obligation to so issue and deliver such certificate or credit
such Holder's balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion hereunder
(as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to such Holder a
certificate or certificates representing such shares of Common Stock or credit such Holder's balance account with DTC for the number of shares of Common
Stock to which such Holder is entitled upon such Holder's conversion hereunder (as the case may be) and pay cash to such Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing Sale Price of the
Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and
payment under this clause
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( v ) Pro Rata Conversion: Disputes. In the event the Company receives a Conversion Notice from more than one Holder for the same Conversion
Date and the Company can convert some, but not all, of such Preferred Shares submitted for conversion, the Company shall convert from each Holder electing
to have Preferred Shares converted on such date a pro rata amount of such Holder's Preferred Shares submitted for conversion on such date based on the
number of Preferred Shares submitted for conversion on such date by such Holder relative to the aggregate number of Preferred Shares submitted for
conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to a Holder in connection with a conversion of
Preferred Shares, the Company shall issue to such Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with
Section 22.
(vi) Book-Entry. Notwithstanding anything to the contrary set forth in this Section 4, upon conversion of any Preferred Shares in accordance with
the terms hereof, no Holder thereof shall be required to physically surrender the certificate representing the Preferred Shares to the Company following
conversion thereof unless (A) the full or remaining number of Preferred Shares represented by the certificate are being converted (in which event such
certificate(s) shall be delivered to the Company as contemplated by this Section 4(c)(vi)) or (B) such Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting reissuance of Preferred Shares upon physical surrender of any Preferred Shares. Each
Holder and the Company shall maintain records showing the number of Preferred Shares so converted by such Holder and the dates of such conversions or shall
use such other method, reasonably satisfactory to such Holder and the Company, so as not to require physical surrender of the certificate representing the
Preferred Shares upon each such conversion. A Holder and any transferee or assignee, by acceptance of a certificate, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of any Preferred Shares, the number of Preferred Shares represented by such certificate may be less than
the number of Preferred Shares stated on the face thereof. Each certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
CORPORATION'S CERTIFICATE OF DESIGNATIONS RELATING TO THE SHARES OF SERIES A PREFERRED STOCK
REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 4(c)(vi) THEREOF. THE NUMBER OF SHARES OF SERIES
A PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF
SERIES A PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 4(c)(vi) OF THE CERTIFICATE
OF DESIGNATIONS RELATING TO THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE.
19
(d) Taxes. The Company shall pay any and all documentary, stamp, transfer (but only in respect of the registered holder thereof), issuance and other similar
taxes that may be payable with respect to the issuance and delivery of shares of Common Stock upon the conversion of Preferred Shares.
(e) Limitation on Beneficial Ownership. Notwithstanding anything to the contrary contained in this Certificate of Designations, the Preferred Shares held by
a Holder shall not be convertible by such Holder, and the Company shall not effect any conversion of any Preferred Shares held by such Holder, to the extent (but only
to the extent) that such Holder or any of its affiliates would beneficially own in excess of 4.99% (the "Maximum Percentage") of the Common Stock. To the extent the
above limitation applies, the determination of whether the Preferred Shares held by such Holder shall be convertible (vis-a-vis other convertible, exercisable or
exchangeable securities owned by such Holder or any of its affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such
securities owned by such Holder and its affiliates) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior inability of a Holder to convert Preferred Shares, or of the Company to issue shares of
Common Stock to such Holder, pursuant to this Section 4(e) shall have any effect on the applicability of the provisions of this Section 4(e) with respect to any subsequent
determination of convertibility or issuance (as the case may be). For purposes of this Section 4(e), beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the 1934 Act and the rules
and regulations promulgated thereunder. The provisions of this Section 4(e) shall be implemented in a manner otherwise than in strict conformity with the terms of this
Section 4(e) to correct this Section 4(e) (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations
contained in this Section 4(e) shall apply to a successor holder of Preferred Shares. The holders of Common Stock shall be third party beneficiaries of this Section 4(e)
and the Company may not waive this Section 4(e). For any reason at any time, upon the written or oral request of a Holder, the Company shall within two (2) Business
Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of
convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Certificate of Designations or securities issued pursuant to the
Purchase Agreement. By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99%
specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to such Holder sending such notice and not to any other Holder.
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( f ) Mandatory conversion. If the 20-day VWAP is greater than one hundred thirty percent (130%) of the Conversion Price, for twenty consecutive trading
days and there is an effective registration statement registering the Conversion Shares ("Mandatory Conversion Date"), all of the outstanding shares of Series A
Preferred Stock will automatically convert to Common Stock (a "Mandatory Conversion"). However, to the extent that such Mandatory Conversion would result in such
Holder exceeding the Maximum Percentage, then such Holder shall not be required to participate in such Mandatory Conversion to such extent (or beneficial ownership
of such shares of Common Stock as a result of such Mandatory Conversion to such extent) and such Mandatory Conversion to such extent shall be held in abeyance for
such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage and at such time such shares will
automatically convert to Common Stock in one or more series of issuances. Within two Business Days of the Mandatory Conversion Date, the Company shall deliver to
each Holder the Conversion Shares issuable upon conversion of such Holder's Series A Preferred Stock, and, within two Business Days after receipt of such Conversion
Shares, each Holder shall return the certificates for its Series A Preferred Stock to the Company, provided that, any failure by the Holder to return a certificate for Series
A Preferred Stock will have no effect on the Mandatory Conversion pursuant to this Section, which Mandatory Conversion will be deemed to occur on the Mandatory
Conversion Date.
5. Rights Upon Issuance of Purchase Rights and Other Corporate Events.
( a ) Purchase Rights. In addition to any adjustments pursuant to Section 7(a) below, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all of the record holders of any class of Common Stock (the
"Purchase Rights"), then each Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder
could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of all the Preferred Shares (without taking
into account any limitations or restrictions on the convertibility of the Preferred Shares) held by such Holder immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights (provided, however, to the extent that such Holder's right to participate in any such Purchase Right would result in such
Holder exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such
shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for such Holder until such
time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage).
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(b) Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a
"Corporate Event"), the Company shall make appropriate provision to insure that each Holder will thereafter have the right to receive upon a conversion of all the
Preferred Shares held by such Holder (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which such
Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by such Holder upon the consummation of
such Corporate Event (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares contained in this Certificate of
Designations) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares
of Common Stock in connection with the consummation of such Corporate Event in such amounts as such Holder would have been entitled to receive had the Preferred
Shares held by such Holder initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate
for such consideration commensurate with the Conversion Rate. The provisions of this Section 5(b) shall apply similarly and equally to successive Corporate Events and
shall be applied without regard to any limitations on the conversion of the Preferred Shares contained in this Certificate of Designations.
6
. Rights Upon Fundamental Transactions. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designations and the other Transaction Documents
referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the
Company under this Certificate of Designations and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein
and therein. In addition to the foregoing, upon consummation of a Fundamental Transaction, the Successor Entity shall deliver to each Holder confirmation that there shall be
issued upon conversion of the Preferred Shares at any time after the consummation of such Fundamental Transaction, in lieu of the shares of Common Stock (or other securities,
cash, assets or other property (except such items still issuable under Sections 5 and 11, which shall continue to be receivable thereafter)) issuable upon the conversion of the
Preferred Shares prior to such Fundamental Transaction, such shares of the Successor Entity (including its Parent Entity) or other consideration which each Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had all the Preferred Shares held by each Holder been converted immediately prior to such
Fundamental Transaction (without regard to any limitations on the conversion of the Preferred Shares contained in this Certificate of Designations), as adjusted in accordance
with the provisions of this Certificate of Designations. The provisions of this Section 6 shall apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion of the Preferred Shares.
22
7. Certain Adjustments.
( a ) Issuance of Lower Priced Securities. If, at any time while the Preferred Shares are outstanding, the Company or any subsidiary, as applicable, sells or
grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other
disposition), any Common Stock or Common Stock equivalents (other than shares of Common Stock pursuant to and in accordance with the Company's stock option
plan, shares underlying currently outstanding securities (or shares/rights to acquire shares issued in settlement of existing indebtedness, provided that the number of
shares of Common Stock issued to satisfy such indebtedness, shall not exceed 750,000 shares), entitling any Person to acquire shares of Common Stock at an effective
price per share that is lower than the then Conversion Price (such lower price, the "Base Exercise Price"), then the Conversion Price shall be reduced to equal at all times
the lower of the Base Exercise Price or the Conversion Price as set forth above. Such adjustment shall be made whenever such Common Stock or Common Stock
equivalents are issued (each a "Dilutive Issuance"). If the Company enters into a variable rate transaction, the Company shall be deemed to have issued Common Stock
or Common Stock equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in
writing, no later than three (3) Trading Days following the issuance of any Common Stock or Common Stock equivalents subject to this Section), indicating therein the
applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the "Dilutive Issuance Notice"). For purposes
of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section, upon the occurrence of any Dilutive Issuance, the Holder is
entitled to receive a number of Common Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of Conversion. Notwithstanding the foregoing in no event shall the Conversion Price be reduced to an
amount less than 20% of closing bid price of Common Stock on the Trading Day prior to initial closing.
( b ) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Sections 5 and 11, if the
Company at any time on or after the Initial Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately
reduced. Without limiting any provision of Sections 5 and 11, if the Company at any time on or after the Initial Issuance Date combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased. Any adjustment pursuant to this Section 7(b) shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this Section 7(b) occurs during the period that a Conversion Price is calculated hereunder, then
the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
( c ) Other Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if
applicable, would not operate to protect any Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly
provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then
the Board shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of such Holder, provided that no such
adjustment pursuant to this Section 7 will increase the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if such Holder does not
accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Board and such Holder shall agree, in good faith, upon an
independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees
and expenses shall be borne by the Company.
23
(d) Calculations. All calculations under this Section 7 shall be made by rounding to the nearest one-hundred thousandth of a cent or the nearest 1/100th of a
share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
8. Authorized Shares.
( a ) Reservation. The Company shall, following receipt of the Approvals, initially reserve out of its authorized and unissued Common Stock a number of
shares of Common Stock equal to 200% of the Conversion Rate with respect to the Base Amount of each Preferred Share as of the Initial Issuance Date (assuming for
purposes hereof, that all the Preferred Shares issuable pursuant to the Purchase Agreement have been issued, such Preferred Shares are convertible at the Conversion
Price and without taking into account any limitations on the conversion of such Preferred Shares set forth in herein) issuable pursuant to the terms of this Certificate of
Designations from the Initial Issuance Date through the second anniversary of the Initial Issuance Date (assuming for purposes hereof, that all the Preferred Shares
issuable pursuant to the Purchase Agreement have been issued and without taking into account any limitations on the issuance of securities set forth herein). So long as
any of the Preferred Shares are outstanding, the Company shall, following receipt of the Approvals, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, as of any given date, 200% of the number of
shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Preferred Shares issued or issuable pursuant to the Purchase
Agreement assuming for purposes hereof, that all the Preferred Shares issuable pursuant to the Purchase Agreement have been issued and without taking into account
any limitations on the issuance of securities set forth herein), provided that at no time shall the number of shares of Common Stock so available be less than the number
of shares required to be reserved by the previous sentence (without regard to any limitations on conversions contained in this Certificate of Designations) (the "Required
Amount"). The initial number of shares of Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall
be allocated pro rata among the Holders based on the number of Preferred Shares held by each Holder on the Initial Issuance Date or increase in the number of reserved
shares (as the case may be) (the "Authorized Share Allocation"). In the event a Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of such Holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which
ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such
Holders.
24
(b) Insufficient Authorized Shares. If, notwithstanding Section 8(a) and not in limitation thereof, at any time, following receipt of the Approvals, while any
of the Preferred Shares remain outstanding the Company does not have a sufficient number of authorized and unissued shares of Common Stock to satisfy its obligation
to have available for issuance upon conversion of the Preferred Shares at least a number of shares of Common Stock equal to the Required Amount (an "Authorized
Share Failure"), then the Company shall promptly take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to
allow the Company to reserve and have available the Required Amount for all of the Preferred Shares then outstanding. Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders or conduct a consent solicitation for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its
commercially reasonable efforts to solicit its stockholders' approval of such increase in authorized shares of Common Stock and to cause its Board to recommend to the
stockholders that they approve such proposal. Nothing contained in this Section 8 shall limit any obligations of the Company under any provision of the Purchase
Agreement. In the event that the Company is prohibited from issuing shares of Common Stock upon a conversion of any Preferred Share due to the failure by the
Company to have sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of
Common Stock, the "Authorization Failure Shares"), in lieu of delivering such Authorization Failure Shares to such Holder of such Preferred Shares, the Company
shall pay cash in exchange for the cancellation of such Preferred Shares convertible into such Authorized Failure Shares at a price equal to the sum of (i) the product of
(x) such number of Authorization Failure Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable
Conversion Notice with respect to such Authorization Failure Shares to the Company and (ii) to the extent such Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of Authorization Failure Shares, any brokerage commissions and other out-of-
pocket expenses, if any, of such Holder incurred in connection therewith.
9 . Voting Rights. Except as otherwise expressly required by law, upon any vote held after the Approvals, each holder of Preferred Shares shall be
entitled to vote on all matters submitted to shareholders of the Company and shall be entitled to the number of votes for each Preferred Share owned at the record date for the
determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is
solicited, equal to the number of shares of Common Stock such Preferred Shares are convertible into (voting as a class with Common Stock), but not in excess of the conversion
limitations set forth in Section 4(e) herein. Except as otherwise required by law, the holders of Preferred Shares shall vote together with the holders of Common Stock on all
matters and shall not vote as a separate class.
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10. Optional and Triggered Redemption
(a) Company Redemption. At any time commencing at the earlier of (i) six months after the Initial Issuance Date, or (ii) upon registration for resale of the
Conversion Shares under the Securities Act, and provided that no Equity Conditions Failure (as defined below) exists, the Company shall have the right to redeem all or
part of the Preferred Shares then outstanding (the "Company Redemption Amount"). The Preferred Shares subject to redemption described herein shall be redeemed
by the Company, in cash at a price per Preferred Share (the "Company Redemption Price") equal to one hundred and twenty percent (120%) of the Stated Value. The
Company may exercise its redemption option under this Section 10(a) by delivering a written notice thereof by facsimile or electronic mail to all, but not less than all, of
the Holders (the "Company Redemption Notice" and the date all of the Holders received such notice is referred to as the "Company Redemption Notice Date"). The
Company Redemption Notice shall be irrevocable. The Company Redemption Notice shall (x) state the date on which the Company Redemption shall occur (the
"Company Redemption Date") which date shall not be less than fifteen (15) Trading Days nor more than twenty-five (25) Trading Days following the Company
Redemption Notice Date, (y) certify that there has been no Equity Conditions Failure and (z) state the aggregate Company Redemption Amount of the Preferred Shares
which is being redeemed in such Company Optional Redemption from such Holder and all of the other Holders of the Preferred Shares pursuant to this Section 10(a) on
the Company Optional Redemption Date. Notwithstanding anything herein to the contrary, (i) if no Equity Conditions Failure has occurred as of the Company Optional
Redemption Notice Date but an Equity Conditions Failure occurs at any time prior to the Company Redemption Date, (A) the Company shall provide each Holder a
subsequent notice to that effect and (B) unless such Holder waives the Equity Conditions Failure, the Company Redemption with respect to such Holder shall be
cancelled and the applicable Company Redemption Notice shall be null and void and (ii) at any time prior to the date the Company Redemption Price is paid, in full, the
Company Redemption Amount may be converted, in whole or in part, by any Holder into shares of Common Stock pursuant to Section 4. All Conversion Amounts
converted by a Holder after the Company Redemption Notice Date shall reduce the Company Redemption Amount of the Preferred Shares of such Holder required to be
redeemed on the Company Redemption Date. In the event of the Company's redemption of any of the Preferred Shares under this Section 10(a), a Holder's damages
would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 10(a) is intended by the parties to be, and shall be deemed, a
reasonable estimate of such Holder's actual loss of its investment opportunity and not as a penalty. For the avoidance of doubt, the Company shall have no right to effect
a Company Redemption if any Triggering Event has occurred and is continuing, but any Triggering Event shall have no effect upon any Holder's right to convert
Preferred Shares in its discretion. "Equity Conditions Failure" means that that on the date specified, the Equity Conditions are not met in whole or in part.
(b) Triggering Event Redemption.
(i) Triggering Event. Each of the following events shall constitute a "Triggering Event":
a. the suspension from trading or failure of the Common Stock to be traded or listed (as applicable) on the Nasdaq market on or prior to 90 days
after the closing of the SCWorx Acquisition (as defined in the Purchase Agreement), for a period of five (5) consecutive Trading Days; or
26
b. the Company's shareholders do not approve the Transaction Documents on or before January 31, 2019, subject to extension for up to 30 days
upon the mutual agreement of the Company and a majority in interest of the Holders.
( i i ) Notice of a Triggering Event: Redemption Right. Upon the occurrence of a Triggering Event with respect to the Preferred Shares, the
Company shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail (a "Triggering Event Notice") to each Holder. At
any time after the earlier of a Holder's receipt of a Triggering Event Notice and such Holder becoming aware of a Triggering Event, at the written election of
any Holder, the Company shall redeem such Holder's Preferred Shares at a price equal to one hundred percent (100%) of the Stated Value, which amount shall
be paid to the Holder within five (5) Trading Days of receipt of written notice from the Holder of its election to redeem the Preferred Shares.
11. Participation. In addition to any adjustments pursuant to Section 7(b), on and after the date of the Approvals, the Holders shall, as holders of Preferred
Shares, be entitled to receive such dividends paid and distributions made to the holders of shares of Common Stock to the same extent as if such Holders had converted each
Preferred Share held by each of them into shares of Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common
Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders
of shares of Common Stock (provided, however, to the extent that a Holder's right to participate in any such dividend or distribution would result in such Holder exceeding the
Maximum Percentage, then such Holder shall not be entitled to participate in such dividend or distribution to such extent (or the beneficial ownership of any such shares of
Common Stock as a result of such dividend or distribution to such extent) and such dividend or distribution to such extent shall be held in abeyance for the benefit of such
Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage).
12. Vote to Change the Terms of or Issue Preferred Shares. In addition to any other rights provided by law, except where the vote or written consent of the
holders of a greater number of shares is required by law or by another provision of the Certificate of Incorporation, without first obtaining the affirmative vote at a meeting duly
called for such purpose or the written consent without a meeting of the holders of at least a majority in interest of the outstanding Preferred Shares (the "Required Holders"),
voting together as a single class, the Company shall not: (a) amend or repeal any provision of, or add any provision to, its Certificate of Incorporation or bylaws, or file any
certificate of designations or articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the preferences,
rights, privileges or powers, or restrictions provided for the benefit, of the Preferred Shares, regardless of whether any such action shall be by means of amendment to the
Certificate of Incorporation or by merger, consolidation or otherwise; (b) increase or decrease (other than by conversion) the authorized number of Preferred Shares; (c) issue
any Preferred Shares; or (d) without limiting any provision of Section 16, whether or not prohibited by the terms of the Preferred Shares, circumvent a right of the Preferred
Shares.
