UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20172022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-37899

ALLIANCE MMA, INC.SCWORX CORP.

(Exact name of registrant as specified in its charter)

590 Madison Avenue, 21^st21st Floor

New York, New York 10022

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

(212) 739-7825(844) 472-9679

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

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

Number of shares of the registrant’s common stock outstanding at November 9, 2017 was 12,662,974.14, 2022: 13,010,409

Alliance MMA, Inc.SCWorx Corp.

Form 10-Q - Quarterly Report

For the Quarter Ended September 30, 2017

TABLE OF CONTENTS

Cautionary Statement Regarding Forward-Looking Statements

Certain statements that we make from time to time, including statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and of Section 27A of the Securities Act of 1933, as amended, 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 Form 10-Q are forward-looking statements. These statements, among other things, relate to our business strategy, goals and expectations concerning our future operations, prospects, plans and objectives of management. The words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, and similar terms and phrases are used to identify forward-looking statements in this 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 Form 10-Q include, without limitation, statements reflecting management’s expectations for future financial performance and operating expenditures (including our ability to continue as a going concern, to raise additional capital and to succeed in our future operations), expected growth, profitability and business outlook and increased operating expenses.

Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, among other things, the unknown risks and uncertainties that we believe could cause actual results to differ from these forward looking statements as set forth under the heading, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements, including without limitation, risks and uncertainties relating to our ability to:

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

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

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

PART I—I – FINANCIAL INFORMATION

Item 1. Financial Statements

Alliance MMA, Inc.

SCWorx Corp.

Condensed Consolidated Balance Sheets

(Unaudited)

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

Alliance MMA, Inc.SCWorx Corp.

Condensed Consolidated Statements of Operations

(Unaudited)

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

Alliance MMA, Inc.SCWorx Corp.

Condensed Consolidated StatementStatements of Changes Inin Stockholders’ Equity

(Unaudited)

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

Alliance MMA, Inc.

SCWorx Corp.

Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity

(Unaudited)

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

Alliance MMA, Inc.SCWorx Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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

SCWorx Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

Note 1. The Company and BasisDescription of PresentationBusiness

Nature of Business

SCWorx, LLC (n/k/a SCW FL Corp.) (“SCW LLC”) was a privately held limited liability company which was organized in Florida on November 17, 2016. On December 31, 2017, SCW LLC acquired Primrose Solutions, LLC (“Primrose”), a Delaware limited liability company, which became its wholly-owned subsidiary and focused on developing functionality for the software now used and sold by SCWorx Corp. (the “Company” or “SCWorx”). The majority interest holders of Primrose were interest holders of SCW LLC and based upon Staff Accounting Bulletin Topic 5G, the technology acquired has been accounted for at predecessor cost of $0. To facilitate the planned acquisition by Alliance MMA, Inc., a Delaware corporation (“Alliance” or), on June 27, 2018, SCW LLC merged with and into a newly-formed entity, SCWorx Acquisition Corp., a Delaware corporation (“SCW Acquisition”), with SCW Acquisition being the “Company”) was formedsurviving entity. Subsequently, on August 17, 2018, SCW Acquisition changed its name to SCWorx Corp. On November 30, 2018, the Company and certain of its stockholders agreed to cancel 6,510 shares of common stock. In June 2018, the Company began to collect subscriptions for common stock. From June to November 2018, the Company collected $1,250,000 in Delawaresubscriptions and issued 3,125 shares of common stock to new third-party investors. In addition, on February 12, 20151, 2019, (i) SCWorx Corp. (f/k/a SCWorx Acquisition Corp.) changed its name to acquire companiesSCW FL Corp. (to allow Alliance to change its name to SCWorx Corp.) and (ii) Alliance acquired SCWorx Corp. (n/k/a SCW FL Corp.) in a stock-for-stock exchange transaction and changed Alliance’s name to SCWorx Corp., which is the mixed martial arts (“MMA”) industry.Company’s current name, with SCW FL Corp. becoming the Company’s subsidiary. On September 30, 2016, Alliance completedMarch 16, 2020, in response to the first tranche of its initial public offering and acquired the assets and assumed certain liabilities of six companies, consisting of five MMA promoters and a ticketing platform focused on MMA events. In October 2016, GFL Acquisition, Co., Inc.,COVID-19 pandemic, SCWorx established a wholly-owned subsidiary, of Alliance, merged with a seventh company, Go Fight Net, Inc., which produces and distributes MMA video entertainment. GFL was subsequently rebranded as Alliance Sports Media. The respective acquired businessesDirect-Worx, LLC.

