THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF THE COMPANY AS OF AUGUST 28, 2014 AND THE UNAUDITED PRO FORMA
Published on November 12, 2014
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS:
On August 29, 2014, the Company entered into a patent purchase agreement (the “Clouding Agreement”) between Clouding Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Clouding” of the “Company”) and Clouding IP, LLC, a Delaware limited liability company (“Clouding IP” or “Seller”), pursuant to which Clouding acquired a portfolio of 70 patents (“Clouding IP Assets”) from Clouding IP. Clouding owns patents related to network and data management technology.
The Company paid Clouding IP (i) $1.4 million in cash, (ii) $1.0 million in the form of a promissory note issued by the Company that matures on October 31, 2014, (iii) 25,000 shares of its restricted common stock valued at $281,000 and (iv) fifty percent (50%) of the net recoveries (“revenue share”, gross revenues minus certain defined expenses) in excess of $4.0 million in net revenues that the Company generates with respect to the patents purchased from Clouding IP. The Company valued the Common Stock at the fair market value on the date of the acquisition at $11.24 per share or $281,000. The promissory note was paid in full prior to October 31, 2014. The revenue share under item (iv) above was recorded as an earn out liability on the Company balance sheet in accordance with the appraisal of the consideration paid and intangible value of the patents acquired, in the amount of $13,115,000. Total consideration for the purchase of the patents was $15,796,000.
The Company accounted for the acquisition as a business combination in accordance with ASC 805 “Business Combinations”. Clouding acquired only the Clouding IP Assets and did not acquire any stock as part of the acquisition nor did Clouding acquire any other assets of Clouding IP. We are presenting the historical financial statements of Clouding IP Assets for the period ended August 28, 2014 and the year ended December 31, 2013 as part of this pro-forma disclosure.
These unaudited pro forma condensed combined financial statements are presented for illustrative purposes only, and the unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes and with the historical financial statements and related notes thereto. The unaudited pro forma condensed consolidated balance sheet is prepared as though the transactions occurred at the close of business on August 28, 2014. The pro forma statements of operations give effect to the transactions as thought they occurred on January 1, 2013. Such information is not necessarily indicative of the operating results or financial position that would have occurred had the acquisition been completed on January 1, 2013 or what results would be for any future periods.
Marathon Patent Group, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of August 28, 2014
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Marathon Patent Group, Inc.
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Clouding IP Assets
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Combined Before Pro Forma Adjustments
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Pro Forma Adjustments
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Marathon Patent Group, Inc. Pro Forma
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ASSETS
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Current Assets
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Cash
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5,051,565 | - | 5,051,565 | (1,400,000 | ) |
(a)
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3,651,565 | ||||||||||||||
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Accounts Receivable - net
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10,000 | - | 10,000 | - | 10,000 | ||||||||||||||||
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Prepaid expenses and other current assets
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1,003,058 | - | 1,003,058 | - | 1,003,058 | ||||||||||||||||
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Total current assets
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6,064,623 | 6,064,623 | (1,400,000 | ) | 4,664,623 | ||||||||||||||||
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Other Assets
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Property and equipment, net
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14,550 | - | 14,550 | - | 14,550 | ||||||||||||||||
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Intangible assets, net
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18,743,008 | 1,177,815 | 19,920,823 | 13,322,185 |
(b)
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33,243,008 | |||||||||||||||
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Goodwill
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2,227,488 | - | 2,227,488 | 1,296,000 |
(c)
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3,523,488 | |||||||||||||||
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Other assets
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6,000 | 5,000 | 11,000 | (5,000 | ) |
(d)
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6,000 | ||||||||||||||
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Total other assets
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20,991,046 | 1,182,815 | 22,173,861 | 14,613,185 | 36,787,046 | ||||||||||||||||
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Total Assets
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27,055,670 | 1,182,815 | 28,238,485 | 13,213,185 | 41,451,670 | ||||||||||||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities
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Accounts payable and acrued expenses
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1,646,406 | 539,096 | 2,185,502 | (539,096 | ) |
(e)
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1,646,406 | ||||||||||||||
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Clouding IP earn out
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- | - | - | 13,115,000 |
(f)