27
of Preferred Stock shall have otherwise given prior written consent, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:
13. Negative Covenants. As long as any Preferred Shares are outstanding, unless the holders of at least 67% in Stated Value of the then outstanding shares
a) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
b) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock, Common Stock
Equivalents or Junior Securities, other than as to the Conversion Shares as permitted or required under the Transaction Documents;
c) pay cash dividends or distributions on Junior Securities of the Corporation;
d) enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless
such transaction is made on an arm's-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum
otherwise required for board approval); or
e) enter into any agreement with respect to any of the foregoing.
1 4 . Lost or Stolen Certificates. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificates representing Preferred Shares (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and,
in the case of loss, theft or destruction, of an indemnification undertaking by the applicable Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of the certificate(s), the Company shall execute and deliver new certificate(s) of like tenor and date.
1 5 . Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designations shall be
cumulative and in addition to all other remedies available under this Certificate of Designations and any of the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such
remedy. Nothing herein shall limit any Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by a Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened
breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to
a Holder that is requested by such Holder to enable such Holder to confirm the Company's compliance with the terms and conditions of this Certificate of Designations.
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1 6 . Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Certificate of Designations, and will at all times in good faith carry out all the provisions of this
Certificate of Designations and take all action as may be required to protect the rights of the Holders. Without limiting the generality of the foregoing or any other provision of
this Certificate of Designations, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any Preferred Shares above
the Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the conversion of Preferred Shares and (iii) shall, so long as any Preferred Shares are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, the maximum
number of shares of Common Stock as shall from time to time be necessary to effect the conversion of the Preferred Shares then outstanding (without regard to any limitations
on conversion contained herein).
17. Failure or Indulgence Not Waiver. No failure or delay on the part of a Holder in the exercise of any power, right or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. This Certificate of Designations shall be deemed to be jointly
drafted by the Company and all Holders and shall not be construed against any Person as the drafter hereof.
1 8 . Notices. The Company shall provide each Holder of Preferred Shares with prompt written notice of all actions taken pursuant to the terms of this
Certificate of Designations, including in reasonable detail a description of such action and the reason therefor. Whenever notice is required to be given under this Certificate of
Designations, unless otherwise provided herein, such notice must be in writing and shall be given in accordance with Section 5.4 of the Purchase Agreement. Without limiting
the generality of the foregoing, the Company shall give written notice to each Holder (i) promptly following any adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to all holders of shares of Common Stock as a class or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided, in each case, that such information shall be made known to the public prior to, or simultaneously with, such notice being
provided to any Holder.
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without the consent of the Company.
1 9 . Transfer of Preferred Shares. The Holder may, subject to compliance with applicable securities laws, transfer some or all of its Preferred Shares
2 0 . Preferred Shares Register. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may
designate by notice to the Holders), a register for the Preferred Shares, in which the Company shall record the name, address and email address of the Persons in whose name the
Preferred Shares have been issued, as well as the name and address of each transferee. The Company may treat the Person in whose name any Preferred Shares is registered on
the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any properly made transfers.
21. Stockholder Matters: Amendment.
( a ) Stockholder Matters. Any stockholder action, approval or consent required, desired or otherwise sought by the Company pursuant to the DGCL, the
Certificate of Incorporation, this Certificate of Designations or otherwise with respect to the issuance of Preferred Shares may be effected by written consent of the
Company's stockholders or at a duly called meeting of the Company's stockholders, all in accordance with the applicable rules and regulations of the DGCL. This
provision is intended to comply with the applicable sections of the DGCL permitting stockholder action, approval and consent affected by written consent in lieu of a
meeting.
( b ) Amendment. This Certificate of Designations or any provision hereof may be amended by obtaining the affirmative vote at a meeting duly called for
such purpose, or written consent without a meeting in accordance with the DGCL, of the Required Holders, voting separate as a single class, and with such other
stockholder approval, if any, as may then be required pursuant to the DGCL and the Certificate of Incorporation.
22. Dispute Resolution.
(a) Disputes Over Closing Bid Price, Closing Sale Price, Conversion Price, VWAP or Fair Market Value.
(i) In the case of a dispute relating to a Closing Bid Price, a Closing Sale Price, a Conversion Price, a VWAP or fair market value (as the case may
be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or such applicable Holder (as the case may be)
shall submit the dispute via email (I) within two (2) Business Days after delivery of the applicable notice giving rise to such dispute to the Company or such
Holder (as the case may be) or (II) if no notice gave rise to such dispute, at any time after such Holder learned of the circumstances giving rise to such dispute.
If such Holder and the Company are unable to resolve such dispute relating to such Closing Bid Price, such Closing Sale Price, such Conversion Price, such
VWAP or such fair market value (as the case may be) by 5:00 p.m. (New York time) on the third (3'd) Business Day following such delivery by the Company
or such Holder (as the case may be) of such dispute to the Company or such Holder (as the case may be), then such Holder shall select an independent,
reputable investment bank to resolve such dispute.
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(ii) Such Holder and the Company shall each deliver to such investment bank (x) a copy of the initial dispute submission so delivered in
accordance with the first sentence of this Section 22(a) and (y) written documentation supporting its position with respect to such dispute, in each case, no later
than 5:00 p.m. (New York time) by the fifth (5 th
) Business Day immediately following the date on which such Holder selected such investment bank (the
"Dispute Submission Deadline") (the documents referred to in the immediately preceding clauses (x) and (y) are collectively referred to herein as the
"Required Dispute Documentation") (it being understood and agreed that if either such Holder or the Company fails to so deliver all of the Required Dispute
Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be
entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute
and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to
the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and such Holder or otherwise requested by such investment
bank, neither the Company nor such Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in
connection with such dispute (other than the Required Dispute Documentation).
(iii) The Company and such Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and such
Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The fees and expenses of such
investment bank shall be borne solely by the Company, and such investment bank's resolution of such dispute shall be final and binding upon all parties absent
manifest error.
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(b) Disputes Over Arithmetic Calculation of the Conversion Rate.
(i) In the case of a dispute as to the arithmetic calculation of a Conversion Rate, the Company or such Holder (as the case may be) shall submit the
disputed arithmetic calculation via email (i) within two (2) Business Days after delivery of the applicable notice giving rise to such dispute to the Company or
such Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after such Holder learned of the circumstances giving rise to such
dispute. If such Holder and the Company are unable to resolve such disputed arithmetic calculation of such Conversion Rate by 5:00 p.m. (New York time) on
the third (3rd
) Business Day following such delivery by the Company or such Holder (as the case may be) of such disputed arithmetic calculation, then such
Holder shall select an independent, reputable accountant or accounting firm to perform such disputed arithmetic calculation.
(ii) Such Holder and the Company shall each deliver to such accountant or accounting firm (as the case may be) (x) a copy of the initial dispute
submission so delivered in accordance with the first sentence of this Section 22(a) and (y) written documentation supporting its position with respect to such
disputed arithmetic calculation, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which
such Holder selected such accountant or accounting firm (as the case may be) (the "Submission Deadline") (the documents referred to in the immediately
preceding clauses (x) and (y) are collectively referred to herein as the "Required Documentation") (it being understood and agreed that if either such Holder
or the Company fails to so deliver all of the Required Documentation by the Submission Deadline, then the party who fails to so submit all of the Required
Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such accountant or
accounting firm (as the case may be) with respect to such disputed arithmetic calculation and such accountant or accounting firm (as the case may be) shall
perform such disputed arithmetic calculation based solely on the Required Documentation that was delivered to such accountant or accounting firm (as the case
may be) prior to the Submission Deadline). Unless otherwise agreed to in writing by both the Company and such Holder or otherwise requested by such
accountant or accounting firm (as the case may be), neither the Company nor such Holder shall be entitled to deliver or submit any written documentation or
other support to such accountant or accounting firm (as the case may be) in connection with such disputed arithmetic calculation of the Conversion Rate (other
than the Required Documentation).
(iii) The Company and such Holder shall cause such accountant or accounting firm (as the case may be) to perform such disputed arithmetic
calculation and notify the Company and such Holder of the results no later than ten (10) Business Days immediately following the Submission Deadline. The
fees and expenses of such accountant or accounting firm (as the case may be) shall be borne solely by the Company, and such accountant's or accounting firm's
(as the case may be) arithmetic calculation shall be final and binding upon all parties absent manifest error.
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( c ) Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 22 constitutes an agreement to arbitrate between the Company
and such Holder (and constitutes an arbitration agreement) under§ 7501, et seq. of the New York Civil Practice Law and Rules ("CPLR") and that each party shall be
entitled to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 22, (ii) a dispute relating to a Conversion Price includes,
without limitation, disputes as to (1) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, and (2) whether an agreement,
instrument, security or the like constitutes an Option or Convertible Security, (iii) the terms of this Certificate of Designations and the Purchase Agreement shall serve as
the basis for the selected investment bank's resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all
findings, determinations and the like that such investment bank determines are required to be made by such investment bank in connection with its resolution of such
dispute and in resolving such dispute such investment bank shall apply such findings, determinations and the like to the terms of this Certificate of Designations and the
Purchase Agreement, (iv) the terms of this Certificate of Designations and each other applicable Transaction Document shall serve as the basis for the selected
accountant's or accounting firm's performance of the applicable arithmetic calculation, (v) for clarification purposes and without implication that the contrary would
otherwise be true, disputes relating to matters described in Section 22(a) shall be governed by Section 22(a) and not by Section 22(b), (vi) such Holder (and only such
Holder), in its sole discretion, shall have the right to submit any dispute described in this Section 22 to any state or federal court sitting in The City of New York,
Borough of Manhattan in lieu of utilizing the procedures set forth in this Section 22 and (vii) nothing in this Section 22 shall limit such Holder from obtaining any
injunctive relief or other equitable remedies (including, without limitation, with respect to any matters described in Section 22(a) or Section 22(b)).
23. Certain Defined Terms. For purposes of this Certificate of Designations, the following terms shall have the following meanings:
(a) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(b) "Base Amount" means, with respect to each Preferred Share, as of the applicable date of determination, the sum of(!) the Stated Value thereof, plus (2)
the Unpaid Dividend Amount thereon as of such date of determination.
(c) "Bloomberg" means Bloomberg, L.P.
( d ) "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
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(e) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the
closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York
time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or
the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing
Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the applicable Holder. If the
Company and such Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in
Section 22. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
( f ) "Common Stock" means (i) the Company's shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common
stock shall have been changed or any share capital resulting from a reclassification of such common stock.
(g) "Conversion Price" means, with respect to each Preferred Share, as of any Conversion Date or other applicable date of determination, $.20, subject to
adjustment as provided herein.
(h) "Conversion Shares" means (i) the shares of Common Stock into which the Preferred Shares are convertible, and (ii) any capital stock into which such
Conversion Shares shall have been changed or any share capital resulting from a reclassification of such common stock
(i) "Convertible Securities" means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly,
convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(j) "Eligible Market" means The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market, the Over-the-
Counter Bulletin Board, the OTCQB, the OTCQX or the Principal Market (or any successor thereto).
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(k) "Equity Conditions" means, during the period in question, (a) the Corporation shall have duly honored all conversions scheduled to occur or occurring
by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Corporation shall have paid all
liquidated damages and other amounts owing to the applicable Holder in respect of the Preferred Stock, (c) all of the Conversion Shares issuable pursuant to the
Transaction Documents (and shares issuable in lieu of cash payments of dividends) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or
current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to
the Transfer Agent and the affected Holders or the Conversion Shares are registered for resale under the Securities Act, (d) the Common Stock is trading on a the Nasdaq
Stock Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such the Nasdaq Stock Market (and the Corporation
believes, in good faith, that trading of the Common Stock on the Nasdaq Stock Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient
number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction
Documents, (f) the issuance of the shares in question to the applicable Holder would not violate the limitations set forth in Section 4(e) herein, (g) there has been no
public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (h) the applicable Holder is
not in possession of any information provided by the Corporation that constitutes, or may constitute, material non-public information, (i) for each Trading Day in a
period of I 0 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the Nasdaq Stock Market exceeds
$350,000 per Trading Day and the closing price of the Common Stock on each such day equals at least 130% of the Conversion Price, and G) the Company's Common
Stock must be DTC and DWAC eligible.
( 1 ) "Fundamental Transaction" means if, at any time while any Preferred Shares are outstanding (i) the Company, directly or indirectly, in one or more
related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect,
purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to
sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv)
the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock are effectively converted into or exchanged for other securities, cash or property, or (v) the Company,
directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than
50% of the outstanding Common Stock (not including any Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with
the other Persons making or party to, such stock or share purchase agreement or other business combination), it being understood that the completion of the SCWorx
Acquisition shall not be deemed a "Fundamental Transaction" for purposes of this Certificate of Designations. "Options" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
35
( m ) "Junior Securities" mean any security of the Company. Including and series of preferred stock, which by its terms is junior to the rights and
preferences of the Preferred Stock.
( n ) "Purchase Agreement" means that certain Securities Purchase Agreement by and among the Company and the initial holders of Preferred Shares,
dated as of the Initial Issuance Date, as may be amended from time in accordance with the terms thereof.
( o ) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.
( p ) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any
other entity or a government or any department or agency thereof.
(q) "Principal Market" means The NASDAQ Capital Market.
(r) "SEC" means the Securities and Exchange Commission or the successor thereto.
(s) "Stated Value" shall mean $10.00 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications,
combinations, subdivisions or other similar events occurring after the Initial Issuance Date with respect to the Preferred Shares.
(t) "Subsidiaries" shall have the meaning as set forth in the Purchase Agreement.
( u ) "Successor Entity" means the Person (or, if so elected by the Required Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered
into.
36
(v) "Trading Day" means, as applicable, (x) with respect to all price determinations relating to the Common Stock, any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade
on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m.,
New York time) unless such day is otherwise designated as a Trading Day in writing by the Required Holders or (y) with respect to all determinations other than price
determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.
(w) "Transaction Documents" means the Purchase Agreement, this designation and all other agreements and documents executed in connection with the
issuance and sale of the Preferred Stock.
(x) "Unpaid Dividend Amount" means, as of the applicable date of determination, with respect to each Preferred Share, all declared and unpaid Dividends
on such Preferred Share.
( y ) "Voting Stock" of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such Person
(irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any
contingency).
(x) "VW AP" , for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock are then listed or quoted on a
Eligible Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Eligible Market on which the
Common Stock are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b) if OTCQB or OTCQX is not an Eligible Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on
OTCQB or OTCQX as applicable, (c) if the Common Stock are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock then
reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent
bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of an Common Stock re as determined by an independent appraiser
selected in good faith by the Holders of a majority in interest of the Preferred Shares then outstanding and reasonably acceptable to the Company, the fees and expenses
of which shall be paid by the Company.
2 4 . Disclosure. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Certificate of Designations, unless the
Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its
Subsidiaries, the Company shall simultaneously with any such receipt or delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so
shall indicate to each Holder contemporaneously with delivery of such notice, and in the absence of any such indication, each Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries. Nothing contained in this Section 24 shall limit any
obligations of the Company, or any rights of any Holder, under the Purchase Agreement.
* * * * *
37
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations of Series A Convertible Preferred Stock of Alliance MMA, Inc. to be signed by
its President on this 30th day of November, 2018.
ALLIANCE MMA, INC.
By:
/S/ John Price
Name: John Price
Title: President
ALLIANCE MMA, INC.
CONVERSION NOTICE
EXHIBIT I
Reference is made to the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock of Alliance MMA, Inc. Company (the
"Certificate of Designations"). In accordance with and pursuant to the Certificate of Designations, the undersigned here by elects to convert the number of shares of Series A
Convertible Preferred Stock, $0.001 par value per share (the "Preferred Shares"), of Alliance MMA, Inc., a Delaware corporation (the "Company"), indicated below into
shares of common stock, $0.001 par value per share (the "Common Stock"), of the Company, as of the date specified below.
Date of Conversion: _________________________________________________
Number of Preferred Shares to be converted: _________________________________________________
Share certificate no(s). of Preferred Shares to be converted: ______________________________________
Tax ID Number (If applicable): _________________________________________________
Conversion Price: ____________________________________________
Number of shares of Common Stock to be issued: _______________________________________________
Please issue the shares of Common Stock into which the Preferred Shares are being converted in the following name and to the following address:
Issue to: _________________________________________________
_________________________________________________
Address: _________________________________________________
Telephone Number: _________________________________________________
Email address: _________________________________________________
Holder: _________________________________________________
By: _________________________________________________
Title: _________________________________________________
Dated: _________________________________________________
Account Number (if electronic book entry transfer): _________________________________________________
Transaction Code Number (if electronic book entry transfer): __________________________________________
The Company hereby acknowledges this Conversion Notice and hereby directs [_________________] to issue the above indicated number of shares of Common
Stock in accordance with the Irrevocable Transfer Agent Instructions dated ________,2018 from the Company and acknowledged and agreed to by [___________________].
ACKNOWLEDGMENT
EXHIBIT II
ALLIANCE MMA, INC.
By:
Name:
Title:
FIRST AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK OF
ALLIANCE MMA, INC.
I, John Price, hereby certify that I am Chief Financial Officer and Principal Executive Officer of Alliance MMA, Inc. (the "Company"), a corporation organized and
existing under the Delaware General Corporation Law (the "DGCL"), and further do hereby certify:
That pursuant to the authority expressly conferred upon the Board of Directors of the Company (the "Board") by the Company's Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), the Board on November 30, 2018, adopted the following resolutions creating a series of shares of Preferred Stock designated as
Series A Convertible Preferred Stock, none of which shares have been issued:
RESOLVED, that the Board designates the Series A Convertible Preferred Stock and the number of shares constituting such series, and fixes the rights, powers,
preferences, privileges and restrictions relating to such series in addition to any set forth in the Certificate of Incorporation as follows:
TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK
1 . Designation and Number of Shares. There shall hereby be created and established a series of preferred stock of the Company designated as "Series
A Convertible Preferred Stock" (the "Preferred Shares"). The authorized number of Preferred Shares shall be 900,000 shares. Each Preferred Share shall have $0.001 par
value (the "Par Value"). Capitalized terms not defined herein shall have the meaning as set forth in Section 23 below.
2 . Liquidation. Upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, each holder of
Preferred Shares shall be entitled to receive, for each share thereof, out of assets of the Company legally available therefor, a preferential amount in cash equal to $10.00 per
share. All preferential amounts to be paid to the holders of Preferred Shares in connection with such liquidation, dissolution or winding up shall be paid before the payment or
setting apart for payment of any amount for, or the distribution of any assets of the Company to the holders of any other class or series of capital stock whose terms expressly
provide that the holders of Preferred Shares should receive preferential payment with respect to such distribution (to the extent of such preference) and (ii) the Common Stock.