Operations of the seven companies are referred to in these Notes as the “Initial Business Units”. At the completion

SCWorx is a provider of the offering in October 2016, the Company acquired certain MMAdata content and kickboxing video libraries (the “Initial Acquired Assets”). Subsequentservices related to the acquisitionrepair, normalization and interoperability of information for healthcare providers and big data analytics for the Initial Business Unitshealthcare industry.

SCWorx has developed and markets health information technology solutions and associated services that improve healthcare processes and information flow within hospitals. SCWorx’s software platform enables healthcare providers to simplify, repair, and organize its data (“data normalization”), allows the Initial Acquired Assets,data to be utilized across multiple internal software applications (“interoperability”) and provides the Company acquiredbasis for sophisticated data analytics (“big data”). SCWorx’s solutions are designed to improve the assetsflow of five additional promotion companies, Iron Tiger Fight Series, Fight Time, National Fighting Championships, Fight Club OC,information quickly and Victory Fighting Championshipaccurately between the existing supply chain, electronic medical records, clinical systems, and a fighterpatient billing functions. The software is designed to achieve multiple operational benefits such as supply chain cost reductions, decreased accounts receivables aging, accelerated and more accurate billing, contract optimization, increased supply chain management and marketing company, SuckerPunch, along with the intellectual property rights to the Sheffield video fight librarycost visibility, synchronous Charge Description Master (“CDM”) and control of Shogun Fights (the “Subsequent Acquisitions”).vendor rebates and contract administration fees.

Initial Business Units

PromotionsSCWorx 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:

Ticketing Platform

Video Production and Distribution

Initial Acquired Assets

Following the completion of its initial public offering, Alliance also acquired the following assets:

Louis Neglia’s Ring of Combat

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

Hoss Promotions, LLC

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

Subsequent Acquisitions

Following the acquisition of the Initial Business Units and Initial Acquired Assets, the Company acquired:

Iron Tiger Fight Series

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

In June 2017, ITFS hired the former owner of Explosive Fight Promotions, an Ohio based MMA promotion business, as General Manager, along with certain staff members.

Sucker Punch

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

Fight Time

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

National Fighting Championships

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

Fight Club OC

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

Victory Fighting Championship

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

Sheffield Recordings Limited, Inc. - Media Library Rights

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

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

Basis of Presentation

SCWorx’s software solutions are delivered to clients within a fixed term period, typically a three-to-five-year contracted term, where such software is hosted in SCWorx data centers (Amazon Web Service’s “AWS” or RackSpace) and Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements as of September 30, 2017 and December 31, 2016, and for the three and nine months ended September 30, 2017 and 2016, have been preparedaccessed by the Companyclient through a secure connection in accordance with generally accepted accounting principlesa software as a service (“GAAP”SaaS”) delivery method.

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

Impact of the COVID-19 Pandemic

The amounts asCompany’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic which spread throughout the United States and the world. The New York and New Jersey area, where the Company is headquartered, was at one of December 31, 2016 have been derived from the Company’s annual audited consolidated financial statements but does not include all disclosures required by accounting principles generally acceptedearly epicenters of the coronavirus outbreak in the United StatesStates. The outbreak adversely impacted new customer acquisition. The Company has followed the recommendations of America. Certain informationlocal health authorities to minimize exposure risk for its team members since the outbreak. 

In addition, the Company’s customers (hospitals) also experienced extraordinary disruptions to their businesses and footnote disclosures normally includedsupply chains, while experiencing unprecedented demand for health care services related to COVID-19. As a result of these extraordinary disruptions to the Company’s customers’ business, the Company’s customers were focused on meeting the nation’s health care needs in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such rules and regulations.response to the COVID-19 pandemic. As a result, the Company believes that its customers were not able to focus resources on expanding the utilization of the Company’s services, which has adversely impacted the Company’s growth prospects, at least until the adverse effects of the pandemic subside. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairlyaddition, the financial positionimpact of the Company and its results of operations, changes in stockholders’ equity and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2016, included inCOVID-19 on the Company’s Annual Report on Form 10-K forhospital customers could cause the year ended December 31, 2016, filed on April 17, 2017 (the “Form 10-K”). The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2017 or any future period and the Company makes no representations related thereto.

Use of Estimates

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

Liquidity and Going Concern

Our primary need for liquidity is to fund the working capital needs of our business, our planned capital expenditures, the continued acquisition of regional promotions and related companies, and general corporate purposes. We have incurred losses and experienced negative operating cash flows since the inception of our operations in October 2016. We believe, however, that the successful implementation of our business plan, along with other actions we have taken and will continue to take, will improve our operating margins and address corporate overhead expenditures.

