THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF THE COMPANY AS OF SEPTEMBER 30, 2014 AND THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME OF REGISTRANT FOR THE PERIOD ENDED SEPTEMBER 30, 2014 AND THE YEAR ENDED DECEMBER 31, 2013
Published on December 24, 2014
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS:
On October 10, 2014, Marathon Patent Group, Inc. (the “Company”) entered into an interest sale agreement (the “Interest Sale Agreement”) with MedTech Development, LLC (“MedTech”) and MedTech Group Acquisition Corp., (“MGA Corp.”), a wholly-owned subsidiary of the Company. Pursuant to the Interest Sale Agreement, MGA Corp. agreed to acquire from MedTech certain subsidiaries of MedTech (the “Acquisition”) consisting of 100% of the limited liability membership interests of OrthoPhoenix, LLC (“Orthophoenix”) and TLIF, LLC (“TLIF”) as well as 100% of the shares of MedTech Development Deutschland GmbH (“MedTech GmbH,” and together with Orthophoenix and MedTech GmbH, the “Subsidiaries”). As a result, MGA Corp. became the sole interest holder of Orthophoenix and TLIF as well as the sole shareholder and owner of MedTech GmbH. Each of the Subsidiaries owns certain medical technology patents, including pending litigation, settlement and licensing rights that are being acquired by the Company in the transaction.
In connection with the Interest Sale Agreement, the Company is obligated to pay to MedTech $1 million at closing and $1 million on each of the following nine (9) month anniversary dates of the closing (the “Purchase Payments”). The Subsidiaries are also obligated to make certain additional payments (“Participation Payments”) to MedTech from recoveries following the receipt by the Subsidiaries of 200% of the Purchase Payments, plus recovery of out of pocket expenses in connection with patent claims. The Participation Payments may be paid, at the election of Marathon, in common stock of Marathon at the market price on the date of issuance.
In connection with the transaction, the Company entered into a promissory note, common interest agreement and in the event of issuance of common stock to MedTech, will enter into a lockup and registration rights agreement. Approximately forty-five (45%) of MedTech is owned or controlled by Erich Spangenberg or family members or associates.
The Company accounted for the acquisition as a business combination in accordance with ASC 805 “Business Combinations”. MGA Corp. acquired 100% of the limited liability membership interests of Orthophoenix and TLIF as well as 100% of the shares of MedTech GmbH. We are presenting the historical financial statements of MGA Corp. for the period ended September 30, 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 September 30, 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 September 30, 2014
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Marathon
Patent Group,
Inc.
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MGA Corp.
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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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|||||||||||||||||||||
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Cash
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5,556,584 | 47,789 | 5,604,373 | (1,047,789 | ) |
(a)
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4,556,584 | ||||||||||||||
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Accounts Receivable - net
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10,510,000 | - | 10,510,000 | - | 10,510,000 | ||||||||||||||||
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Prepaid expenses and other current assets
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340,456 | - | 340,456 | - | 340,456 | ||||||||||||||||
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Total current assets
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16,407,040 | 47,789 | 16,454,829 | (1,047,789 | ) | 15,407,040 | |||||||||||||||
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Other Assets
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|||||||||||||||||||||
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Property and equipment, net
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13,026 | - | 13,026 | - | 13,026 | ||||||||||||||||
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Intangible assets, net
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33,514,365 | 8,252,772 | 41,767,137 | 5,020,358 |
(b)
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46,787,495 | |||||||||||||||
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Goodwill
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1,949,401 | - | 1,949,401 | 2,221,918 |
(c)
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4,121,319 | |||||||||||||||
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Deferred Tax Asset
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1,606,800 | - | 1,606,800 | - | 1,606,800 | ||||||||||||||||
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Other assets
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- | - | - | - |
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- | |||||||||||||||
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Total other assets
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37,083,592 | 8,252,772 | 45,336,364 | 7,242,276 | 52,578,640 | ||||||||||||||||
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Total Assets
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53,490,632 | 8,300,561 | 61,791,193 | 6,194,487 | 67,985,680 | ||||||||||||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities
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|||||||||||||||||||||
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Accounts payable and acrued expenses
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5,665,707 | 191,281 | 5,856,988 | (191,281 | ) |
(d)
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5,665,707 | ||||||||||||||
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Clouding IP earn out
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13,115,000 | - | 13,115,000 | - |
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13,115,000 | |||||||||||||||
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Note payable
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6,062,500 | 8,921,918 | 14,984,418 | 9,000,000 |
(e)
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23,984,418 | |||||||||||||||
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Income Tax Payable
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467,997 | - | 467,997 | - | 467,997 | ||||||||||||||||
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Other current liabilities
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- | - | - | - | - | ||||||||||||||||
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Total Liabilities
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25,311,204 | 9,113,199 | 34,424,403 | 8,808,719 | 43,233,122 | ||||||||||||||||
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Stockholders' Equity
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- | ||||||||||||||||||||
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Preferred stock
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140 | - | 140 | - | 140 | ||||||||||||||||
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Common stock
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580 | - | 580 | - |
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580 | |||||||||||||||
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Additional paid-in capital
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35,709,773 | - | 35,709,773 | - |
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35,709,773 | |||||||||||||||
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Other equity
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- | - | - | - |
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- | |||||||||||||||
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Accumulated deficits
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(7,531,065 | ) | (812,638 | ) | (8,343,703 | ) | (2,614,232 | ) |
(f)
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(10,957,935 | ) | ||||||||||
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Total stockholder's equity
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28,179,428 | (812,638 | ) | 27,366,790 | (2,614,232 | ) | 24,752,558 | ||||||||||||||
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Total Liabilities and Stockholder's Equity
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53,490,632 | 8,300,561 | 61,791,193 | 6,194,487 | 67,985,680 | ||||||||||||||||
Marathon Patent Group, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operation
For the period ended September 30, 2014
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Marathon Patent Group, Inc.