If upon any such distribution the assets of the Company shall be insufficient to pay the holders of the Preferred Shares (or the holders of any class or series of capital stock
ranking on a parity with the Preferred Shares as to distributions in the event of a liquidation, dissolution or winding up of the Company) the full amounts to which they shall be
entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were
paid in full. Any distribution in connection with the liquidation , dissolution or winding up of the Company, or any bankruptcy or insolvency proceeding, shall be made in cash
to the extent possible. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Company.
3 . Dividends. In addition to Sections 5(a) and 11 below, from and after the first date of issuance of any Preferred Shares (the "Initial Issuance Date"),
each holder of a Preferred Share (each, a "Holder" and collectively, the "Holders") shall be entitled to receive dividends ("Dividends'') when and as declared by the Board,
from time to time, in its sole discretion, which Dividends shall be paid by the Company out of funds legally available therefor, payable, subject to the conditions and other terms
hereof, in cash as if such Holders had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to
the holders of Common Stock.
4 . Conversion. Provided shareholders having the requisite number of shares of the Company's Common Stock have approved the Purchase Agreement
and all transactions contemplated thereby, including the issuance of the Preferred Shares and shares issuable upon exercise of the Warrant issued pursuant to the Purchase
Agreement and further provided that Nasdaq has issued an approval letter with respect to the Purchase Agreement and the issuance of the Preferred Shares and shares issuable
upon exercise of the Warrants being issued pursuant to the Warrants, each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of
Common Stock (as defined below) on the terms and conditions set forth in this Section 4 (collectively, the "Approvals").
( a ) Holder's Conversion Right. Subject to the provisions of Section 4(e), at any time or times on or after the Approvals, each Holder shall be entitled to
convert any whole number of Preferred Shares into validly issued, fully paid and non-assessable shares of Common Stock in accordance with Section 4(c) at the
Conversion Rate (as defined below).
( b ) Conversion Rate. The number of validly issued, fully paid and non- assessable shares of Common Stock issuable upon conversion of each Preferred
Share pursuant to Section 4(a) shall be determined according to the following formula (the "Conversion Rate''):
Base Amount
Conversion Price
No fractional shares of Common Stock are to be issued upon the conversion of any Preferred Shares. If the issuance would result in the issuance of a fraction of
a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.
(c) Mechanics of Conversion. The conversion of each Preferred Share shall be conducted in the following manner:
( i ) Holder's Conversion. To convert a Preferred Share into validly issued, fully paid and non-assessable shares of Common Stock on any date (a
"Conversion Date"), a Holder shall deliver (whether via email or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an
executed notice of conversion of the share(s) of Preferred Shares subject to such conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company. If required by Section 4(c)(vi), within five (5) Trading Days following a conversion of any such Preferred Shares as aforesaid, such Holder
shall surrender to a nationally recognized overnight delivery service for delivery to the Company the original certificates representing the share(s) of Preferred
Shares (the "Preferred Share Certificates") so converted as aforesaid.
(ii) Company's Response. On or before the first (1'') Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit
by email an acknowledgment of confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to such Holder and the Transfer
Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. On or
before the second (2nd) Trading Day following the date of receipt by the Company of such Conversion Notice, the Company shall (1) provided that the Transfer
Agent is participating in DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which such Holder
shall be entitled to such Holder's or its designee's balance account with DTC through its Deposit/Withdrawal at Custodian system, or (2) if the Transfer Agent
is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to the address as specified in
such Conversion Notice, a certificate, registered in the name of such Holder or its designee, for the number of shares of Common Stock to which such Holder
shall be entitled. If the number of Preferred Shares represented by the Preferred Share Certificate(s) submitted for conversion pursuant to Section 4(c)(vi) is
greater than the number of Preferred Shares being converted, then the Company shall if requested by such Holder, as soon as practicable and in no event later
than three (3) Trading Days after receipt of the Preferred Share Certificate(s) and at its own expense, issue and deliver to such Holder (or its designee) a new
Preferred Share Certificate representing the number of Preferred Shares not converted.
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(iii) Record Holder. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be
treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.
(iv) Company's Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, to issue to a Holder within two (2) Trading
Days after the Company's receipt of a Conversion Notice (whether via email or otherwise) (the "Share Delivery Deadline"), a certificate for the number of
shares of Common Stock to which such Holder is entitled and register such shares of Common Stock on the Company's share register or to credit such Holder's
or its designee's balance account with DTC for such number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion of any
Preferred Shares (as the case may be) (a "Conversion Failure"), then, in addition to all other remedies available to such Holder, such Holder, upon written
notice to the Company, may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any Preferred Shares that have not
been converted pursuant to such Holder's Conversion Notice, provided that the voiding of a Conversion Notice shall not affect the Company's obligations to
make any payments which have accrued prior to the date of such notice pursuant to the terms of this Certificate of Designations or otherwise and (y) the
Company shall pay in cash to such Holder on each day after such third (3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 1.5% of the product of (A) the aggregate number of shares of Common Stock not issued to such Holder on a timely basis and to
which the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the
Company could have issued such shares of Common Stock to the Holder without violating Section 4(c). In addition to the foregoing, if within two (2) Trading
Days after the Company's receipt of a Conversion Notice (whether via email or otherwise), the Company shall fail to issue and deliver a certificate to such
Holder and register such shares of Common Stock on the Company's share register or credit such Holder's or its designee's balance account with DTC for the
number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion hereunder (as the case may be), and if on or after such
second (2nd) Trading Day such Holder (or any other Person in respect, or on behalf, of such Holder) purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Holder of all or any portion of the number of shares of Common Stock, or a sale of a number
of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such conversion that such Holder so
anticipated receiving from the Company, then, in addition to all other remedies available to such Holder, the Company shall, within two (2) Business Days after
such Holder's request and in such Holder's discretion, either (i) pay cash to such Holder in an amount equal to such Holder's total purchase price (including
brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other
Person in respect, or on behalf, of such Holder) (the "Buy-In Price"), at which point the Company's obligation to so issue and deliver such certificate or credit
such Holder's balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion hereunder
(as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to such Holder a
certificate or certificates representing such shares of Common Stock or credit such Holder's balance account with DTC for the number of shares of Common
Stock to which such Holder is entitled upon such Holder's conversion hereunder (as the case may be) and pay cash to such Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing Sale Price of the
Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and
payment under this clause.
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( v ) Pro Rata Conversion; Disputes. In the event the Company receives a Conversion Notice from more than one Holder for the same Conversion
Date and the Company can convert some, but not all, of such Preferred Shares submitted for conversion, the Company shall convert from each Holder electing
to have Preferred Shares converted on such date a pro rata amount of such Holder's Preferred Shares submitted for conversion on such date based on the
number of Preferred Shares submitted for conversion on such date by such Holder relative to the aggregate number of Preferred Shares submitted for
conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to a Holder in connection with a conversion of
Preferred Shares, the Company shall issue to such Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with
Section 22.
(vi) Book-Entry. Notwithstanding anything to the contrary set forth in this Section 4, upon conversion of any Preferred Shares in accordance with
the terms hereof, no Holder thereof shall be required to physically surrender the certificate representing the Preferred Shares to the Company following
conversion thereof unless (A) the full or remaining number of Preferred Shares represented by the certificate are being converted (in which event such
certificate(s) shall be delivered to the Company as contemplated by this Section 4(c)(vi)) or (B) such Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting reissuance of Preferred Shares upon physical surrender of any Preferred Shares. Each
Holder and the Company shall maintain records showing the number of Preferred Shares so converted by such Holder and the dates of such conversions or shall
use such other method, reasonably satisfactory to such Holder and the Company, so as not to require physical surrender of the certificate representing the
Preferred Shares upon each such conversion. A Holder and any transferee or assignee, by acceptance of a certificate, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of any Preferred Shares, the number of Preferred Shares represented by such certificate may be less than
the number of Preferred Shares stated on the face thereof. Each certificate for Preferred Shares shall bear the following legend:
4
ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
CORPORATION'S CERTIFICATE OF DESIGNATIONS RELATING TO THE SHARES OF SERIES A PREFERRED STOCK
REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 4(c)(vi) THEREOF. THE NUMBER OF SHARES OF SERIES A
PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAYBE LESS THAN THE NUMBER OF SHARES OF SERIES A
PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 4(c)(vi) OF THE CERTIFICATE OF
DESIGNATIONS RELATING TO THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE.
( d ) Taxes. The Company shall pay any and all documentary, stamp, transfer (but only in respect of the registered holder thereof), issuance and
other similar taxes that may be payable with respect to the issuance and delivery of shares of Common Stock upon the conversion of Preferred Shares.
( e ) Limitation on Beneficial Ownership. Notwithstanding anything to the contrary contained in this Certificate of Designations, the Preferred
Shares held by a Holder shall not be convertible by such Holder, and the Company shall not effect any conversion of any Preferred Shares held by such Holder,
to the extent (but only to the extent) that such Holder or any of its affiliates would beneficially own in excess of 4.99% (the "Maximum Percentage") of the
Common Stock. To the extent the above limitation applies, the determination of whether the Preferred Shares held by such Holder shall be convertible (vis-a-
vis other convertible, exercisable or exchangeable securities owned by such Holder or any of its affiliates) and of which such securities shall be convertible,
exercisable or exchangeable (as among all such securities owned by such Holder and its affiliates) shall, subject to such Maximum Percentage limitation, be
determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability of a Holder to
convert Preferred Shares, or of the Company to issue shares of Common Stock to such Holder, pursuant to this Section 4(e) shall have any effect on the
applicability of the provisions of this Section 4(e) with respect to any subsequent determination of convertibility or issuance (as the case may be). For purposes
of this Section 4(e), beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. The provisions of this
Section 4(e) shall be implemented in a manner otherwise than in strict conformity with the terms of this Section 4(e) to correct this Section 4(e) (or any portion
hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this Section 4(e) shall apply to
a successor holder of Preferred Shares. The holders of Common Stock shall be third party beneficiaries of this Section 4(e) and the Company may not waive
this Section 4(e). For any reason at any time, upon the written or oral request of a Holder, the Company shall within two (2) Business Days confirm orally and
in writing to such Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or
exercisable securities into Common Stock, including, without limitation, pursuant to this Certificate of Designations or securities issued pursuant to the
Purchase Agreement. By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of
9.99% specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to such Holder sending such notice and not to any other Holder.
5
(f) Mandatory conversion. If the 20-day VWAP is greater than one hundred thirty percent (130%) of the Conversion Price, for twenty consecutive
trading days and there is an effective registration statement registering the Conversion Shares ("Mandatory Conversion Date"), all of the outstanding shares of
Series A Preferred Stock will automatically convert to Common Stock (a "Mandatory Conversion"). However, to the extent that such Mandatory Conversion
would result in such Holder exceeding the Maximum Percentage, then such Holder shall not be required to participate in such Mandatory Conversion to such
extent (or beneficial ownership of such shares of Common Stock as a result of such Mandatory Conversion to such extent) and such Mandatory Conversion to
such extent shall be held in abeyance for such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum
Percentage and at such time such shares will automatically convert to Common Stock in one or more series of issuances. Within two Business Days of the
Mandatory Conversion Date, the Company shall deliver to each Holder the Conversion Shares issuable upon conversion of such Holder's Series A Preferred
Stock, and, within two Business Days after receipt of such Conversion Shares, each Holder shall return the certificates for its Series A Preferred Stock to the
Company, provided that, any failure by the Holder to return a certificate for Series A Preferred Stock will have no effect on the Mandatory Conversion pursuant
to this Section, which Mandatory Conversion will be deemed to occur on the Mandatory Conversion Date.
5. Rights Upon Issuance of Purchase Rights and Other Corporate Events.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 7(a) below, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all of the record holders of any class of Common Stock (the
"Purchase Rights"), then each Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such
Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of all the Preferred Shares
(without taking into account any limitations or restrictions on the convertibility of the Preferred Shares) held by such Holder immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that such Holder's right to participate in any
such Purchase Right would result in such Holder exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Purchase
Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to
such extent shall be held in abeyance for such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum
Percentage).
6
( b ) Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of
Common Stock (a "Corporate Event"), the Company shall make appropriate provision to insure that each Holder will thereafter have the right to receive upon
a conversion of all the Preferred Shares held by such Holder (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or
other assets to which such Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by such
Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares
contained in this Certificate of Designations) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other
assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as such Holder
would have been entitled to receive had the Preferred Shares held by such Holder initially been issued with conversion rights for the form of such consideration
(as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. The provisions of this Section
5(b) shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion of the Preferred
Shares contained in this Certificate of Designations.
6
. Rights Upon Fundamental Transactions. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designations and the other Transaction Documents
referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the
Company under this Certificate of Designations and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein
and therein. In addition to the foregoing, upon consummation of a Fundamental Transaction, the Successor Entity shall deliver to each Holder confirmation that there shall be
issued upon conversion of the Preferred Shares at any time after the consummation of such Fundamental Transaction, in lieu of the shares of Common Stock (or other securities,
cash, assets or other property (except such items still issuable under Sections 5 and 11, which shall continue to be receivable thereafter)) issuable upon the conversion of the
Preferred Shares prior to such Fundamental Transaction, such shares of the Successor Entity (including its Parent Entity) or other consideration which each Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had all the Preferred Shares held by each Holder been converted immediately prior to such
Fundamental Transaction (without regard to any limitations on the conversion of the Preferred Shares contained in this Certificate of Designations), as adjusted in accordance
with the provisions of this Certificate of Designations. The provisions of this Section 6 shall apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion of the Preferred Shares.
7
7. Certain Adjustments.
( a ) Issuance of Lower Priced Securities. If, at any time while the Preferred Shares are outstanding, the Company or any subsidiary, as applicable,
sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to
purchase or other disposition), any Common Stock or Common Stock equivalents (other than shares of Common Stock pursuant to and in accordance with the
Company's stock option plan, shares underlying currently outstanding securities (or shares/rights to acquire shares issued in settlement of existing indebtedness,
provided that the number of shares of Common Stock issued to satisfy such indebtedness, shall not exceed 750,000 shares), entitling any Person to acquire
shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the "Base Exercise Price"), then the
Conversion Price shall be reduced to equal at all times the lower of the Base Exercise Price or the Conversion Price as set forth above. Such adjustment shall be
made whenever such Common Stock or Common Stock equivalents are issued (each a "Dilutive Issuance"). If the Company enters into a variable rate
transaction, the Company shall be deemed to have issued Common Stock or Common Stock equivalents at the lowest possible conversion price at which such
securities may be converted or exercised. The Company shall notify the Holder in writing, no later than three (3) Trading Days following the issuance of any
Common Stock or Common Stock equivalents subject to this Section), indicating therein the applicable issuance price, or applicable reset price, exchange price,
conversion price and other pricing terms (such notice, the "Dilutive Issuance Notice"). For purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section, upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Common Shares
based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion. Notwithstanding the foregoing in no event, until after the Approvals have been obtained, shall the Conversion Price be
reduced to an amount less than 20% of closing bid price of Common Stock on the Trading Day prior to initial closing.
(b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Sections 5 and 11, if
the Company at any time on or after the Initial Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. Without limiting any provision of Sections 5 and 11, if the Company at any time on or after the Initial Issuance Date combines (by
combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(b) shall become effective
immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(b) occurs during the period
that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
(c) Other Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable,
or, if applicable, would not operate to protect any Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but
not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Board shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of
such Holder, provided that no such adjustment pursuant to this Section 7 will increase the Conversion Price as otherwise determined pursuant to this Section?,
provided further that if such Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Board
and such Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments,
whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.
( d ) Calculations. All calculations under this Section 7 shall be made by rounding to the nearest one-hundred thousandth of a cent or the nearest
1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
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8. Authorized Shares.
( a ) Reservation. The Company shall, following receipt of the Approvals, initially reserve out of its authorized and unissued Common Stock a
number of shares of Common Stock equal to 200% of the Conversion Rate with respect to the Base Amount of each Preferred Share as of the Initial Issuance
Date (assuming for purposes hereof, that all the Preferred Shares issuable pursuant to the Purchase Agreement have been issued, such Preferred Shares are
convertible at the Conversion Price and without taking into account any limitations on the conversion of such Preferred Shares set forth in herein) issuable
pursuant to the terms of this Certificate of Designations from the Initial Issuance Date through the second anniversary of the Initial Issuance Date (assuming for
purposes hereof, that all the Preferred Shares issuable pursuant to the Purchase Agreement have been issued and without taking into account any limitations on
the issuance of securities set forth herein). So long as any of the Preferred Shares are outstanding, the Company shall, following receipt of the Approvals, take
all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion
of the Preferred Shares, as of any given date, 200% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Preferred Shares issued or issuable pursuant to the Purchase Agreement assuming for purposes hereof, that all the Preferred Shares issuable
pursuant to the Purchase Agreement have been issued and without taking into account any limitations on the issuance of securities set forth herein), provided
that at no time shall the number of shares of Common Stock so available be less than the number of shares required to be reserved by the previous sentence
(without regard to any limitations on conversions contained in this Certificate of Designations) (the "Required Amount"). The initial number of shares of
Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall be allocated pro rata among the
Holders based on the number of Preferred Shares held by each Holder on the Initial Issuance Date or increase in the number of reserved shares (as the case may
be) (the "Authorized Share Allocation"). In the event a Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, each transferee shall be
allocated a pro rata portion of such Holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to
hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such
Holders.
( b ) Insufficient Authorized Shares. If, notwithstanding Section 8(a) and not in limitation thereof, at any time, following receipt of the Approvals,
while any of the Preferred Shares remain outstanding the Company does not have a sufficient number of authorized and unissued shares of Common Stock to
satisfy its obligation to have available for issuance upon conversion of the Preferred Shares at least a number of shares of Common Stock equal to the Required
Amount (an "Authorized Share Failure"), then the Company shall promptly take all action necessary to increase the Company's authorized shares of
Common Stock to an amount sufficient to allow the Company to reserve and have available the Required Amount for all of the Preferred Shares then
outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders or conduct
a consent solicitation for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its commercially reasonable efforts to solicit its stockholders' approval of such increase in
authorized shares of Common Stock and to cause its Board to recommend to the stockholders that they approve such proposal. Nothing contained in this
Section 8 shall limit any obligations of the Company under any provision of the Purchase Agreement. In the event that the Company is prohibited from issuing
shares of Common Stock upon a conversion of any Preferred Share due to the failure by the Company to have sufficient shares of Common Stock available out
of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common Stock, the "Authorization Failure Shares''), in lieu
of delivering such Authorization Failure Shares to such Holder of such Preferred Shares, the Company shall pay cash in exchange for the cancellation of such
Preferred Shares convertible into such Authorized Failure Shares at a price equal to the sum of(i) the product of(x) such number of Authorization Failure Shares
and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Conversion Notice with respect to such
Authorization Failure Shares to the Company and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock
to deliver in satisfaction of a sale by such Holder of Authorization Failure Shares, any brokerage commissions and other out-of-pocket expenses, if any, of such
Holder incurred in connection therewith.