Since completing our IPO in October 2016, we have focused primarily on building out a domestic MMA platform, which is expected eventually to include a presence in the top 20 media markets. To date, we have created a persistent brand presence in twelve markets through the acquisition of ten promotional businesses along with the promotion of regional Alliance MMA events in two additional markets. We have also continued to develop our existing media library of live MMA events, and have built a professional corporate infrastructure that will support our long-term goals. These activities and investments in our business directly support our stated goal of promoting at least 125 regional MMA events annually.

To ensure the Company’s capital needs are met over the next twelve months, in August 2017, the Company completed a capital raise of approximately $1.5 million through the placement of approximately 1.5 million units at $1.00 per unit, which consist of one share of common stock and a warrant to purchase one share of common stock at $1.50.

In November 2017, the Company raised approximately $500,000 through the placement of 390,000 units at $1.25 per unit, which consist of one common share and a warrant to purchase one-half share of common stock at an exercise price equal to $1.75 per whole share.

Additionally in November, the Company filed a “shelf” registration statement on Form S-3 which, when declared effective by the SEC, will allow the Company to issue various types of securities up to an aggregate of $20 million.

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

Additionally, management is in discussions with national casinos to promote our MMA events at venues that would produce better margins through entertainment fees paiddelay payments due to the Company and, in certain cases, a reduction in event overhead through complimentary food and lodging for fighters and staff.services, which could negatively impact the Company’s cash flows.

WhileThe Company sought to mitigate these impacts to revenue through the sale of personal protective equipment (“PPE”) and COVID-19 rapid test kits to the health care industry, including many challenges associatedof the Company’s hospital customers. On March 16, 2020, in response to the COVID-19 pandemic, SCWorx established a wholly owned subsidiary, Direct-Worx, LLC to endeavor to source and provide critical, difficult-to-find items for the healthcare industry. Items had become difficult to source due to unexpected disruptions within the supply chain due to the COVID-19 pandemic. The products the Company sought to source included:

Regarding PPE and Test Kits, during the second quarter of 2020 the Company limited its role to acting as an intermediary between buyers and sellers with successfully executing our aggressive expansion plan exist, and while our historical operating results raise doubts with respect to our ability to continue as a going concern, we expect that our recent and anticipated financings, the continued implementation of our business plan and the expected increase in sponsorship revenue will provide sufficient liquidity and financial flexibility over the next twelve months. We cannot, however, predict with certainty the outcome of our actions to generate liquidity, including our success in raising additional capital or the anticipated results of our operations.commission-based compensation.

Note 2. Summary of Significant Accounting Policies

ThereBasis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been no significant changesprepared in accordance with U.S. GAAP and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed consolidated financial statements include the accounts of SCWorx and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

These interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. They do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto contained in its report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022.

The unaudited condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s significant accounting policies duringfinancial position at September 30, 2022, the results of its operations for the three and nine months ended September 30, 2017, as compared to the significant accounting policies described in the Form 10-K, with the exception2022 and cash flows for nine months ended September 30, 2022. The results of operations for three and nine months ended September 30, 2022 are not necessarily indicative of the fighter commission revenue recognition policy disclosed below.results to be expected for future quarters or the full year.

Revenue RecognitionCash

Promotion Revenue

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. The Company records revenue from ticket sales and sponsorship income upon the successful completion of the related event, at which time services have been deemed rendered, the sales price is fixed and determinable and collectability is reasonably assured. Customer deposits consist ofhad amounts received from the customer for fight promotion and entertainment services to be provided in the next fiscal year. The Company receives these funds and recognizes them as a liability until the services are provided and revenue can be recognized.

Ticket Service Revenue

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

Fighter Commission Revenue

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

Distribution Revenue

The Company acts as a producer, distributor and licensor of video content. The Company’s online video content is offered on a pay per view (“PPV”) basis. The Company records revenue on PPV transactions upon receipt of payment to credit processing partners. The Company charges viewers a fee per PPV purchase transaction for entitling a viewer to watch the desired video. The Company records revenue net of a fee for the credit card processing cost per transaction. The Company maintains all revenues from videos the Company films and distribute a profit share, typically 50% to promoters who use our streaming services. The Company generates revenues from video production services, and books this revenue upon completion of the video production project. The Company generates revenues from licensing the rights to videos to networks overseas and domestically, and books revenue upon delivery of content. To the extent there are issues (i) watching a video (ii) with our production services or (iii) with the quality of a video we send out for distribution to a network we would issue a partial or full refund based on the circumstances. Given the nature of our business, these refund requests come within days of delivery, thus we would not anticipate any refund request in excess of the FDIC insured limit as of September 30, days from a PPV purchase, a license delivery or video production performance.2022 of $111,726 and none as of December 31, 2021.