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13,115,000 | |||||||||||||||
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Note payable
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5,062,500 | 940,530 | 6,003,030 | 59,470 |
(g)
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6,062,500 | |||||||||||||||
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Other current liabilities
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30,664 | - | 30,664 | - | 30,664 | ||||||||||||||||
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Total Liabilities
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6,739,570 | 1,479,626 | 8,219,196 | 12,635,374 | 20,854,570 | ||||||||||||||||
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Stockholders' Equity
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- | ||||||||||||||||||||
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Preferred stock
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141 | - | 141 | - | 141 | ||||||||||||||||
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Common stock
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6,561 | - | 6,561 | 281 |
(h)
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6,842 | |||||||||||||||
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Additional paid-in capital
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35,150,717 | - | 35,150,717 | 280,719 |
(h)
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35,431,436 | |||||||||||||||
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Other equity
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(58,523 | ) | (296,811 | ) | (355,334 | ) | 296,811 |
(i)
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(58,523 | ) | |||||||||||
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Accumulated deficits
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(14,782,797 | ) | - | (14,782,797 | ) | - | (14,782,797 | ) | |||||||||||||
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Total stockholder's equity
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20,316,100 | (296,811 | ) | 20,019,289 | 577,811 | 20,597,100 | |||||||||||||||
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Total Liabilities and Stockholder's Equity
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27,055,670 | 1,182,815 | 28,238,485 | 13,213,185 | 41,451,670 | ||||||||||||||||
Marathon Patent Group, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the period ended August 28, 2014
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Marathon Patent Group, Inc.
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Clouding IP Assets
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Combined Before Pro Forma Adjustments
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Pro Forma Adjustments
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Marathon Patent Group, Inc. Pro Forma
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Revenues
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6,649,972 | 97,500 | 6,747,472 | - | 6,747,472 | |||||||||||||||
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Cost of revenues (cost of revenue is exclusive of patent amortization expenses)
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3,670,551 | 344,878 | 4,015,429 | - | 4,015,429 | |||||||||||||||
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Gross Profit
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2,979,421 | (247,378 | ) | 2,732,043 | - | 2,732,043 | ||||||||||||||
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Expenses
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Amortiztion of intangibles
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2,198,819 | 347,562 | 2,546,381 | - | 2,546,381 | |||||||||||||||
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Compensation and related taxes
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1,919,630 | - | 1,919,630 | - | 1,919,630 | |||||||||||||||
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Consulting fees
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943,335 | - | 943,335 | - | 943,335 | |||||||||||||||
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Professional fees
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798,377 | - | 798,377 | - | 798,377 | |||||||||||||||
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General and adminsitrative
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320,907 | - | 320,907 | - | 320,907 | |||||||||||||||
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Total operating expenses
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6,181,068 | 347,562 | 6,528,630 | - | 6,528,630 | |||||||||||||||
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Operating income (loss) from continuing operations
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(3,201,647 | ) | (594,940 | ) | (3,796,587 | ) | - | (3,796,587 | ) | |||||||||||
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Other income
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Other income
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632 | - | 632 | - | 632 | |||||||||||||||
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Other expense
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(1,275,114 | ) | (55,111 | ) | (1,330,225 | ) | - | (1,330,225 | ) | |||||||||||
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Net Loss
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(4,476,130 | ) | (650,051 | ) | (5,126,181 | ) | - | (5,126,181 | ) | |||||||||||
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Net loss per share - basic and diluted
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(0.80 | ) | (0.92 | ) | ||||||||||||||||
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Weighted average number of shares outstanding during the period - basic and dilluted
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5,592,260 | 5,595,038 | ||||||||||||||||||
Marathon Patent Group, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the year ended December 31, 2013
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Marathon Patent Group, Inc.