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9 . Voting Rights. Except as otherwise expressly required by law, upon any vote held after the Approvals, each holder of Preferred Shares shall be
entitled to vote on all matters submitted to shareholders of the Company and shall be entitled to the number of votes for each Preferred Share owned at the record date for the
determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is
solicited, equal to the number of shares of Common Stock such Preferred Shares are convertible into (voting as a class with Common Stock), but not in excess of the conversion
limitations set forth in Section 4(e) herein. Except as otherwise required by law, the holders of Preferred Shares shall vote together with the holders of Common Stock on all
matters and shall not vote as a separate class.
10. Optional and Triggered Redemption
(a) Company Redemption. At any time commencing at the earlier of (i) six months after the Initial Issuance Date, or (ii) upon registration for resale
of the Conversion Shares under the Securities Act, and provided that no Equity Conditions Failure (as defined below) exists, the Company shall have the right to redeem
all or part of the Preferred Shares then outstanding (the "Company Redemption Amount"). The Preferred Shares subject to redemption described herein shall be
redeemed by the Company, in cash at a price per Preferred Share (the "Company Redemption Price'') equal to one hundred and twenty percent (120%) of the Stated
Value. The Company may exercise its redemption option under this Section I0(a) by delivering a written notice thereof by facsimile or electronic mail to all, but not less
than all, of the Holders (the "Company Redemption Notice" and the date all of the Holders received such notice is referred to as the "Company Redemption Notice
Date''). The Company Redemption Notice shall be irrevocable. The Company Redemption Notice shall (x) state the date on which the Company Redemption shall
occur (the "Company Redemption Date") which date shall not be less than fifteen (15) Trading Days nor more than twenty-five (25) Trading Days following the
Company Redemption Notice Date, (y) certify that there has been no Equity Conditions Failure and (z) state the aggregate Company Redemption Amount of the
Preferred Shares which is being redeemed in such Company Optional Redemption from such Holder and all of the other Holders of the Preferred Shares pursuant to this
Section IO(a) on the Company Optional Redemption Date. Notwithstanding anything herein to the contrary, (i) if no Equity Conditions Failure has occurred as of the
Company Optional Redemption Notice Date but an Equity Conditions Failure occurs at any time prior to the Company Redemption Date, (A) the Company shall
provide each Holder a subsequent notice to that effect and (B) unless such Holder waives the Equity Conditions Failure, the Company Redemption with respect to such
Holder shall be cancelled and the applicable Company Redemption Notice shall be null and void and (ii) at any time prior to the date the Company Redemption Price is
paid, in full, the Company Redemption Amount may be converted, in whole or in part, by any Holder into shares of Common Stock pursuant to Section 4. All
Conversion Amounts converted by a Holder after the Company Redemption Notice Date shall reduce the Company Redemption Amount of the Preferred Shares of such
Holder required to be redeemed on the Company Redemption Date. In the event of the Company's redemption of any of the Preferred Shares under this Section l0(a), a
Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 10(a) is intended by the parties to be, and shall
be deemed, a reasonable estimate of such Holder's actual loss of its investment opportunity and not as a penalty. For the avoidance of doubt, the Company shall have no
right to effect a Company Redemption if any Triggering Event has occurred and is continuing, but any Triggering Event shall have no effect upon any Holder's right to
convert Preferred Shares in its discretion. "Equity Conditions Failure" means that that on the date specified, the Equity Conditions are not met in whole or in part.
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(b) Triggering Event Redemption.
(i) Triggering Event. Each of the following events shall constitute a "Triggering Event":
a. the suspension from trading or failure of the Common Stock to be traded or listed (as applicable) on the Nasdaq market on or prior to
90 days after the closing of the SCWorx Acquisition (as defined in the Purchase Agreement), for a period of five (5) consecutive Trading Days; or
b. the Company's shareholders do not approve the Transaction Documents on or before January 31, 2019, subject to extension for up to 30
days upon the mutual agreement of the Company and a majority in interest of the Holders.
(ii) Notice of a Triggering Event; Redemption Right. Upon the occurrence of a Triggering Event with respect to the Preferred Shares, the
Company shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail (a "Triggering Event Notice") to each
Holder. At any time after the earlier of a Holder's receipt of a Triggering Event Notice and such Holder becoming aware of a Triggering Event, at the
written election of any Holder, the Company shall redeem such Holder's Preferred Shares at a price equal to one hundred percent (100%) of the Stated
Value, which amount shall be paid to the Holder within five (5) Trading Days of receipt of written notice from the Holder of its election to redeem the
Preferred Shares.
1 1 . Participation. In addition to any adjustments pursuant to Section 7(b), on and after the date of the Approvals, the Holders shall, as holders of
Preferred Shares, be entitled to receive such dividends paid and distributions made to the holders of shares of Common Stock to the same extent as if such Holders had
converted each Preferred Share held by each of them into shares of Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of shares of Common Stock (provided, however, to the extent that a Holder's right to participate in any such dividend or distribution would result in
such Holder exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such dividend or distribution to such extent (or the beneficial ownership
of any such shares of Common Stock as a result of such dividend or distribution to such extent) and such dividend or distribution to such extent shall be held in abeyance for the
benefit of such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage).
11
12. Vote to Change the Terms of or Issue Preferred Shares . In addition to any other rights provided by law, except where the vote or written consent of
the holders of a greater number of shares is required by law or by another provision of the Certificate of Incorporation, without first obtaining the affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting of the holders of at least a majority in interest of the outstanding Preferred Shares (the "Required
Holders"), voting together as a single class, the Company shall not: (a) amend or repeal any provision of, or add any provision to, its Certificate of Incorporation or bylaws, or
file any certificate of designations or articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the
preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Preferred Shares, regardless of whether any such action shall be by means of amendment
to the Certificate of Incorporation or by merger, consolidation or otherwise; (b) increase or decrease (other than by conversion) the authorized number of Preferred Shares; (c)
issue any Preferred Shares; or (d) without limiting any provision of Section 16, whether or not prohibited by the terms of the Preferred Shares, circumvent a right of the
Preferred Shares.
shares of Preferred Stock shall have otherwise given prior written consent, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:
1 3 . Negative Covenants. As long as any Preferred Shares are outstanding, unless the holders of at least 67% in Stated Value of the then outstanding
adversely affects any rights of the Holder;
a
) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and
Stock Equivalents or Junior Securities, other than as to the Conversion Shares as permitted or required under the Transaction Documents;
b ) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock, Common
c) pay cash dividends or distributions on Junior Securities of the Corporation;
) enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the
Commission, unless such transaction is made on an arm's-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less
than a quorum otherwise required for board approval); or
d
e) enter into any agreement with respect to any of the foregoing.
1 4 . Lost or Stolen Certificates. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificates representing Preferred Shares (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and,
in the case of loss, theft or destruction, of an indemnification undertaking by the applicable Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of the certificate(s), the Company shall execute and deliver new certificate(s) of like tenor and date.
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1 5 . Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designations shall be
cumulative and in addition to all other remedies available under this Certificate of Designations and any of the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such
remedy. Nothing herein shall limit any Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by a Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened
breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to
a Holder that is requested by such Holder to enable such Holder to confirm the Company's compliance with the terms and conditions of this Certificate of Designations.
16. Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Certificate of Designations, and will at all times in good faith carry out all the provisions of this
Certificate of Designations and take all action as may be required to protect the rights of the Holders. Without limiting the generality of the foregoing or any other provision of
this Certificate of Designations, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any Preferred Shares above
the Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the conversion of Preferred Shares and (iii) shall, so long as any Preferred Shares are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, the maximum
number of shares of Common Stock as shall from time to time be necessary to effect the conversion of the Preferred Shares then outstanding (without regard to any limitations
on conversion contained herein).
17. Failure or Indulgence Not Waiver. No failure or delay on the part of a Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or
privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. This Certificate of Designations shall be deemed to
be jointly drafted by the Company and all Holders and shall not be construed against any Person as the drafter hereof.
1 8 . Notices. The Company shall provide each Holder of Preferred Shares with prompt written notice of all actions taken pursuant to the terms of this
Certificate of Designations, including in reasonable detail a description of such action and the reason therefor. Whenever notice is required to be given under this Certificate of
Designations, unless otherwise provided herein, such notice must be in writing and shall be given in accordance with Section 5.4 of the Purchase Agreement. Without limiting
the generality of the foregoing, the Company shall give written notice to each Holder (i) promptly following any adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to all holders of shares of Common Stock as a class or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided, in each case, that such information shall be made known to the public prior to, or simultaneously with, such notice being
provided to any Holder.
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without the consent of the Company.
19. Transfer of Preferred Shares. The Holder may, subject to compliance with applicable securities laws, transfer some or all of its Preferred Shares
2 0 . Preferred Shares Register. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may
designate by notice to the Holders), a register for the Preferred Shares, in which the Company shall record the name, address and email address of the Persons in whose name the
Preferred Shares have been issued, as well as the name and address of each transferee. The Company may treat the Person in whose name any Preferred Shares is registered on
the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any properly made transfers.
21. Stockholder Matters; Amendment.
( a ) Stockholder Matters. Any stockholder action, approval or consent required, desired or otherwise sought by the Company pursuant to the
DGCL, the Certificate of Incorporation, this Certificate of Designations or otherwise with respect to the issuance of Preferred Shares may be effected by written
consent of the Company's stockholders or at a duly called meeting of the Company's stockholders, all in accordance with the applicable rules and regulations of
the DGCL. This provision is intended to comply with the applicable sections of the DGCL permitting stockholder action, approval and consent affected by
written consent in lieu of a meeting.
( b ) Amendment. This Certificate of Designations or any provision hereof may be amended by obtaining the affirmative vote at a meeting duly
called for such purpose, or written consent without a meeting in accordance with the DGCL, of the Required Holders, voting separate as a single class, and with
such other stockholder approval, if any, as may then be required pursuant to the DGCL and the Certificate of Incorporation.
22. Dispute Resolution.
(a) Disputes Over Closing Bid Price, Closing Sale Price, Conversion Price, VWAP or Fair Market Value.
(i) In the case of a dispute relating to a Closing Bid Price, a Closing Sale Price, a Conversion Price, a VWAP or fair market value (as the
case may be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or such applicable Holder
(as the case may be) shall submit the dispute via email (I) within two (2) Business Days after delivery of the applicable notice giving rise to such
dispute to the Company or such Holder (as the case may be) or (II) if no notice gave rise to such dispute, at any time after such Holder learned of the
circumstances giving rise to such dispute. If such Holder and the Company are unable to resolve such dispute relating to such Closing Bid Price, such
Closing Sale Price, such Conversion Price, such VWAP or such fair market value (as the case maybe) by 5:00p.m. (New York time) on the third (3nl)
Business Day following such delivery by the Company or such Holder (as the case may be) of such dispute to the Company or such Holder (as the
case may be), then such Holder shall select an independent, reputable investment bank to resolve such dispute.
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(ii) Such Holder and the Company shall each deliver to such investment bank (x) a copy of the initial dispute submission so delivered in
accordance with the first sentence of this Section 22(a) and (y) written documentation supporting its position with respect to such dispute, in each case,
no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which such Holder selected such
investment bank (the "Dispute Submission Deadline") (the documents referred to in the immediately preceding clauses (x) and (y) are collectively
referred to herein as the "Required Dispute Documentation") (it being understood and agreed that if either such Holder or the Company fails to so
deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required
Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to
such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute
Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both
the Company and such Holder or otherwise requested by such investment bank, neither the Company nor such Holder shall be entitled to deliver or
submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute
Documentation).
(iii) The Company and such Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company
and such Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The fees and
expenses of such investment bank shall be borne solely by the Company, and such investment bank's resolution of such dispute shall be final and
binding upon all parties absent manifest error.
(b) Disputes Over Arithmetic Calculation of the Conversion Rate.
(i) In the case of a dispute as to the arithmetic calculation of a Conversion Rate, the Company or such Holder (as the case may be) shall
submit the disputed arithmetic calculation via email (i) within two (2) Business Days after delivery of the applicable notice giving rise to such dispute
to the Company or such Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after such Holder learned of the
circumstances giving rise to such dispute. If such Holder and the Company are unable to resolve such disputed arithmetic calculation of such
Conversion Rate by 5:00 p.m. (New York time) on the third (3"") Business Day following such delivery by the Company or such Holder (as the case
may be) of such disputed arithmetic calculation, then such Holder shall select an independent, reputable accountant or accounting firm to perform
such disputed arithmetic calculation.
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(ii) Such Holder and the Company shall each deliver to such accountant or accounting firm (as the case may be) (x) a copy of the initial
dispute submission so delivered in accordance with the first sentence of this Section 22(a) and (y) written documentation supporting its position with
respect to such disputed arithmetic calculation, in each case, no later than 5:00 p.m. (New York time) by the fifth (5 th) Business Day immediately
following the date on which such Holder selected such accountant or accounting firm (as the case may be) (the "Submission Deadline") (the
documents referred to in the immediately preceding clauses (x) and (y) are collectively referred to herein as the "Required Documentation") (it being
understood and agreed that if either such Holder or the Company fails to so deliver all of the Required Documentation by the Submission Deadline,
then the party who fails to so submit all of the Required Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit
any written documentation or other support to such accountant or accounting firm (as the case may be) with respect to such disputed arithmetic
calculation and such accountant or accounting firm (as the case may be) shall perform such disputed arithmetic calculation based solely on the
Required Documentation that was delivered to such accountant or accounting firm (as the case may be) prior to the Submission Deadline). Unless
otherwise agreed to in writing by both the Company and such Holder or otherwise requested by such accountant or accounting firm (as the case may
be), neither the Company nor such Holder shall be entitled to deliver or submit any written documentation or other support to such accountant or
accounting firm (as the case may be) in connection with such disputed arithmetic calculation of the Conversion Rate (other than the Required
Documentation).
(iii) The Company and such Holder shall cause such accountant or accounting firm (as the case may be) to perform such disputed arithmetic
calculation and notify the Company and such Holder of the results no later than ten (10) Business Days immediately following the Submission
Deadline. The fees and expenses of such accountant or accounting firm (as the case may be) shall be borne solely by the Company, and such
accountant's or accounting firm's (as the case may be) arithmetic calculation shall be final and binding upon all parties absent manifest error.
( c ) Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 22 constitutes an agreement to arbitrate between the
Company and such Holder (and constitutes an arbitration agreement) under § 7501, et seq. of the New York Civil Practice Law and Rules ("CPLR") and that
each party shall be entitled to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 22, (ii) a dispute relating to a
Conversion Price includes, without limitation, disputes as to (1) the consideration per share at which an issuance or deemed issuance of Common Stock
occurred, and (2) whether an agreement, instrument, security or the like constitutes an Option or Convertible Security, (iii) the terms of this Certificate of
Designations and the Purchase Agreement shall serve as the basis for the selected investment bank's resolution of the applicable dispute, such investment bank
shall be entitled (and is hereby expressly authorized) to make all findings, determinations and the like that such investment bank determines are required to be
made by such investment bank in connection with its resolution of such dispute and in resolving such dispute such investment bank shall apply such findings,
determinations and the like to the terms of this Certificate of Designations and the Purchase Agreement, (iv) the terms of this Certificate of Designations and
each other applicable Transaction Document shall serve as the basis for the selected accountant's or accounting firm's performance of the applicable arithmetic
calculation, (v) for clarification purposes and without implication that the contrary would otherwise be true, disputes relating to matters described in Section
22(a) shall be governed by Section 22(a) and not by Section 22(b), (vi) such Holder (and only such Holder), in its sole discretion, shall have the right to submit
any dispute described in this Section 22 to any state or federal court sitting in The City of New York, Borough of Manhattan in lieu of utilizing the procedures
set forth in this Section 22 and (vii) nothing in this Section 22 shall limit such Holder from obtaining any injunctive relief or other equitable remedies
(including, without limitation, with respect to any matters described in Section 22(a) or Section 22(b)).
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23. Certain Defined Terms. For purposes of this Certificate of Designations, the following terms shall have the following meanings:
(a) "1934 Act" means the Securities Exchange Act of 1934, as amended.
( b ) "Base Amount" means, with respect to each Preferred Share, as of the applicable date of determination, the sum of (1) the Stated Value
thereof, plus (2) the Unpaid Dividend Amount thereon as of such date of determination.
(c) "Bloomberg" means Bloomberg, L.P.
(d) "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized
or required by law to remain closed.
( e ) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and
does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such
security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-
the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is
reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the
"pink sheets" by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on
a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the
fair market value as mutually determined by the Company and the applicable Holder. If the Company and such Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved in accordance with the procedures in Section 22. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
( f ) "Common Stock" means (i) the Company's shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such
common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
( g ) "Conversion Price" means, with respect to each Preferred Share, as of any Conversion Date or other applicable date of determination, $.20,
subject to adjustment as provided herein.
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( h ) "Conversion Shares" means (i) the shares of Common Stock into which the Preferred Shares are convertible, and (ii) any capital stock into
which such Conversion Shares shall have been changed or any share capital resulting from a reclassification of such common stock
( i ) "Convertible Securities" means any stock or other security (other than Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(i) "Eligible Market" means The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market, the
Over-the-Counter Bulletin Board, the OTCQB, the OTCQX or the Principal Market (or any successor thereto).
(k) "Equity Conditions" means, during the period in question, (a) the Corporation shall have duly honored all conversions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Corporation
shall have paid all liquidated damages and other amounts owing to the applicable Holder in respect of the Preferred Stock, (c) all of the Conversion Shares
issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of dividends) may be resold pursuant to Rule 144 without volume
or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter
to such effect, addressed and acceptable to the Transfer Agent and the affected Holders or the Conversion Shares are registered for resale under the Securities
Act, (d) the Common Stock is trading on a the Nasdaq Stock Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted
for trading on such the Nasdaq Stock Market (and the Corporation believes, in good faith, that trading of the Common Stock on the Nasdaq Stock Market will
continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common
Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) the issuance of the shares in question to the applicable
Holder would not violate the limitations set forth in Section 4(e) herein, there has been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been consummated, (h) the applicable Holder is not in possession of any information provided by the
Corporation that constitutes, or may constitute, material non-public information, (i) for each Trading Day in a period of 10 consecutive Trading Days prior to
the applicable date in question, the daily trading volume for the Common Stock on the Nasdaq Stock Market exceeds $350,000 per Trading Day and the closing
price of the Common Stock on each such day equals at least 130% of the Conversion Price, and (i) the Company's Common Stock must be DTC and DWAC
eligible.