Business CombinationsFair Value of Financial Instruments

Management applies fair value accounting for significant 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 the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, accounts receivable and warrants. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing internal credit evaluations of its customers’ financial condition, obtains deposits and limits the amount of credit extended when deemed necessary but generally requires no collateral.

Significant customers are those which represent more than 10% of the Company’s revenue for each period presented, or the Company’s accounts receivable balance as of each respective balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total net accounts receivable are as follows:

Allowance for Doubtful Accounts

The Company allocatescontinually 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. The Company’s allowance for doubtful accounts as of September 30, 2022 and December 31, 2021 was $0 and $421,736, respectively.

Inventory

The inventory balance at December 31, 2021 is related to the Company’s Direct-Worx, LLC subsidiary and consisted of approximately 87,000 gowns. These items are carried on the unaudited condensed consolidated balance sheet at the lower of cost or market.

During the year ended December 31, 2021, the Company recorded a write down on the fair value of its inventory of $366,840. During the three months ended September 30, 2022, the Company wrote off the remaining value of this inventory as unsellable and is in the process of disposal. Inventory assets as of September 30, 2022 and December 31, 2021 consisted of the following:

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 purchase consideration of its acquisitions to thenet tangible assets, liabilities, and identified intangible assets acquired based on their estimated fair values.under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. The excessCompany reviews impairment of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses and related restructuring costs are recognized separately from the business combination and are expensed as incurred.

Goodwill and Purchased Intangible Assets   

Goodwill is tested for impairment on an annual basisgoodwill annually in the fourth fiscal quarter, and, when specificor more frequently if events or circumstances dictate, between annual tests. When impaired,indicate that the carrying value of goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is written downnecessary to fair value. Theperform the quantitative goodwill impairment test involves a two-step process. The first step, identifying a potential impairment, comparestest. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit withis less than its carrying amount, including goodwill. Ifthen the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise, no further stepsquantitative goodwill impairment test is unnecessary.

Property and Equipment

Property and equipment are necessary as no potential impairment exists. If necessary, the second step to measure the impairment loss would be to compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss. Purchased intangible assets with finite lives are carriedrecorded at cost, less accumulated amortization. Amortizationdepreciation. Depreciation is computedcalculated using the straight-line method over the related assets’ estimated useful liveslives. Equipment, furniture and fixtures are being amortized over a period of the respective assets. See “Long-Lived Assets” for the Company’s policy regarding impairment testing of purchased intangible assets with finite lives. Purchased intangible assets with indefinite lives are assessed for potential impairment annually or when events or circumstances indicate that their carrying amounts might be impaired.three years.

Long-Lived AssetsExpenditures that materially increase asset life are capitalized, while ordinary maintenance and repairs are expensed as incurred.

Long-lived assets that are held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the difference between the fair value of the asset and its carrying value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), and since May 2014 the FASB has issued amendments to this new guidance, which collectively provides guidance for revenue recognition. ASU 2014-09 is effective for the Company beginning January 1, 2018 and, at that time, the Company may adopt the new standard under the full retrospective approach or the modified retrospective approach. Under the new standard, the current practice of many licensing companies of reporting revenues from per-unit royalty based agreements one quarter in arrears would no longer be accepted and instead companies will be expected to estimate royalty-based revenues. The Company is currently evaluating the method of adoption and the resulting impact on the financial statements.

In August 2014, the FASB issued “Accounting Standards Update No. 2014-15,” Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“Update 2014-15”), which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. For public entities, Update 2014-15 was effective for annual reporting periods ending after December 15, 2016. The Company adopted this update in 2016 resulting in no impact on its consolidated results of operations, financial position, cash flows and disclosures.

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842):” The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases while the accounting by a lessor is largely unchanged from that applied under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this new standard.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718):” (“ASU 2016-09”). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted this update effective January 1, 2017.

In August 2016, the FASB issued ASU 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. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently assessing the impact of this new guidance.

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

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

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350):” which removes Step 2 of the goodwill impairment test. Step 2 requires the assessment of fair value of individual assets and liabilities of a reporting unit to measure goodwill impairments. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value. ASU 2017-4 will be effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019, on a prospective basis, and early adoption is permitted.