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Clouding IP Assets
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Combined Before Pro Forma Adjustments
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Pro Forma Adjustments
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Marathon Patent Group, Inc. Pro Forma
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Revenues
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3,418,371 | 12,000,000 | 15,418,371 | - | 15,418,371 | |||||||||||||||
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Cost of revenues (cost of revenue is exclusive of patent amortization expenses)
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957,040 | 12,140,037 | 13,097,077 | - | 13,097,077 | |||||||||||||||
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Gross Profit
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2,461,331 | (140,037 | ) | 2,321,294 | - | 2,321,294 | ||||||||||||||
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Expenses
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Amortiztion of intangibles
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1,038,505 | 528,585 | 1,567,090 | - | 1,567,090 | |||||||||||||||
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Compensation and related taxes
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2,997,053 | - | 2,997,053 | - | 2,997,053 | |||||||||||||||
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Consulting fees
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901,686 | - | 901,686 | - | 901,686 | |||||||||||||||
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Professional fees
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655,202 | - | 655,202 | - | 655,202 | |||||||||||||||
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General and adminsitrative
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544,338 | - | 544,338 | - | 544,338 | |||||||||||||||
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Total operating expenses
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6,136,784 | 528,585 | 6,665,369 | - | 6,665,369 | |||||||||||||||
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Operating income (loss) from continuing operations
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(3,675,453 | ) | (668,622 | ) | (4,344,075 | ) | - | (4,344,075 | ) | |||||||||||
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Other income
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Other income
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265,012 | - | 265,012 | - | 265,012 | |||||||||||||||
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Other expense
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(39,894 | ) | (34,155 | ) | (74,049 | ) | - | (74,049 | ) | |||||||||||
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Net Loss
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(3,450,335 | ) | (702,777 | ) | (4,153,112 | ) | - | (4,153,112 | ) | |||||||||||
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Net loss per share - basic
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(0.75 | ) | (0.90 | ) | ||||||||||||||||
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Weighted average number of shares outstanding during the period - basic and diluted
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4,604,193 | 4,604,193 | ||||||||||||||||||
Marathon Patent Group, Inc.
Significant Notes and Assumptions to the Pro Forma Condensed Combined Financial Statements
Note 1 – Acquisition Consideration and Fair Value of Clouding IP Assets
The Company accounted for the acquisition as a business combination in accordance with ASC 805 “Business Combinations”. The Company determined the fair value of the assets purchases, and the net purchase price paid by the Company was subsequently allocated to assets acquired and liabilities assumed on the records of the Company as follows:
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Intangible assets
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$
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14,500,000
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Goodwill
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1,296,000
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Net purchase price
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$
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15,796,000
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Total consideration paid of the following:
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Cash
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$ | 1,400,000 | ||
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Promissory Note
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1,000,000 | |||
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Common Stock
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281,000 | |||
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Earn Out Liability
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13,115,000 | |||
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Net purchase price
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$ | 15,796,000 |
Note 2 – Pro Forma Presentation Adjustments
The adjustments included in the column under the heading “Pro Forma Adjustments” in the unaudited pro forma condensed combined financial statements are as follows:
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(a)
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To record the cash portion of the consideration for the acquisition.
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(b)
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To record the fair value of the Clouding IP assets acquired. The Company determined that the fair value of the Clouding IP assets were $14,500,000 at the time of the acquisition.
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(c)
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To reflect the fair value of the goodwill associated with the acquisition of the Clouding IP Assets.
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(d)
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To eliminate other assets not acquired by the Company.
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(e)
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To eliminate Seller balances retained or settled by the Seller prior to the closing date.
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(f)
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To record the fair value of the revenue share payable to the Seller pursuant to the acquisition of the Clouding IP Assets.
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(g)
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To record the issuance of a note payable to Seller in the amount of $1.0 million as part of the purchase consideration of the Clouding IP Assets, net of Seller loans retained or settled by Seller prior to the closing date.
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(h)
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To record the issuance of 25,000 shares of Common Stock of Marathon Patent Group, Inc. for the acquisition of the Clouding IP Assets.
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(i)
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To eliminate Seller’s parent company investment in the Clouding IP Assets.
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