(I) "Fundamental Transaction" means if, at any time while any Preferred Shares are outstanding (i) the Company, directly or indirectly, in one
or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects
any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii)
any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more
of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock are effectively converted into or exchanged for
other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase
agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another
Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Stock (not including any Common Stock
held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase
agreement or other business combination), it being understood that the completion of the SCWorx Acquisition shall not be deemed a "Fundamental
Transaction" for purposes of this Certificate of Designations. "Options" means any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities.
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(m) "Junior Securities" mean any security of the Company. Including and series of preferred stock, which by its terms is junior to the rights and
preferences of the Preferred Stock.
( n ) "Purchase Agreement" means that certain Securities Purchase Agreement by and among the Company and the initial holders of Preferred
Shares, dated as of the Initial Issuance Date, as may be amended from time in accordance with the terms thereof.
(o) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental Transaction.
( p ) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency thereof.
(q) "Principal Market" means The NASDAQ Capital Market.
(r) "SEC" means the Securities and Exchange Commission or the successor thereto.
( s ) "Stated Value" shall mean $10.00 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations,
reclassifications, combinations, subdivisions or other similar events occurring after the Initial Issuance Date with respect to the Preferred Shares.
(t) "Subsidiaries" shall have the meaning as set forth in the Purchase Agreement.
(u) "Successor Entity" means the Person (or, if so elected by the Required Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been
entered into.
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( v ) "Trading Day" means, as applicable, (x) with respect to all price determinations relating to the Common Stock, any day on which the
Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal
securities exchange or securities market on which the Common Stock is then traded, provided that "Trading Day" shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during
the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange
or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Required
Holders or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock
Exchange (or any successor thereto) is open for trading of securities.
(w) "Transaction Documents" means the Purchase Agreement, this designation and all other agreements and documents executed in connection
with the issuance and sale of the Preferred Stock.
(x) "Unpaid Dividend Amount" means, as of the applicable date of determination, with respect to each Preferred Share, all declared and unpaid
Dividends on such Preferred Share.
( y ) "Voting Stock" of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such
Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of
any contingency).
( x ) "VWAP", for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock are then listed or
quoted on a Eligible Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Eligible Market
on which the Common Stock are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to4:02
p.m. (New York City time)), (b) if OTCQB or OTCQX is not an Eligible Market, the volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock are not then listed or quoted for trading on OTCQB or OTCQX and if
prices for the Common Stock then reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of an
Common Stock re as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Preferred Shares then
outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
2 4 . Disclosure. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Certificate of Designations, unless the
Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its
Subsidiaries, the Company shall simultaneously with any such receipt or delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so
shall indicate to each Holder contemporaneously with delivery of such notice, and in the absence of any such indication, each Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries. Nothing contained in this Section 24 shall limit any
obligations of the Company, or any rights of any Holder, under the Purchase Agreement.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations of Series A Convertible Preferred Stock of Alliance MMA, Inc. to be signed by
its President on this 30th day of November, 2018.
ALLIANCE MMA, INC.
By:
/S/ John Price
Name: John Price
Title: President
ALLIANCE MMA, INC.
CONVERSION NOTICE
EXHIBIT I
Reference is made to the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock of Alliance MMA, Inc. Company (the
"Certificate of Designations"). In accordance with and pursuant to the Certificate of Designations, the undersigned here by elects to convert the number of shares of Series A
Convertible Preferred Stock, $0.001 par value per share (the "Preferred Shares"), of Alliance MMA, Inc., a Delaware corporation (the "Company"), indicated below into
shares of common stock, $0.001 par value per share (the "Common Stock"), of the Company, as of the date specified below.
Date of Conversion: __________________________________
Number of Preferred Shares to be converted: __________________________________
Share certificate no(s). of Preferred Shares to be converted: __________________________________
Tax ID Number (If applicable): __________________________________
Conversion Price: __________________________________
Number of shares of Common Stock to be issued: __________________________________
Please issue the shares of Common Stock into which the Preferred Shares are being converted in the following name and to the following address:
Issue to: __________________________________
__________________________________
Address: __________________________________
Telephone Number: __________________________________
Email address: __________________________________
Holder: __________________________________
By: __________________________________
Title: __________________________________
Dated: __________________________________
Account Number (if electronic book entry transfer): __________________________________
Transaction Code Number (if electronic book entry transfer): __________________________________
The Company hereby acknowledges this Conversion Notice and hereby directs [_________________] to issue the above indicated number of shares of Common
Stock in accordance with the Irrevocable Transfer Agent Instructions dated ________,2018 from the Company and acknowledged and agreed to by [___________________].
ACKNOWLEDGMENT
EXHIBIT II
ALLIANCE MMA, INC.
By:
Name:
Title:
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:
FIRST: That at a meeting of the Board of Directors of
Alliance MMA, Inc.
resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "FIRST" so that, as amended, said Article shall
be and read as follows:
FIRST: The name of this corporation is SCWorx Corp. (the "Corporation").
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the first two sentences of the Article thereof numbered "Fourth" so that, as
amended, shall be and read as follows:
FOURTH: The aggregate number of shares of capital stock which the Corporation shall have authority to issue is 50,000,000 shares, consisting of:
(i) 45,000,000 shares of Common Stock, $0.001 par value per share ("Common Stock"); and
(ii) 5,000,000 shares of Preferred Stock, $0.001 par value per share ("Preferred Stock").
The Preferred Stock and the Common Stock shall have the rights, preferences and limitations set forth below.
Effective at 5:00 p.m., Eastern Standard Time, on February 1, 2019 (the "Effective Time"), every nineteen (19) shares of the Corporation's common stock (the "Old common
stock") issued and outstanding immediately prior to the Effective Time will be automatically and without any action on the part of the respective holders thereof be
combined and converted into one (1) share of common stock of the Corporation (the "New common stock") (such combination and conversion, the "Reverse Stock Split").
Notwithstanding the immediately preceding sentence, any fractional share of New common stock resulting from the Reverse Stock Split shall be rounded up to the nearest
whole share and issuable to the holders of record of Old common stock in connection with the foregoing reclassification of shares of Old common stock.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in
accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in
favor of the amendments, as applicable.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 31st day of January, 2019.
By:
/S/ John Price
Title:
President & CFO
Name:
John Price
Authorized Officer
Print or Type
Settlement Agreement
Exhibit 10.2
This Settlement Agreement (“Agreement”) is made and entered into this day December 24, 2018 by and between Alliance MMA and its successors and assigns (“Alliance”)
and Ira S. Rainess (“Executive”). Upon execution the employment agreement is terminated as of this date with neither party having any further rights or obligations to those
agreements.
The parties to this Agreement, to avoid the costs and delays associated with litigation, have in an attempt to resolve this matter Executive and Alliance agree as follows:
1. Settlement Payments. Alliance will pay One Hundred Thousand Dollars ($100,000). Ten Thousand Dollars ($10,000) on December 26th and Ninety Thousand ($90,000) the
sooner of two days after the completion of the merger with SCWorx or January 31, 2019.
2. Stock Options. Upon execution of this Agreement Executive will be issued options to purchase an aggregate of 350,000 shares of Common Stock. The exercise price of the
Option Agreement for 350,000 shares will be 25 cents per share. The Option Agreement is hereby attached.
3. Mutual Releases. Upon the fulfillment of all the terms herein, each of the parties hereto hereby agrees to release the other party from any claims, liabilities or damages
arising out of the relationship between Executive and Alliance (including officers and directors of AMMA).
4. Non-Compete and Non-Solicitation. All obligations set forth in the Non- Competition and Non- Solicitation Agreement are hereby null and void.
5. Confidentiality. Parties shall keep the terms of this Agreement and General Release Confidential.
6. Representations and Warranties. Both parties represent that they have the full right and authority to enter into and perform this Agreement in accordance with the terms.
7.
Indemnification. Alliance agrees to indemnify, defend, and hold harmless Executive from and against any loss, cost, or damage of any kind (including reasonable outside
attorneys’ fees) arising out of any of Alliance’s activities past, present or future.
8.
Interference. Both parties shall not, directly or indirectly, interfere with any of Executive’s business or personal relationships past, present or future.
9. Breach of Agreement. It is further agreed that this Agreement shall be deemed breached and a cause of action accrued thereon immediately upon the commencement of any
act, action, or conduct contrary to the Agreement.
10. Liquidated Damages. The parties agree that their liability in any action or other proceeding accruing from a breach of this Agreement shall include not only the monetary
amount of any judgment which may be awarded against the breaching party, in any action or proceeding commenced in breach of this Agreement, but also all other damages,
costs, and expenses sustained by the parties, on account of such action, including attorneys’ fees and all other costs and expenses.
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11. Non-Disparagement. Both parties agrees to instruct all its officers, successors and assigns not to make and statements, written or oral, which denigrate, disparage or defame
the goodwill and reputation of each party to the Agreement.
12. Successors and Assigns. This agreement is binding upon, and inures to the benefit of, the parties and their respective successors and assigns.
13. Severability. In the event a court of competent jurisdiction determines that any part or provision of this Agreement is unenforceable all remaining provisions of this
Agreement shall remain in full force and effect and shall be fully enforceable.
14. Full Integration. The parties declare and understand that no promises, inducements, or agreements not contained in this Agreement have been made to them, that this
Agreement contains the entire agreement among the parties, and that the terms of this Agreement are contractual and not merely a recital.
15. Choice of Law. This Agreement is to be interpreted and applied according to the laws of the State of Maryland.
16. Miscellaneous.
(a) Executive acknowledges that he has an opportunity to discuss with an attorney and waives the 7 day clause to revoke the Agreement.
(b) This Agreement may be executed in counterparts each of will be deemed part of the original and may be electronically scanned signatures.
In Witness Whereof, Alliance has caused this Agreement to be executed by its duly authorized officer, and Executive has executed this Agreement as of the date noted below.
/s/ Ira S. Rainess
Ira S. Rainess
/s/ Alliance MMA
Alliance MMA
Dated 12-22-2018
Dated 12-22-2018
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SETTLEMENT AGREEMENT AND RELEASE
Exhibit 10.3
THIS SETTLEMENT AGREEMENT AND RELEASE (this “Agreement”) is made and entered into as of the 30th day of January, 2019 by and between The Garr
Group, Inc. (“Garr Group”) and Alliance MMA, Inc. (“AMMA”). Garr Group and AMMA are hereinafter referred to collectively from time to time as the “Parties”.
WHEREAS, on November 30, 2016, Garr Group and AMMA entered into a Sublease Agreement, whereby Garr Group agreed to sublease certain real property located
at 1 Keystone
Avenue, Cherry Hill, New Jersey 08003 (the “Property”) to AMMA, upon certain terms and conditions;
WHEREAS, under the Sublease Agreement, AMMA is required to pay Garr Group rent in the amount of $11,165.00 per month from February 1, 2018 to June 30,
2019;
WHEREAS, AMMA failed to pay Garr Group rent owing and due under the Sublease from March 2018 to the present;
WHEREAS, Garr Group initiated an action against AMMA in the New Jersey Superior Court, Law Division, Camden County, under the caption The Garr Group, Inc.
v. Alliance MMA, Inc., Docket No.: 3310-18 (the “Action”);
WHEREAS, the Parties desire to resolve the Action amicably and desire to memorialize the terms and conditions of such resolution in this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and valuable consideration, and intending to be
legally bound, the Parties agree as follows:
1. PAYMENT AND ISSUANCE OF STOCK OPTIONS. AMMA shall pay to Garr Group either: (1) the sum of Seventy-Five Thousand Dollars ($75,000.00) on or before
February 4, 2019 or (2) the sum of Ninety Thousand Dollars ($90,000.00) on or before February 25, 2019. In addition, upon execution of this Agreement, AMMA shall issue
stock options to Garr Group with a “Black-Scholes” value of Fifty Thousand Dollars ($50,000).
2. RELEASE. The Parties hereby forever RELEASE AND DISCHARGE each other’s respective past and present principals, agents, partners, members,
managers, employees, insurers, owners, stockholders, predecessors, successors, assigns, devises, directors, officers, subsidiaries, parent companies, attorneys, heirs and
administrators from any and all asserted or potential claims, causes of action (at law or equity), liabilities, damages or losses of any kind, anticipated or unanticipated, known or
unknown, which the Parties may have against each other up to and including the date of this Agreement. IT IS UNDERSTOOD, ACKNOWLEDGED AND AGREED BY
AMMA THAT GARR GROUP’S RELEASE OF ANY SUCH CLAIMS AGAINST AMMA IS CONTINGENT UPON AMMA’S PAYMENT IN FULL OF THE
SUM SET FORTH IN SECTION 1 ABOVE BY THE APPLICABLE DATE.
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3. DEFAULT. Failure on the part of AMMA to tender the payment listed in Section 1 to Garr Group by the applicable date shall be deemed a default under this
Agreement. In the event of a default by AMMA, the sum of One Hundred Sixty Seven Thousand Nine Hundred Fifteen Dollars and Ninety One Cents ($167,915.91) shall
become immediately due and payable, plus any attorneys’ fees and costs incurred by Garr Group in enforcing the terms hereof. Furthermore, in the event of a default, Garr
Group shall have the right, without notice to AMMA and without further application to the court, to enter judgment in the amount of One Hundred Sixty Seven Thousand Nine
Hundred Fifteen Dollars and Ninety One Cents ($167,915.91), together with any attorneys’ fees and costs incurred by Garr Group in enforcing the terms hereof upon
presentation of a certification to the clerk of the facts of the default.
4. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement between the Parties and supersedes all oral and written agreements, if any,
between the parties. No amendment or modification changing the scope or terms of this Agreement shall have any force or effect unless it is in writing and signed by all Parties.
5. CONFIDENTIALITY. The Parties agree that the terms and existence of this Agreement are and shall remain confidential and shall not be discussed or
disclosed to any person other than the Parties to this Agreement, their attorneys, and their accountants, except that disclosure concerning the Agreement may be made (1)
pursuant to an order of a court of competent jurisdiction, to comply with any statute, regulation, or ordinance, (2) to comply with any lawful subpoena, or (3) in any proceeding
to enforce the terms of this Agreement.
6. SIGNATURES. The Parties intend and agree that a carbon copy, photocopy, pdf, facsimile or other electronic reproduction of this Agreement with their
signature thereon shall be treated as an original, and shall be deemed to be as binding, valid, genuine, and authentic as an original signature document for all purposes,
including all matters of evidence and the “best evidence” rules. This Agreement may be signed in counterparts.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound, have hereby executed this Settlement Agreement and Release on the date shown below.
_________________________
Witness
_________________________
Witness
THE GARR GROUP, INC.
By: /s/ Emily Gottschalk
Print Name: Emily Gottschalk
Title: President
ALLIANCE MMA, INC.
By: /s/ John Price
Print Name: John Price
Title: President
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EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.20
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”), is made and entered into effective as of February 1, 2019, by and between SCWorx Corp., a
Delaware corporation (the “Company”), and John Price, an individual and resident of the State of Colorado (the “Executive”).
In consideration of the mutual covenants and undertakings herein contained, the parties, each intending to be legally bound, agree as follows:
1 . Employment. Upon the terms and subject to the conditions set forth in this Agreement, the Company employs Executive as the Company’s Chief Financial
Officer, and Executive accepts such employment. The Executive will report to the Company’s Chief Executive Officer. This agreement supersedes the Employment Agreement
between the Company and the Executive dated August 3, 2016, which Agreement is hereby terminated and neither party shall have any further rights or obligation thereunder.
2 . Position. Executive agrees to serve as Chief Financial Officer of the Company and to perform such duties as are commensurate with such office, including the
oversight and management of the financial affairs of the Company and the Business. The Executive will devote substantially all his business time and efforts to the Company
and the Company’s business and will not engage in other business activities without the Company’s prior consent, whether or not such business activity is pursued for profit,
gain or other pecuniary advantage. Nothing herein will prevent Executive from engaging in investment activities unrelated to the Company’s business for his own account. As
used in this Agreement “Business” means the business of promoting, and otherwise commercializing the Company’s SaaS business to the health care industry and the
commercial exploitation of related products, services and markets.
3 . Term. The term of this Agreement will begin on February 1, 2019 (the “Effective Date”) and will end on the three-year anniversary of such date (the “Term”).
The Term will automatically renew for renewal periods of one year each unless either party gives the other written notice of intent not to renew at least ninety (90) days prior to
such date. The parties hereto agree that, upon the expiration of the Term, the Executive’s employment with the Company will terminate and the Executive will not be entitled to
any further compensation, except as otherwise expressly provided in this Agreement. The Company will be under no obligation whatsoever to renew or continue the
employment of the Executive beyond the Term.
4. Salary.
(a) Compensation. Executive will receive a salary of Two Hundred Fifty Thousand dollars ($250,000) per year (“Base Compensation”), pro-rated for partial years,
payable at regular intervals in accordance with the Company’s normal practices in effect from time to time. Salary payments shall be subject to all applicable federal and state
withholding, payroll, and other taxes, and all applicable deductions for benefits as may be required by law. Base Compensation and the benefits set forth under Section 5 below
will commence on the Effective Date. Executive’s Base Compensation will be reviewed annually by the compensation committee of the Board of Directors (the “Committee”)
and Executive will be eligible for consideration for merit-based increases to Base Compensation as determined by the Committee in its sole discretion, it is the intention of the
Company to increase the Executive’s Base Compensation on the first anniversary of the Term provided the Company achieves certain financial milestones to be agreed upon by
the Company and the Executive.
( b ) Bonus. In addition to Base Salary, Executive shall be eligible to receive discretionary performance based bonuses during the Term as determined by the
Committee. Any bonus and any equity consideration to be provided to Executive shall be reviewed and determined by the Committee on an annual basis to set performance
criteria for purposes of compliance with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
(c) Equity Compensation. Effective as of February 13, 2019, the Executive was awarded RSUs priced at the market price under the Company’s Second Amended
and Restated 2016 Equity Incentive Plan (the “Plan”), and otherwise on such terms and subject to such conditions as the Committee shall determine. Executive may, as
determined by the Committee in its discretion, periodically receive additional grants of stock options, restricted stock or other equity-related awards under the Plan or under any
other equity compensation plan authorized by the Board from time to time, subject to the terms and conditions thereof. Upon a Change of Control (as defined in the Plan), all
unvested stock options granted pursuant to this Agreement will immediately vest.
5. Benefit Programs.
(a) During the Term, Executive will be entitled to participate in or receive benefits as follows:
(i) health and dental insurance pursuant to the Company’s current or future plans and policies (premium for only Executive to be paid by Company);
(ii) reimbursement of reasonable out-of-pocket relocation expenses, subject to the prior approval of the CEO;
(ii) participation in Company 401(k) plan with Company match of Executive’s contribution on a dollar-for-dollar basis for the first 3% of Executive’s Base
Compensation; and
(iii) participation in any other Executive benefit plan of the Company provided to all employees of the Company on the same terms as other employees of the
Company based on tenure and position.