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MGA Corp.
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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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20,059,972 | 293,468 | 20,353,440 | - | 20,353,440 | |||||||||||||||
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Cost of revenues (cost of revenue is exclusive of patent amortization expenses)
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8,448,954 | 801,918 | 9,250,872 | - | 9,250,872 | |||||||||||||||
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Gross Profit
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11,611,018 | (508,450 | ) | 11,102,568 | - | 11,102,568 | ||||||||||||||
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Expenses
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||||||||||||||||||||
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Amortiztion of intangibles
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2,872,638 | 1,647,284 | 4,519,922 | 1,713,435 | (g) | 6,233,357 | ||||||||||||||
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Compensation and related taxes
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2,266,283 | - | 2,266,283 | - | 2,266,283 | |||||||||||||||
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Consulting fees
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1,550,155 | - | 1,550,155 | - | 1,550,155 | |||||||||||||||
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Professional fees
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933,751 | - | 933,751 | - | 933,751 | |||||||||||||||
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General and adminsitrative
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380,400 | - | 380,400 | - | 380,400 | |||||||||||||||
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Total operating expenses
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8,003,227 | 1,647,284 | 9,650,511 | 1,713,435 | 11,363,946 | |||||||||||||||
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Operating income (loss) from continuing operations
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3,607,791 | (2,155,734 | ) | 1,452,057 | (1,713,435 | ) | (261,378 | ) | ||||||||||||
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Other income
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Other income
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1,486,223 | - | 1,486,223 | - | 1,486,223 | |||||||||||||||
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Other expense
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(3,441,764 | ) | (742,341 | ) | (4,184,105 | ) | - | (4,184,105 | ) | |||||||||||
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Net Income (Loss)
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1,652,250 | (2,898,075 | ) | (1,245,825 | ) | (1,713,435 | ) | (2,959,260 | ) | |||||||||||
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Net income (loss) per share - basic
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0.30 | (0.53 | ) | |||||||||||||||||
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Net income (loss) per share - diluted
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0.21 | (0.53 | ) | |||||||||||||||||
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Weighted average number of shares outstanding during the period - basic
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5,598,687 | 5,598,687 | ||||||||||||||||||
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Weighted average number of shares outstanding during the period - dilluted
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7,983,227 | 7,983,227 | ||||||||||||||||||
Marathon Patent Group, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operation
For the year ended December 31, 2013
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Marathon
Patent Group,
Inc.
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MGA Corp.
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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 | 337,355 | 3,755,726 | - | 3,755,726 | |||||||||||||||
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Cost of revenues (cost of revenue is exclusive of patent amortization expenses)
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957,040 | 487,588 | 1,444,628 | - | 1,444,628 | |||||||||||||||
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Gross Profit
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2,461,331 | (150,233 | ) | 2,311,098 | - | 2,311,098 | ||||||||||||||
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Expenses
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Amortiztion of intangibles
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1,038,505 | 2,099,944 | 3,138,449 | 1,713,435 | (g) | 4,851,884 | ||||||||||||||
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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 | 1,093 | 545,431 | - | 545,431 | |||||||||||||||
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Total operating expenses
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6,136,784 | 2,101,037 | 8,237,821 | 1,713,435 | 9,951,256 | |||||||||||||||
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Operating income (loss) from continuing operations
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(3,675,453 | ) | (2,251,270 | ) | (5,926,723 | ) | (1,713,435 | ) | (7,640,158 | ) | ||||||||||
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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 | ) | (685,927 | ) | (725,821 | ) | - | (725,821 | ) | |||||||||||
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Net Loss
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(3,450,335 | ) | (2,937,197 | ) | (6,387,532 | ) | (1,713,435 | ) | (8,100,967 | ) | ||||||||||
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Net loss per share - basic
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(0.75 | ) | (1.76 | ) | ||||||||||||||||
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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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16,700,000
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||
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Goodwill
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2,221,918
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|||
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Net purchase price
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$
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18,921,918
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Total consideration paid of the following:
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Cash
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$ | 1,000,000 | ||
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Promissory Note
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17,921,918 | |||
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Net purchase price
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$ | 18,921,918 |
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, net of cash retained by MedTech.
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(b)
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To record the fair value of the MGA Corp. assets acquired. The Company determined that the fair value of the assets owned by the Subsidiaries were $16,700,000 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 assets of the Subsidiaries.
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(d)
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To eliminate accounts payable retained or settled by MedTech prior to the closing date.
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(e)
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To record the issuance of a note payable to MedTech in the amount of $9.0 million as part of the purchase consideration of the Subsidiaries and the assumption of a note payable in the amount of $8.9 million.
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(f)
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To eliminate Medtech’s parent company investment in the Subsidiaries.
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(g)
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To record patent amortization of the step up in value of the patents.
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