In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718):” scope of modification accounting (“ASU 2017-09”), which provides clarity regarding the applicability of modification accounting in relation to share-based payment awards. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The effective date for the standard is for fiscal years beginning after December 15, 2017, which for the Company is January 1, 2018. Early adoption is permitted. The new standard is to be applied prospectively. The Company does not expect ASU 2017-09 to have a material impact on its consolidated financial statements.

Note 3. Property and Equipment

Property and equipment, net, consisted of the following:

Depreciation expense for the three and nine months ended September 30, 20172022 was $41,111 and $96,810, respectively.

zero. Depreciation expense for the three and nine months ended September 30, 20162021 was zero for both periods.$1,353 and $73,901, respectively.

Note 4. AcquisitionsRevenue Recognition

The Company completedrecognizes revenue in accordance with Topic 606 to depict the transfer of promised goods or services in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of Topic 606 the Company performs the following acquisitionssteps:

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

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

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

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

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

Data Normalization and Professional Services

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

SaaS and Maintenance

SaaS and Maintenance revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date on which the Company’s service is made available to customers.

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

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

The Company has one revenue stream, from the SaaS business, and believes it has presented all varying factors that affect the nature, timing and uncertainty of revenues and cash flows.

PPE Inventory sales

Revenues from the sale of inventory are typically recognized upon shipment to a customer as long as the Company has met all performance obligations related to the sale in accordance with Topic 606.

Brokered PPE sales

Brokered PPE sales revenues are recognized once the customer obtains physical possession of the product(s). Because the Company acts as an agent in arranging the relationship between the customer and the supplier, PPE revenues are presented net of related costs, including product procurement, warehouse and shipping fees.

Remaining Performance Obligations

As of September 30, 2022 and December 31, 2021, the Company had $298,500 and $472,750, respectively, of remaining performance obligations recorded as deferred revenue. The Company expects to recognize the majority of revenue relating to the current performance obligations during the nine months ended September 30, 2017:following 12 month period.

SuckerPunchCosts to Obtain and Fulfill a Contract

On January 4, 2017, the Company acquired the stockCosts to fulfill a contract typically include costs related to satisfying performance obligations as well as general and administrative costs that are not explicitly chargeable to customer contracts. These expenses are recognized and expensed when incurred in accordance with ASC 340-40.

Cost of Roundtable Creative Inc., a Virginia corporation d/b/a SuckerPunch Entertainment, a leading fighter managementRevenues

Cost of revenues primarily represent data center hosting costs, consulting services and marketing company, for an aggregate purchase price of $1,686,347, of which $357,500 was paid in cash and $1,146,927 was paid with the issuance of 307,487 shares of Alliance MMA common stock valued at $3.73 per share, the fair value of Alliance MMA common stock on January 4, 2017 and $181,920 was paid with the issuance of a warrant to acquire 93,583 sharesmaintenance of the Company’s common stock.

Fight Time

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

National Fighting Championships

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

Fight Club OC

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

Victory Fighting Championship

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

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

Preliminary Purchase Allocation – SuckerPunchContract Balances

As consideration forContract assets arise when the acquisitionassociated revenue was earned prior to the Company’s unconditional right to receive a payment under a contract with a customer (unbilled revenue) and are derecognized when either it becomes a receivable or the cash is received. There were no contract assets as of SuckerPunch,September 30, 2022 and December 31, 2021.

Contract liabilities arise when customers remit contractual cash payments in advance of the Company deliveredsatisfying its performance obligations under the following amountscontract and are derecognized when the revenue associated with the contract is recognized when the performance obligation is satisfied. Contract liabilities were $298,500 and $472,750 as of cashSeptember 30, 2022 and shares of common stock.December 31, 2021, respectively.

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

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

Preliminary Purchase Allocation – Fight Time PromotionsIncome Taxes

As considerationThe 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 acquisitionamount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of the MMA promotion business of Fight Time, the Company delivered the following amounts of cashtemporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and shares of common stock.

In connection with the business acquisition, 28,000 shares of the 74,667 shares of common stock that were issued as part of the purchase price were placed into escrowliabilities are measured using enacted tax rates expected to guarantee the financial performance of Fight Time post-closing. Accordingly,apply to taxable income in the event the gross profit of Fight Time is less than $60,000 during fiscal year 2017, all 28,000 shares heldyears in escrow willwhich those temporary differences are expected to be forfeited.

recovered or settled. The following table reflects the preliminary allocation of the purchase price for the business of Fight Time to identifiableeffect on deferred tax assets and preliminary pro forma intangible assets and goodwill:

Preliminary Purchase Allocation – National Fighting Championships

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

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

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

Preliminary Purchase Allocation – Fight Club OC

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

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

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

Preliminary Purchase Allocation – Victory Fighting Championship

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

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

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