All benefits will be pursuant to programs or arrangements made available by the Company on the date of this Agreement and from time to time in the future to the Company’s
other employees on a basis consistent with the terms, conditions and overall administration of the foregoing plans, programs or arrangements and with respect to which
Executive is otherwise eligible to participate or receive benefits. Executive acknowledges such benefits are subject to change as and when changed by the Company generally.
(b) During the Term, the Company will provide Executive with a Company owned or leased computer and printer and supplies for Company purposes, and home
office high-speed internet.
(c) During the Term, the Company will provide Executive with a mobile smart phone and either pay directly or reimburse Executive for the cost of a reasonable
plan for Executive’s use on behalf of the Company.
(d) The items provided in connection with paragraphs (b) and (c) will be returned by Executive to the Company upon any termination of this Agreement.
6. General Policies.
(a) So long as the Executive is employed by the Company pursuant to this Agreement, Executive will receive reimbursement from the Company, as appropriate, for
all reasonable business expenses incurred by Executive in accordance with Company policies and in the course of his employment by the Company, upon submission to the
Company of written vouchers or documented receipts and statements for reimbursement.
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(b) During the Term, the Executive will be entitled to four weeks of paid vacation, which will be utilized at such times when his absence will not materially impair
the Company’ s normal business functions. In addition to the vacation described above, Executive also will be entitled to all paid holidays customarily given by the Company to
its employees.
(c) All other matters relating to the employment of Executive by the Company not specifically addressed in this Agreement will be subject to the general policies
regarding employees of the Company in effect from time to time.
7. Termination of Employment.
Executive’s employment by the Company and this Agreement may be terminated before the expiration of the Term, without breach of this Agreement, in accordance
with the provisions set forth below:
7 . 1 Termination by the Company for Cause. The Company may terminate Executive’s employment and this Agreement for Cause (as defined below), but only
after: (i) giving Executive written notice of the failure or conduct which the Company believes to constitute Cause; and (ii) with respect to elements (c) through (e) below,
providing Executive a reasonable opportunity, and in no event more than twenty (20) days, to cure such failure or conduct, unless the Board determines in its good faith
judgment that such failure or conduct is not reasonably capable of being cured. In the event Executive does not cure the alleged failure or conduct within the time frame
provided for such cure by the Company, the Company shall send the Executive written notice specifying the effective date of termination. The failure by the Company to set
forth in the notice referenced in this Section 7.1 any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company to assert, or
preclude the Company from asserting, such fact or circumstance in enforcing its rights hereunder. For purposes of this Agreement, the term “Cause” means:
(a) conviction of a felony or a crime involving fraud or moral turpitude; or
(b) theft, material act of dishonesty or fraud, intentional falsification of any employment or Corporation records, or commission of any criminal act which impairs
participant’s ability to perform appropriate employment duties for the Corporation; or
(c) intentional or reckless conduct or gross negligence materially harmful to the Corporation or the successor to the Corporation after a Change in Control,
including violation of a non-competition or confidentiality agreement; or
(d) willful failure to follow lawful instructions of the person or body to which participant reports; or
(e) gross negligence or willful misconduct in the performance of participant’s assigned duties. Cause shall not include unsatisfactory performance in the
achievement of Executive’s job objectives, unless Executive fails to cure such unsatisfactory performance as provided above.
If the Company terminates Executive’s employment for Cause, then Executive shall be entitled to receive the payments and benefits set forth in Section 8.1 below.
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The Company may suspend Executive with pay pending an investigation authorized by the Company or a governmental authority or a determination whether
Executive has engaged in acts or omissions constituting Cause, and such paid suspension shall not constitute Good Reason or a termination of Executive’s employment.
7.2 Termination by the Company Without Cause.
(a) The Company may terminate the employment of Executive and this Agreement at any time during the Term of this Agreement without Cause by giving
Executive written notice of such termination, to be effective upon the giving of such written notice, in which case Executive shall receive the compensation, severance, and
benefit continuation required by Section 8.3 below; provided, however, that if Company terminates Executive’s employment without Cause during the Protection Period (as
defined below), then Executive shall be entitled to receive the payments and benefits set forth in Section 8.4 below.
(b) For purposes of this Agreement, the term “Protection Period” means the period of time commencing on the date of the first occurrence of a Change in Control
and continuing until the earlier of (i) the second anniversary of the first occurrence of the Change in Control, and (ii) the Term of this Agreement; and the six (6) month period
prior to such Change in Control date if the Executive is terminated without Cause or terminates for Good Reason and in either case such termination (x) was requested by the
third party that effectuates the Change in Control, or (y) occurs in connection with or in anticipation of a Change in Control, it being agreed that any such action taken following
stockholder approval of a transaction which if consummated would constitute a Change in Control shall be deemed to be in anticipation of a Change in Control provided such
transaction is actually consummated.
7.3 Termination by the Company Due to Inability to Perform or Death.
(a) The Company may terminate the employment of Executive and this Agreement at any time during the Term of this Agreement, to the extent permitted by law,
upon thirty (30) days’ notice to Executive in the event of Executive’s Inability to Perform. For this purpose, the term “Inability to Perform” means and shall be deemed to have
occurred if Executive has been determined under the Company’s long term disability plan to be eligible for long-term disability benefits or, in the event the Company does not
maintain such a plan or in the absence of Executive’s participation in or application for benefits under such a plan, such term shall mean the inability of Executive, despite any
reasonable accommodation required by law, due to bodily injury or disease or any other physical or mental incapacity, to perform the services required hereunder for a period of
ninety (90) consecutive days; or
(b) This Agreement shall be deemed terminated immediately upon the death of Executive.
7.4 Termination by Executive for Good Reason. Executive may terminate his employment and this Agreement at any time for Good Reason (as defined below). A
termination of employment and this Agreement by Executive for Good Reason shall entitle Executive to payments and other benefits as specified in Section 8.3, unless such
termination occurs during the Protection Period in which case the payments and benefits in Section 8.4 shall apply. For purposes of this Agreement, the term “ Good Reason”
means, subject to the notice and cure provisions herein, any of the following actions if taken without Executive’s prior written consent: (a) the assignment to the Executive of
any duties materially inconsistent with the position in the Corporation that Executive held immediately prior to the assignment; (b) a Change of Control resulting in a significant
adverse alteration in the status or conditions of Executive’s participation with the Corporation or other nature of Executive’s responsibilities from those in effect prior to such
Change of Control, including any significant alteration in Executive’s responsibilities immediately prior to such Change in Control; (c) the failure by the Company to continue
to provide the Executive with benefits substantially similar to those enjoyed by the Executive prior to such failure; or (d) any other action or inaction that constitutes a material
breach by the Company of this Agreement. To exercise the option to terminate employment for Good Reason, Executive must provide written notice to the Company of
Executive’s belief that Good Reason exists within sixty (60) days of the initial existence of the Good Reason condition, and that notice shall describe in reasonable detail the
condition(s) believed to constitute Good Reason. The Company then shall have thirty (30) days to remedy the Good Reason condition(s). If not remedied within that 30-day
period or if the Company notifies Executive that it does not intend to cure such condition(s) before the end of that 30-day period, Executive may submit a notice of termination
to the Company; provided, however, that the notice of termination invoking Executive’s option to terminate employment for Good Reason must be given no later than sixty (60)
days after the date the Good Reason condition first arose; otherwise, Executive shall be deemed to have accepted the condition(s), or the Company’s correction of such
condition(s), that may have given rise to the existence of Good Reason.
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7.5 Termination by Executive Without Good Reason. Executive may also terminate his employment and this Agreement without Good Reason by providing at least
ninety (90) days’ written notice of such termination to the Company. In the event of a termination pursuant to this Section 7.5, Executive shall be entitled to payments and other
benefits as specified in Section 8.1 below. At the Company’s option, the Company may accelerate the date of Executive’s termination of employment by paying to Executive
the Base Salary and value of the benefits that Executive would have received during the period by which the date of termination is so accelerated and such acceleration shall not
change the characterization of the termination by Executive as a termination without Good Reason.
7.6 Return of Confidential Information and Company Property. Upon termination of Executive’s employment for any reason, Executive shall immediately return all
Confidential Information and other Company property to the Company.
8. Effect of Termination.
8.1 Termination by the Company for Cause or Termination by Executive Without Good Reason.
In the event Executive’s employment and this Agreement are terminated pursuant to Sections 7.1 or 7.5 above:
(a) The Company shall pay to Executive, or his representatives, on the date of termination of employment only that portion of the Base Salary and benefits provided
in Section 4(a) that has been accrued through the date of termination, any accrued but unpaid vacation pay provided in Section 4(a), any accrued benefits provided in Section 5,
and any expense reimbursements due and owing to Executive as of the date of termination; and
(b) Executive shall not be entitled to: (i) any other salary or compensation; (ii) any bonus pursuant to Section 4(b); (iii) any equity consideration pursuant to
Section 4(c); nor (iv) any benefits pursuant to Section 5; and
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(c) Executive shall return the laptop computer and cellular telephone provided in Section 5 within five (5) business days of the date of termination.
8.2 Termination by the Company Due to Executive’s Inability to Perform or Death.
In the event Executive’s employment and this Agreement are terminated pursuant to Section 7.3 above, the Company shall pay to Executive, or his representatives, all
of the following:
(a) The payments, if any, referred to in Section 8.1(a) above as of the date of termination; and
(b) Subject to compliance with Section 409A of the Code, an amount equal to the greater of (i) one hundred percent (100%) of Executive’s target bonus (if any) for
the year in which the date of termination occurs, or (ii) a bonus for such year as may be determined by the Committee in its sole discretion. This amount shall be paid in the
form of a lump sum, less applicable statutory deductions and withholdings, as soon as practicable after the date of termination, but no later than March 15 of the year
immediately following the year in which the date of termination occurs; and
(c) For a termination due to Inability to Perform only, then the Company shall pay Executive a severance equal to six (6) months of Executive’s Base Salary at the
time of termination. This severance amount shall be paid to Executive in equal regular installments over the six (6) month period pursuant to the Company’s regular payroll
periods, less applicable statutory deductions and tax withholdings. The first installment shall be paid to Executive on the first payroll period after the date of termination; and
(d) Should Executive or his representatives timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its affiliates
and timely make the premium payments, reimburse Executive on a monthly basis for the cost of continued coverage under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (“COBRA”) or other applicable law for Executive and any eligible dependents until the earlier of (i) the date Executive is no longer entitled to continuation coverage
under COBRA or (ii) for twelve (12) months after the date of termination.
8 . 3 Termination by the Company Without Cause and Without a Change in Control or by Executive for Good Reason Without a Change in Control . In the event
Executive’s employment is terminated pursuant to Sections 7.2 or 7.4 above at any time in which there has not been a qualifying Change in Control termination, the Company
shall pay Executive on the date of termination the payments referred to in Section 8.1(a) above, Executive shall also receive all of the following:
(a) A severance package equal to the lesser of (i) six (6) months of Executive’s Base Salary at the time of termination and (ii) the Base Salary remaining under the
Term of this Agreement. This severance amount shall be paid to Executive in equal regular installments over the term of the severance period pursuant to the Company’s regular
payroll periods, less applicable statutory deductions and tax withholdings. The first installment shall be paid to Executive on the first payroll period after the date of termination;
and
(b) Subject to compliance with Section 409A of the Code, an amount equal to the greater of (i) (A) if the date of termination occurs between January 1 and June 30,
then twenty-five percent (25%) of Executive’s target bonus (if any) for the year in which the date of termination occurs or (B) if the date of termination occurs between July 1
and December 31, then fifty percent (50%) of Executive’s target bonus (if any) for the year in which the date of termination occurs; and (ii) a bonus for such year as may be
determined by the Committee in its sole discretion. This amount shall be paid in the form of a lump sum, less applicable statutory deductions and withholdings, as soon as
practicable after the date of termination, but no later than March 15 of the year immediately following the year in which the date of termination occurs;
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(c) Should Executive or his representatives timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its affiliates
and timely make the premium payments, reimburse Executive on a monthly basis for the cost of continued coverage under the COBRA for Executive and any eligible
dependents until the earlier of (i) the date Executive is no longer entitled to continuation coverage under COBRA or (ii) for twelve (12) months after the date of termination; and
Unless otherwise provided in the equity award agreement, all stock options and other stock incentive awards held by Executive will become fully vested and immediately
exercisable and all restrictions on any restricted stock held by Executive will be removed; provided, however, Executive shall not be released from the black-out periods for the
next financial reporting quarter following the date of termination or Securities Exchange Act of 1934, as amended (the “Exchange Act”) , trading obligations typically required
for an executive in this position .
8.4 Termination by the Company Without Cause After a Change in Control or by Executive for Good Reason After a Change in Control.
In the event Executive’s employment is terminated pursuant to Sections 7.2 or 7.4 above during the Protection Period, the Company shall pay Executive on the date of
termination the payments referred to in Section 7.l (a) above, Executive shall also receive all of the following:
(a) Subject to compliance with Section 409A of the Code, a severance package equal to one year of Executive’s Base Salary immediately prior to the Change in
Control. This severance amount shall be paid to Executive in equal regular installments over a 12-month period pursuant to the Company’s regular payroll periods, less
applicable statutory deductions and tax withholdings. The first installment shall be paid to Executive on the first payroll period after the date of te1mination and after the
effective date of the Release; and
(b) Subject to compliance with Section 409A of the Code, an amount equal to the greater of (i) one hundred percent (100%) of Executive’s target bonus (if any) for
the year in which the date of termination occurs or (ii) a bonus for such year as may be determined by the Committee in its sole discretion. This amount shall be paid in the form
of a lump sum, less applicable statutory deductions and withholdings, as soon as practicable after the date of termination, but no later than March 15 of the year immediately
following the year in which the date of termination occurs; and
(c) A one-time cash payment equivalent to one year’s salary, less applicable statutory deductions and tax withholdings, to be paid within thirty (30) days of the date
of termination; and
(d) Should Executive or his representatives timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its affiliates
and timely make the premium payments, reimburse Executive on a monthly basis for the cost of continued coverage under the COBRA for Executive and any eligible
dependents until the earlier of (i) the date Executive is no longer entitled to continuation coverage under COBRA or (ii) for twelve (12) months after the date of termination; and
(e) All stock options and other incentive awards held by Executive will become fully vested and immediately exercisable and all restrictions on any restricted
stock held by Executive will be removed; provided, however, Executive shall not be released from the black-out periods for the next financial quarter following the date of
termination or any restrictions imposed under the Securities act of 1933, as amended, or Securities Exchange Act of 1934, as amended, trading obligations typically required for
an executive in this position.
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9 . Non-Competition and Confidentiality Covenants. Executive and Company are party to that certain Non-Competition and Non-Solicitation Agreement, dated of
even date herewith (the “Non-Competition Agreement ”), attached hereto as Exhibit A, which is incorporated herein by reference. The Non-Competition Agreement contains,
among other things, covenants of Executive respecting non-competition, non-solicitation and non-disclosure. Any breach of the Non-competition Agreement that is not cured as
permitted therein shall be deemed a breach of this Section 9. The Non-Competition Agreement shall survive the termination of this Agreement pursuant to its terms.
1 0 . Notices. For purposes of this Agreement, notices and all other communications provided for herein will be in writing and will be deemed to have been given
when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
with copies to:
John Price
c/o SCWorx Corp.
590 Madison Avenue, 21st Floor
New York, New York 10022
Phone: (408) 550-5767
SCWorx Corp.
590 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Paul K. Danner, III
Phone: (212) 521-4268
Fax: (212) 521-4099
The Nossiff Law Firm, LLP
300 Brickstone Sq., Suite 201
Andover, MA 01810
Attention: John G. Nossiff, Esq.
Phone: (978) 409-2648
Email: Jnossiff@nossiff-law.com
or to such other address as either party hereto may have furnished to the other party in writing in accordance herewith, except that notices of change of address will be effective
only upon receipt.
11. Governing Law. The validity, interpretation, and performance of this Agreement will be governed by the laws of the State of Delaware, without reference to the
choice of law principles or rules thereof, except to the extent that federal law will be deemed to apply.
1 2 . Modification. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing
signed by the Company and the Executive. No waiver by any party hereto at any time of any breach by another party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of dissimilar provisions or conditions at the same or any prior subsequent time. No agreements
or representation, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this
Agreement.
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1 3 . Validity. The invalidity or unenforceability of any provisions of this Agreement will not affect the validity or enforceability of any other provisions of this
Agreement which will remain in full force and effect.
14. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute
one and the same agreement.
15. Assignment. This Agreement is personal in nature and Executive may not, without consent of the Company, assign or transfer this Agreement or any rights or
obligations hereunder.
1 6 . Document Review. The Company and the Executive hereby acknowledge and agree that each (i) has read this Agreement in its entirety prior to executing it,
(ii) understands the provisions and effects of this Agreement, (iii) has consulted with such attorneys, accountants and financial and other advisors as it or he has deemed
appropriate in connection with their respective execution of this Agreement, and (iv) has executed this Agreement voluntarily and knowingly.
17. Entire Agreement This Agreement (including Exhibit A) together with any understandings or modifications thereof as agreed to in writing by the parties, will
constitute the entire agreement between the parties hereto regarding the subject matter of Executive’s employment with the Company.
1 8 . Representations and Covenants of Executive. Executive represents and warrants to the Company that: (a) he has full power and authority to enter into this
Agreement, (b) the execution and delivery of this Agreement and the performance of his duties hereunder shall not result in a breach of, or constitute a default under, any
agreement or obligation to which he may be bound or subject, (c) this Agreement represents a valid, legally binding obligation on him and is enforceable against him in
accordance with its terms except as the enforceability of this Agreement may be subject to or limited by general principles of equity and by bankruptcy or other similar laws
relating to or affecting the rights of creditors generally, and (d) the Executive has resigned from all positions as an employee, officer, director or executive of prior employers.
1 9 . Representations and Covenants of the Company. The Company represents and warrants to the Executive that: (a) it has full power and authority to enter into
this Agreement, (b) the execution and delivery of this Agreement and the performance of its duties hereunder shall not result in a breach of, or constitute a default under, any
agreement or obligation to which he may be bound or subject, and (c) this Agreement represents a valid, legally binding obligation on the Company and is enforceable against
him in accordance with its terms except as the enforceability of this Agreement may be subject to or limited by general principles of equity and by bankruptcy or other similar
laws relating to or affecting the rights of creditors generally.
[Signature Page to Executive Employment Agreement Follows]
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IN WITNESS WHEREOF, the parties have caused the Agreement to be executed and delivered as of the date first set forth above.
[Signature Page to Executive Employment Agreement]
SCWorx Corp
By: /s/ Marc S. Schessel
Marc S. Schessel
Title: CEO
/s/ John Price
John Price
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NON-COMPETITION AND NON-SOLICITATION AGREEMENT
Exhibit A
THIS NON-COMPETITION AND NON-SOLICITATION AGREEMENT (the “ Agreement”), dated as of February 1, 2019 (the “Effective Date”) is entered into by
and between SCWorx Corp. , a Delaware corporation (“Company”) John Price, an individual and resident of the State of Colorado (the “Executive”).
NOW, THEREFORE, in consideration of the employment or continued employment of the Executive by the Company, and the continued receipt and access to
confidential, proprietary, and trade secret information associated with the Executive’s position with the Company, the Executive and the Company agree as follows:
1 . Confidentiality. Executive understands and agrees that in the course of providing services to the Company, Executive may acquire confidential and/or proprietary
information concerning the Company’s operations, its future plans and its methods of doing business. Executive understands and agrees it would be extremely damaging to the
Company if Executive disclosed such information to a competitor or made such information available to any other person. Executive understands and agrees that such
information is divulged to Executive in strict confidence and Executive understands and agrees that Executive shall not use such information other than in connection with the
Business and will keep such information secret and confidential unless disclosure is required by court order or otherwise by compulsion of law. In view of the nature of
Executive’s employment with the Company and the information that Executive has received during the course of Executive’s employment, Executive also agrees that the
Company would be irreparably harmed by any violation, or threatened violation of the agreements in this paragraph and that, therefor, the Company shall be entitled to an
injunction prohibiting Executive from any violation or threatened violation of such agreements.
2 . Non-Competition and Non-Solicitation. The Executive acknowledges and agrees that the nature of the Company’s confidential, proprietary, and trade secret information
to which the Executive has, and will continue to have, access to derives value from the fact that it is not generally known and used by others in the highly competitive industry
in which the Company competes. The Executive further acknowledges and agrees that, even in complete good faith, it would be impossible for the Executive to work in a
similar capacity for a competitor of the Company without drawing upon and utilizing information gained during employment with the Company. Accordingly, at all times
during the Executive’s employment with the Company and for a period of one (1) year after termination, for any reason, of such employment, the Executive will not, directly or
indirectly:
(a) Engage in any business or enterprise (whether as owner, partner, officer, director, employee, consultant, investor, lender or otherwise, except as the holder of not
more than one percent (1%) of the outstanding capital stock of a company) that directly or indirectly competes with the Company’s business or the business of any of its
subsidiaries anywhere in the United States; or
(b) Either alone or in association with others (i) solicit, or facilitate any organization with which the Executive is associated in soliciting, any employee of the
Company or any of its subsidiaries to leave the employ of the Company or any of its subsidiaries; (ii) solicit for employment, hire or engage as an independent contractor, or
facilitate any organization with which the Executive is associated in soliciting for employment, hire or engagement as an independent contractor, any person who was employed
by the Company or any of its subsidiaries at any time during the term of the Executive’s employment with the Seller or the Company or any of their respective subsidiaries
(provided, that this clause (ii) shall not apply to any individual whose employment with the Seller, the Company or any of its subsidiaries has been terminated for a period of
one year or longer); or (iii) solicit business from or perform services for any customer, supplier, licensee or business relation of the Seller or the Company or any of their
respective subsidiaries, induce or attempt to induce, any such entity to cease doing business with the Company or any of its subsidiaries; or in any way interfere with the
relationship between any such entity and the Company or any of its subsidiaries.
3 . Return of Property. Executive understands and agrees that all business information, files, research, records, memoranda, books, lists and other documents and tangible
materials, including computer disks, and other hardware and software that he receives during his employment, whether confidential or not, are the property of the Company, and
that, upon the termination of his services, for whatever reason, he will promptly deliver to the Company all such materials, including copies thereof, in his possession or under
his control. Any analytical templates, books, presentations, reference materials, computer disks and other similar materials already rightfully owned by the Executive prior to the
Effective Date shall remain the property of the Executive and any copies thereof obtained by or provided to the Company shall be returned or destroyed in a manner similar
acceptable to the Executive.
4 . Not Employment Contract. The Executive acknowledges that this Non-Competition and Non-Solicitation Agreement does not constitute a contract of employment and,
except as set forth in Executive Employment Agreement (to which this Agreement is ancillary), does not guarantee that the Company or any of its subsidiaries will continue his
employment for any period of time or otherwise change the at-will nature of his employment.
5 . Interpretation. If any restriction set forth in Section 2 is found by any court of competent jurisdiction to be invalid, illegal, or unenforceable, it shall be modified to the
minimum extent necessary to render the modified restriction valid, legal and enforceable. The parties intend that the non-competition and non-solicitation provisions contained
in this Agreement shall be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America where this
provision is intended to be effective.
6. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
7 . Waiver of Rights. No delay or omission by the Company in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
8 . Equitable Remedies. The restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and its subsidiaries and
are considered by the Executive to be reasonable for such purpose. The Executive agrees that any breach of this Agreement is likely to cause the Company substantial and
irrevocable damage and therefor, in the event of any such breach, the Executive agrees that the Company, in addition to such other remedies that may be available, shall be
entitled to specific performance and other injunctive relief.
9 . Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. Any action, suit, or other legal proceeding
which is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of Delaware (or, if
appropriate, a federal court located within Delaware), and the Company and the Executive each consent to the jurisdiction of such a court.
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7. Term. This Agreement shall be effective on the Effective Date. This Agreement shall expire on the expiration of the employment agreement with Executive, as extended,
provided the obligations of the Executive under Sections 2 shall survive for a period of one (1) year after expiration or termination. Notwithstanding the foregoing the
obligations of the Executive under Sections 1 shall survive for two (2) years and Section 3 shall survive indefinitely.
8 . Certain Exclusions. The obligations stipulated in Section 1 of this Agreement shall not apply to confidential information which: (i) is, prior to disclosure, in the lawful
possession of, or already known to, the Executive; (ii) has come into the public domain through no fault of the Executive; (iii) has been lawfully received from a third party
without restrictions or breach of this Agreement; (iv) is independently developed by the Executive without any use of the confidential information of the Company; or (v) is
disclosed pursuant to the order or requirement of a court, administrative agency, or other governmental body, subject to the Executive giving reasonable prior notice in writing
to the Company to allow it to seek protective or other court orders.
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, HAS SOUGHT INDEPENDENT COUNSEL TO ADVISE HIM AS
TO THE NATURE AND EXTENT OF HIS OBLIGATIONS HEREUNDER AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS
AGREEMENT.
[Signature Page to Non-Competition And Non-Solicitation Agreement Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written.
[Signature Page to Non-Competition And Non-Solicitation Agreement]
COMPANY:
SCWorx Corp.
By: /s/ Marc S. Schessel
Name: Marc S. Schessel
Title: CEO
EXECUTIVE:
/s/ John Price
John Price
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EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.21
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”), is made and entered into effective as of February 1, 2019, by and between SCWorx Corp., a
Delaware corporation (the “Company”), and Marc S. Schessel, an individual and resident of the State of New York (the “Executive”).
In consideration of the mutual covenants and undertakings herein contained, the parties, each intending to be legally bound, agree as follows:
1 . Employment. Upon the terms and subject to the conditions set forth in this Agreement, the Company employs Executive as the Company’s Chief Executive
Officer, and Executive accepts such employment. The Executive will report to the Company’s Board of Directors.
2 . Position. Executive agrees to serve as Chief Financial Officer of the Company and to perform such duties as are commensurate with such office, including the
oversight and management of the day-to-day affairs of the Company and the Business. The Executive will devote substantially all his business time and efforts to the Company
and the Company’s business and will not engage in other business activities without the Company’s prior consent, whether or not such business activity is pursued for profit,
gain or other pecuniary advantage. Nothing herein will prevent Executive from engaging in investment activities unrelated to the Company’s business for his own account. As
used in this Agreement “Business” means the business of promoting, and otherwise commercializing the Company’s SaaS business to the health care industry and the
commercial exploitation of related products, services and markets.
3 . Term. The term of this Agreement will begin on February 1, 2019 (the “Effective Date”) and will end on the three-year anniversary of such date (the “Term”).
The Term will automatically renew for renewal periods of one year each unless either party gives the other written notice of intent not to renew at least ninety (90) days prior to
such date. The parties hereto agree that, upon the expiration of the Term, the Executive’s employment with the Company will terminate and the Executive will not be entitled to
any further compensation, except as otherwise expressly provided in this Agreement. The Company will be under no obligation whatsoever to renew or continue the
employment of the Executive beyond the Term.
4. Salary.
( a ) Compensation. Executive will receive a salary of Four Hundred Thousand dollars ($400,000) per year (“Base Compensation”), pro-rated for partial years,
payable at regular intervals in accordance with the Company’s normal practices in effect from time to time. Salary payments shall be subject to all applicable federal and state
withholding, payroll, and other taxes, and all applicable deductions for benefits as may be required by law. Base Compensation and the benefits set forth under Section 5 below
will commence on the Effective Date. Executive’s Base Compensation will be reviewed annually by the compensation committee of the Board of Directors (the “Committee”)
and Executive will be eligible for consideration for merit-based increases to Base Compensation as determined by the Committee in its sole discretion, it is the intention of the
Company to increase the Executive’s Base Compensation on the first anniversary of the Term provided the Company achieves certain financial milestones to be agreed upon by
the Company and the Executive.
( b ) Bonus. In addition to Base Salary, Executive shall be eligible to receive discretionary performance based bonuses during the Term as determined by the
Committee. Any bonus and any equity consideration to be provided to Executive shall be reviewed and determined by the Committee on an annual basis to set performance
criteria for purposes of compliance with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
(c) Equity Compensation. Effective as of February 13, 2020, the Executive was awarded RSUs priced at the market price under the Company’s Second Amended
and Restated 2016 Equity Incentive Plan (the “Plan”), and otherwise on such terms and subject to such conditions as the Committee shall determine. Executive may, as
determined by the Committee in its discretion, periodically receive additional grants of stock options, restricted stock or other equity-related awards under the Plan or under any
other equity compensation plan authorized by the Board from time to time, subject to the terms and conditions thereof. Upon a Change of Control (as defined in the Plan), all
unvested stock options granted pursuant to this Agreement will immediately vest.
5. Benefit Programs.
(a) During the Term, Executive will be entitled to participate in or receive benefits as follows:
(i) health and dental insurance pursuant to the Company’s current or future plans and policies (premium for only Executive to be paid by Company);
(ii) reimbursement of reasonable out-of-pocket relocation expenses ;
(ii) participation in Company 401(k) plan with Company match of Executive’s contribution on a dollar-for-dollar basis for the first 3% of Executive’s Base
Compensation; and
(iii) participation in any other Executive benefit plan of the Company provided to all employees of the Company on the same terms as other employees of the
Company based on tenure and position.
All benefits will be pursuant to programs or arrangements made available by the Company on the date of this Agreement and from time to time in the future to the Company’s
other employees on a basis consistent with the terms, conditions and overall administration of the foregoing plans, programs or arrangements and with respect to which
Executive is otherwise eligible to participate or receive benefits. Executive acknowledges such benefits are subject to change as and when changed by the Company generally.
(b) During the Term, the Company will provide Executive with a Company owned or leased computer and printer and supplies for Company purposes, and home
office high-speed internet.
(c) During the Term, the Company will provide Executive with a mobile smart phone and either pay directly or reimburse Executive for the cost of a reasonable
plan for Executive’s use on behalf of the Company.
(d) The items provided in connection with paragraphs (b) and (c) will be returned by Executive to the Company upon any termination of this Agreement.
6. General Policies.
(a) So long as the Executive is employed by the Company pursuant to this Agreement, Executive will receive reimbursement from the Company, as appropriate, for
all reasonable business expenses incurred by Executive in accordance with Company policies and in the course of his employment by the Company, upon submission to the
Company of written vouchers or documented receipts and statements for reimbursement.
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(b) During the Term, the Executive will be entitled to four weeks of paid vacation, which will be utilized at such times when his absence will not materially impair
the Company’ s normal business functions. In addition to the vacation described above, Executive also will be entitled to all paid holidays customarily given by the Company to
its employees.
(c) All other matters relating to the employment of Executive by the Company not specifically addressed in this Agreement will be subject to the general policies
regarding employees of the Company in effect from time to time.
7. Termination of Employment.
Executive’s employment by the Company and this Agreement may be terminated before the expiration of the Term, without breach of this Agreement, in accordance
with the provisions set forth below:
7 . 1 Termination by the Company for Cause. The Company may terminate Executive’s employment and this Agreement for Cause (as defined below), but only
after: (i) giving Executive written notice of the failure or conduct which the Company believes to constitute Cause; and (ii) with respect to elements (c) through (e) below,
providing Executive a reasonable opportunity, and in no event more than twenty (20) days, to cure such failure or conduct, unless the Board determines in its good faith
judgment that such failure or conduct is not reasonably capable of being cured. In the event Executive does not cure the alleged failure or conduct within the time frame
provided for such cure by the Company, the Company shall send the Executive written notice specifying the effective date of termination. The failure by the Company to set
forth in the notice referenced in this Section 7.1 any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company to assert, or
preclude the Company from asserting, such fact or circumstance in enforcing its rights hereunder. For purposes of this Agreement, the term “Cause” means:
(a) conviction of a felony or a crime involving fraud or moral turpitude; or
(b) theft, material act of dishonesty or fraud, intentional falsification of any employment or Corporation records, or commission of any criminal act which impairs
participant’s ability to perform appropriate employment duties for the Corporation; or
(c) intentional or reckless conduct or gross negligence materially harmful to the Corporation or the successor to the Corporation after a Change in Control,
including violation of a non-competition or confidentiality agreement; or
(d) willful failure to follow lawful instructions of the person or body to which participant reports; or
(e) gross negligence or willful misconduct in the performance of participant’s assigned duties. Cause shall not include unsatisfactory performance in the
achievement of Executive’s job objectives, unless Executive fails to cure such unsatisfactory performance as provided above.
If the Company terminates Executive’s employment for Cause, then Executive shall be entitled to receive the payments and benefits set forth in Section 8.1 below.
The Company may suspend Executive with pay pending an investigation authorized by the Company or a governmental authority or a determination whether
Executive has engaged in acts or omissions constituting Cause, and such paid suspension shall not constitute Good Reason or a termination of Executive’s employment.
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7.2 Termination by the Company Without Cause.
(a) The Company may terminate the employment of Executive and this Agreement at any time during the Term of this Agreement without Cause by giving
Executive written notice of such termination, to be effective upon the giving of such written notice, in which case Executive shall receive the compensation, severance, and
benefit continuation required by Section 8.3 below; provided, however, that if Company terminates Executive’s employment without Cause during the Protection Period (as
defined below), then Executive shall be entitled to receive the payments and benefits set forth in Section 8.4 below.
(b) For purposes of this Agreement, the term “Protection Period” means the period of time commencing on the date of the first occurrence of a Change in Control
and continuing until the earlier of (i) the second anniversary of the first occurrence of the Change in Control, and (ii) the Term of this Agreement; and the six (6) month period
prior to such Change in Control date if the Executive is terminated without Cause or terminates for Good Reason and in either case such termination (x) was requested by the
third party that effectuates the Change in Control, or (y) occurs in connection with or in anticipation of a Change in Control, it being agreed that any such action taken following
stockholder approval of a transaction which if consummated would constitute a Change in Control shall be deemed to be in anticipation of a Change in Control provided such
transaction is actually consummated.
7.3 Termination by the Company Due to Inability to Perform or Death.
(a) The Company may terminate the employment of Executive and this Agreement at any time during the Term of this Agreement, to the extent permitted by law,
upon thirty (30) days’ notice to Executive in the event of Executive’s Inability to Perform. For this purpose, the term “Inability to Perform” means and shall be deemed to have
occurred if Executive has been determined under the Company’s long term disability plan to be eligible for long-term disability benefits or, in the event the Company does not
maintain such a plan or in the absence of Executive’s participation in or application for benefits under such a plan, such term shall mean the inability of Executive, despite any
reasonable accommodation required by law, due to bodily injury or disease or any other physical or mental incapacity, to perform the services required hereunder for a period of
ninety (90) consecutive days; or
(b) This Agreement shall be deemed terminated immediately upon the death of Executive.
7.4 Termination by Executive for Good Reason. Executive may terminate his employment and this Agreement at any time for Good Reason (as defined below). A
termination of employment and this Agreement by Executive for Good Reason shall entitle Executive to payments and other benefits as specified in Section 8.3, unless such
termination occurs during the Protection Period in which case the payments and benefits in Section 8.4 shall apply. For purposes of this Agreement, the term “ Good Reason”
means, subject to the notice and cure provisions herein, any of the following actions if taken without Executive’s prior written consent: (a) the assignment to the Executive of
any duties materially inconsistent with the position in the Corporation that Executive held immediately prior to the assignment; (b) a Change of Control resulting in a significant
adverse alteration in the status or conditions of Executive’s participation with the Corporation or other nature of Executive’s responsibilities from those in effect prior to such
Change of Control, including any significant alteration in Executive’s responsibilities immediately prior to such Change in Control; (c) the failure by the Company to continue
to provide the Executive with benefits substantially similar to those enjoyed by the Executive prior to such failure; or (d) any other action or inaction that constitutes a material
breach by the Company of this Agreement. To exercise the option to terminate employment for Good Reason, Executive must provide written notice to the Company of
Executive’s belief that Good Reason exists within sixty (60) days of the initial existence of the Good Reason condition, and that notice shall describe in reasonable detail the
condition(s) believed to constitute Good Reason. The Company then shall have thirty (30) days to remedy the Good Reason condition(s). If not remedied within that 30-day
period or if the Company notifies Executive that it does not intend to cure such condition(s) before the end of that 30-day period, Executive may submit a notice of termination
to the Company; provided, however, that the notice of termination invoking Executive’s option to terminate employment for Good Reason must be given no later than sixty (60)
days after the date the Good Reason condition first arose; otherwise, Executive shall be deemed to have accepted the condition(s), or the Company’s correction of such
condition(s), that may have given rise to the existence of Good Reason.
4
7.5 Termination by Executive Without Good Reason. Executive may also terminate his employment and this Agreement without Good Reason by providing at least
ninety (90) days’ written notice of such termination to the Company. In the event of a termination pursuant to this Section 7.5, Executive shall be entitled to payments and other
benefits as specified in Section 8.1 below. At the Company’s option, the Company may accelerate the date of Executive’s termination of employment by paying to Executive
the Base Salary and value of the benefits that Executive would have received during the period by which the date of termination is so accelerated and such acceleration shall not
change the characterization of the termination by Executive as a termination without Good Reason.
7.6 Return of Confidential Information and Company Property. Upon termination of Executive’s employment for any reason, Executive shall immediately return all
Confidential Information and other Company property to the Company.
8. Effect of Termination.
8.1 Termination by the Company for Cause or Termination by Executive Without Good Reason.
In the event Executive’s employment and this Agreement are terminated pursuant to Sections 7.1 or 7.5 above:
(a) The Company shall pay to Executive, or his representatives, on the date of termination of employment only that portion of the Base Salary and benefits provided
in Section 4(a) that has been accrued through the date of termination, any accrued but unpaid vacation pay provided in Section 4(a), any accrued benefits provided in Section 5,
and any expense reimbursements due and owing to Executive as of the date of termination; and
(b) Executive shall not be entitled to: (i) any other salary or compensation; (ii) any bonus pursuant to Section 4(b); (iii) any equity consideration pursuant to
Section 4(c); nor (iv) any benefits pursuant to Section 5; and
5
(c) Executive shall return the laptop computer and cellular telephone provided in Section 5 within five (5) business days of the date of termination.
8.2 Termination by the Company Due to Executive’s Inability to Perform or Death.
In the event Executive’s employment and this Agreement are terminated pursuant to Section 7.3 above, the Company shall pay to Executive, or his representatives, all
of the following:
(a) The payments, if any, referred to in Section 8.1(a) above as of the date of termination; and
(b) Subject to compliance with Section 409A of the Code, an amount equal to the greater of (i) one hundred percent (100%) of Executive’s target bonus (if any) for
the year in which the date of termination occurs, or (ii) a bonus for such year as may be determined by the Committee in its sole discretion. This amount shall be paid in the
form of a lump sum, less applicable statutory deductions and withholdings, as soon as practicable after the date of termination, but no later than March 15 of the year
immediately following the year in which the date of termination occurs; and
(c) For a termination due to Inability to Perform only, then the Company shall pay Executive a severance equal to six (6) months of Executive’s Base Salary at the
time of termination. This severance amount shall be paid to Executive in equal regular installments over the six (6) month period pursuant to the Company’s regular payroll
periods, less applicable statutory deductions and tax withholdings. The first installment shall be paid to Executive on the first payroll period after the date of termination; and
(d) Should Executive or his representatives timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its affiliates
and timely make the premium payments, reimburse Executive on a monthly basis for the cost of continued coverage under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (“COBRA”) or other applicable law for Executive and any eligible dependents until the earlier of (i) the date Executive is no longer entitled to continuation coverage
under COBRA or (ii) for twelve (12) months after the date of termination.
8 . 3 Termination by the Company Without Cause and Without a Change in Control or by Executive for Good Reason Without a Change in Control . In the event
Executive’s employment is terminated pursuant to Sections 7.2 or 7.4 above at any time in which there has not been a qualifying Change in Control termination, the Company
shall pay Executive on the date of termination the payments referred to in Section 8.1(a) above, Executive shall also receive all of the following:
(a) A severance package equal to the lesser of (i) six (6) months of Executive’s Base Salary at the time of termination and (ii) the Base Salary remaining under the
Term of this Agreement. This severance amount shall be paid to Executive in equal regular installments over the term of the severance period pursuant to the Company’s regular
payroll periods, less applicable statutory deductions and tax withholdings. The first installment shall be paid to Executive on the first payroll period after the date of termination;
and
(b) Subject to compliance with Section 409A of the Code, an amount equal to the greater of (i) (A) if the date of termination occurs between January 1 and June 30,
then twenty-five percent (25%) of Executive’s target bonus (if any) for the year in which the date of termination occurs or (B) if the date of termination occurs between July 1
and December 31, then fifty percent (50%) of Executive’s target bonus (if any) for the year in which the date of termination occurs; and (ii) a bonus for such year as may be
determined by the Committee in its sole discretion. This amount shall be paid in the form of a lump sum, less applicable statutory deductions and withholdings, as soon as
practicable after the date of termination, but no later than March 15 of the year immediately following the year in which the date of termination occurs;
6
(c) Should Executive or his representatives timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its affiliates
and timely make the premium payments, reimburse Executive on a monthly basis for the cost of continued coverage under the COBRA for Executive and any eligible
dependents until the earlier of (i) the date Executive is no longer entitled to continuation coverage under COBRA or (ii) for twelve (12) months after the date of termination; and
Unless otherwise provided in the equity award agreement, all stock options and other stock incentive awards held by Executive will become fully vested and immediately
exercisable and all restrictions on any restricted stock held by Executive will be removed; provided, however, Executive shall not be released from the black-out periods for the
next financial reporting quarter following the date of termination or Securities Exchange Act of 1934, as amended (the “Exchange Act”) , trading obligations typically required
for an executive in this position .
8.4 Termination by the Company Without Cause After a Change in Control or by Executive for Good Reason After a Change in Control.
In the event Executive’s employment is terminated pursuant to Sections 7.2 or 7.4 above during the Protection Period, the Company shall pay Executive on the date of
termination the payments referred to in Section 7.l (a) above, Executive shall also receive all of the following:
(a) Subject to compliance with Section 409A of the Code, a severance package equal to one year of Executive’s Base Salary immediately prior to the Change in
Control. This severance amount shall be paid to Executive in equal regular installments over a 12-month period pursuant to the Company’s regular payroll periods, less
applicable statutory deductions and tax withholdings. The first installment shall be paid to Executive on the first payroll period after the date of te1mination and after the
effective date of the Release ; and
(b) Subject to compliance with Section 409A of the Code, an amount equal to the greater of (i) one hundred percent (100%) of Executive’s target bonus (if any) for
the year in which the date of termination occurs or (ii) a bonus for such year as may be determined by the Committee in its sole discretion. This amount shall be paid in the form
of a lump sum, less applicable statutory deductions and withholdings, as soon as practicable after the date of termination, but no later than March 15 of the year immediately
following the year in which the date of termination occurs; and
(c) A one-time cash payment equivalent to one year’s salary, less applicable statutory deductions and tax withholdings, to be paid within thirty (30) days of the date
of termination; and
(d) Should Executive or his representatives timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its affiliates
and timely make the premium payments, reimburse Executive on a monthly basis for the cost of continued coverage under the COBRA for Executive and any eligible
dependents until the earlier of (i) the date Executive is no longer entitled to continuation coverage under COBRA or (ii) for twelve (12) months after the date of termination; and
(e) All stock options and other incentive awards held by Executive will become fully vested and immediately exercisable and all restrictions on any restricted
stock held by Executive will be removed; provided, however, Executive shall not be released from the black-out periods for the next financial quarter following the date of
termination or any restrictions imposed under the Securities act of 1933, as amended, or Securities Exchange Act of 1934, as amended, trading obligations typically required for
an executive in this position.
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9 . Non-Competition and Confidentiality Covenants. Executive and Company are party to that certain Non-Competition and Non-Solicitation Agreement, dated of
even date herewith (the “Non-Competition Agreement ”), attached hereto as Exhibit A, which is incorporated herein by reference. The Non-Competition Agreement contains,
among other things, covenants of Executive respecting non-competition, non-solicitation and non-disclosure. Any breach of the Non-competition Agreement that is not cured as
permitted therein shall be deemed a breach of this Section 9. The Non-Competition Agreement shall survive the termination of this Agreement pursuant to its terms.
1 0 . Notices. For purposes of this Agreement, notices and all other communications provided for herein will be in writing and will be deemed to have been given
when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
with copies to:
Marc S. Schessel
c/o SCWorx Corp.
590 Madison Avenue, 21st Floor
New York, New York 10022
Phone: (408) 550-5767
SCWorx Corp.
590 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Paul K. Danner, III
Phone: (212) 521-4268
Fax: (212) 521-4099
The Nossiff Law Firm, LLP
300 Brickstone Sq., Suite 201
Andover, MA 01810
Attention: John G. Nossiff, Esq.
Phone: (978) 409-2648
Email: Jnossiff@nossiff-law.com
or to such other address as either party hereto may have furnished to the other party in writing in accordance herewith, except that notices of change of address will be effective
only upon receipt.
11. Governing Law. The validity, interpretation, and performance of this Agreement will be governed by the laws of the State of Delaware, without reference to the
choice of law principles or rules thereof, except to the extent that federal law will be deemed to apply.
1 2 . Modification. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing
signed by the Company and the Executive. No waiver by any party hereto at any time of any breach by another party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of dissimilar provisions or conditions at the same or any prior subsequent time. No agreements
or representation, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this
Agreement.
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1 3 . Validity. The invalidity or unenforceability of any provisions of this Agreement will not affect the validity or enforceability of any other provisions of this
Agreement which will remain in full force and effect.
14. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute
one and the same agreement.
15. Assignment. This Agreement is personal in nature and Executive may not, without consent of the Company, assign or transfer this Agreement or any rights or
obligations hereunder.
1 6 . Document Review. The Company and the Executive hereby acknowledge and agree that each (i) has read this Agreement in its entirety prior to executing it,
(ii) understands the provisions and effects of this Agreement, (iii) has consulted with such attorneys, accountants and financial and other advisors as it or he has deemed
appropriate in connection with their respective execution of this Agreement, and (iv) has executed this Agreement voluntarily and knowingly.
17. Entire Agreement This Agreement (including Exhibit A) together with any understandings or modifications thereof as agreed to in writing by the parties, will
constitute the entire agreement between the parties hereto regarding the subject matter of Executive’s employment with the Company.
1 8 . Representations and Covenants of Executive. Executive represents and warrants to the Company that: (a) he has full power and authority to enter into this
Agreement, (b) the execution and delivery of this Agreement and the performance of his duties hereunder shall not result in a breach of, or constitute a default under, any
agreement or obligation to which he may be bound or subject, (c) this Agreement represents a valid, legally binding obligation on him and is enforceable against him in
accordance with its terms except as the enforceability of this Agreement may be subject to or limited by general principles of equity and by bankruptcy or other similar laws
relating to or affecting the rights of creditors generally, and (d) the Executive has resigned from all positions as an employee, officer, director or executive of prior employers.
1 9 . Representations and Covenants of the Company. The Company represents and warrants to the Executive that: (a) it has full power and authority to enter into
this Agreement, (b) the execution and delivery of this Agreement and the performance of its duties hereunder shall not result in a breach of, or constitute a default under, any
agreement or obligation to which he may be bound or subject, and (c) this Agreement represents a valid, legally binding obligation on the Company and is enforceable against
him in accordance with its terms except as the enforceability of this Agreement may be subject to or limited by general principles of equity and by bankruptcy or other similar
laws relating to or affecting the rights of creditors generally.
[Signature Page to Executive Employment Agreement Follows]
9
IN WITNESS WHEREOF, the parties have caused the Agreement to be executed and delivered as of the date first set forth above.
[Signature Page to Executive Employment Agreement]
SCWorx Corp
By: /s/ John Price
John Price
Title: CFO
/s/ Marc S. Schessel
Marc S. Schessel
10
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
Exhibit A
THIS NON-COMPETITION AND NON-SOLICITATION AGREEMENT (the “ Agreement”), dated as of February 1, 2019 (the “Effective Date”) is entered into by
and between SCWorx Corp. , a Delaware corporation (“Company”) John Price, an individual and resident of the State of New York (the “Executive”).
NOW, THEREFORE, in consideration of the employment or continued employment of the Executive by the Company, and the continued receipt and access to
confidential, proprietary, and trade secret information associated with the Executive’s position with the Company, the Executive and the Company agree as follows:
1 . Confidentiality. Executive understands and agrees that in the course of providing services to the Company, Executive may acquire confidential and/or proprietary
information concerning the Company’s operations, its future plans and its methods of doing business. Executive understands and agrees it would be extremely damaging to the
Company if Executive disclosed such information to a competitor or made such information available to any other person. Executive understands and agrees that such
information is divulged to Executive in strict confidence and Executive understands and agrees that Executive shall not use such information other than in connection with the
Business and will keep such information secret and confidential unless disclosure is required by court order or otherwise by compulsion of law. In view of the nature of
Executive’s employment with the Company and the information that Executive has received during the course of Executive’s employment, Executive also agrees that the
Company would be irreparably harmed by any violation, or threatened violation of the agreements in this paragraph and that, therefor, the Company shall be entitled to an
injunction prohibiting Executive from any violation or threatened violation of such agreements.
2 . Non-Competition and Non-Solicitation. The Executive acknowledges and agrees that the nature of the Company’s confidential, proprietary, and trade secret information
to which the Executive has, and will continue to have, access to derives value from the fact that it is not generally known and used by others in the highly competitive industry
in which the Company competes. The Executive further acknowledges and agrees that, even in complete good faith, it would be impossible for the Executive to work in a
similar capacity for a competitor of the Company without drawing upon and utilizing information gained during employment with the Company. Accordingly, at all times
during the Executive’s employment with the Company and for a period of one (1) year after termination, for any reason, of such employment, the Executive will not, directly or
indirectly:
(a) Engage in any business or enterprise (whether as owner, partner, officer, director, employee, consultant, investor, lender or otherwise, except as the holder of not
more than one percent (1%) of the outstanding capital stock of a company) that directly or indirectly competes with the Company’s business or the business of any of its
subsidiaries anywhere in the United States; or
(b) Either alone or in association with others (i) solicit, or facilitate any organization with which the Executive is associated in soliciting, any employee of the
Company or any of its subsidiaries to leave the employ of the Company or any of its subsidiaries; (ii) solicit for employment, hire or engage as an independent contractor, or
facilitate any organization with which the Executive is associated in soliciting for employment, hire or engagement as an independent contractor, any person who was employed
by the Company or any of its subsidiaries at any time during the term of the Executive’s employment with the Seller or the Company or any of their respective subsidiaries
(provided, that this clause (ii) shall not apply to any individual whose employment with the Seller, the Company or any of its subsidiaries has been terminated for a period of
one year or longer); or (iii) solicit business from or perform services for any customer, supplier, licensee or business relation of the Seller or the Company or any of their
respective subsidiaries, induce or attempt to induce, any such entity to cease doing business with the Company or any of its subsidiaries; or in any way interfere with the
relationship between any such entity and the Company or any of its subsidiaries.
3 . Return of Property. Executive understands and agrees that all business information, files, research, records, memoranda, books, lists and other documents and tangible
materials, including computer disks, and other hardware and software that he receives during his employment, whether confidential or not, are the property of the Company, and
that, upon the termination of his services, for whatever reason, he will promptly deliver to the Company all such materials, including copies thereof, in his possession or under
his control. Any analytical templates, books, presentations, reference materials, computer disks and other similar materials already rightfully owned by the Executive prior to the
Effective Date shall remain the property of the Executive and any copies thereof obtained by or provided to the Company shall be returned or destroyed in a manner similar
acceptable to the Executive.
4 . Not Employment Contract. The Executive acknowledges that this Non-Competition and Non-Solicitation Agreement does not constitute a contract of employment and,
except as set forth in Executive Employment Agreement (to which this Agreement is ancillary), does not guarantee that the Company or any of its subsidiaries will continue his
employment for any period of time or otherwise change the at-will nature of his employment.
5 . Interpretation. If any restriction set forth in Section 2 is found by any court of competent jurisdiction to be invalid, illegal, or unenforceable, it shall be modified to the
minimum extent necessary to render the modified restriction valid, legal and enforceable. The parties intend that the non-competition and non-solicitation provisions contained
in this Agreement shall be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America where this
provision is intended to be effective.
6. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
7 . Waiver of Rights. No delay or omission by the Company in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
8 . Equitable Remedies. The restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and its subsidiaries and
are considered by the Executive to be reasonable for such purpose. The Executive agrees that any breach of this Agreement is likely to cause the Company substantial and
irrevocable damage and therefor, in the event of any such breach, the Executive agrees that the Company, in addition to such other remedies that may be available, shall be
entitled to specific performance and other injunctive relief.
9 . Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. Any action, suit, or other legal proceeding
which is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of Delaware (or, if
appropriate, a federal court located within Delaware), and the Company and the Executive each consent to the jurisdiction of such a court.
2
7 . Term. This Agreement shall be effective on the Effective Date. This Agreement shall expire on [Expiry of employment agreement], provided the obligations of the
Executive under Sections 2 shall survive for a period of one (1) year after expiration or termination. Notwithstanding the foregoing the obligations of the Executive under
Sections 1 shall survive for two (2) years and Section 3 shall survive indefinitely.
8. Certain Exclusions. The obligations stipulated in Section 1 of this Agreement shall not apply to confidential information which: (i) is, prior to disclosure, in the lawful
possession of, or already known to, the Executive; (ii) has come into the public domain through no fault of the Executive; (iii) has been lawfully received from a third party
without restrictions or breach of this Agreement; (iv) is independently developed by the Executive without any use of the confidential information of the Company; or (v) is
disclosed pursuant to the order or requirement of a court, administrative agency, or other governmental body, subject to the Executive giving reasonable prior notice in writing
to the Company to allow it to seek protective or other court orders.
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, HAS SOUGHT INDEPENDENT COUNSEL TO ADVISE HIM AS
TO THE NATURE AND EXTENT OF HIS OBLIGATIONS HEREUNDER AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS
AGREEMENT.
[Signature Page to Non-Competition And Non-Solicitation Agreement Follows]
3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written.
[Signature Page to Non-Competition And Non-Solicitation Agreement]
COMPANY:
SCWorx Corp.
By: /s/ John Price
Name: John Price
Title: CFO
EXECUTIVE:
/s/ Marc S. Schessel
Marc S. Schessel
4
Subsidiary
Go Fight Net, Inc.
SCW FL Corp.
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
State of Organization or
Incorporation
New York
Delaware
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-221295) of SCWorx Corp. (f/k/a Alliance MMA, Inc.) of our report
dated April 1, 2019, relating to the consolidated financial statements which appears in this Form 10-K of SCWorx Corp. for the year ended December 31, 2018.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
/s/ Friedman LLP
Marlton, New Jersey
April 1, 2019
Exhibit 31.1
Certification of the Chief Executive Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Marc S. Schessel, certify that:
1. I have reviewed this annual report on Form 10-K of SCWorx Corp. (f/k/a Alliance MMA, Inc.);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the periods in which this
report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
April 1, 2019
/s/ Marc S. Schessel
Marc S. Schessel
Chief Executive Officer
Exhibit 31.2
Certification of the Chief Financial Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, John Price, certify that:
1. I have reviewed this annual report on Form 10-K of SCWorx Corp. (f/k/a Alliance MMA, Inc.);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
April 1, 2019
/s/ John Price
John Price
Chief Financial Officer
CERTIFICATION PURSUANT TO
RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350
Exhibit 32.1
In connection with the Annual Report of SCWorx Corp. (f/k/a Alliance MMA, Inc.), a Delaware corporation (the “Company”), on Form 10-K for the year ended December 31,
2018 as filed with the Securities and Exchange Commission (the “Report”), I, Marc S. Schessel, Chief Executive Officer, certify, pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Marc S. Schessel
Marc S. Schessel
Chief Executive Officer
April 1, 2019
CERTIFICATION PURSUANT TO
RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350
In connection with the Annual Report of SCWorx Corp. (f/k/a Alliance MMA, Inc.), a Delaware corporation (the “Company”), on Form 10-K for the year ended December 31,
2018 as filed with the Securities and Exchange Commission (the “Report”), I, John Price, Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John Price
John Price
Chief Financial Officer
April 1, 2019