SCWorx Corp.

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
 
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2023
 
OR
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 001-37899
 
SCWORX CORP.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
47-5412331
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
100 S Ashley Dr, Suite 100
Tampa, FL 33602
(212) 739-7825
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Common stock, par value $0.001 per share
 
The Nasdaq Capital Market
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒ 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒ 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐ 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
 
Emerging growth company
☒
 
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
 
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
 
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based-compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ☐  No ☒ 
 
As of June 30, 2023, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $6.4 million, based on the last
reported trading price of the Common Stock on that date, as reported on the Nasdaq Capital Market. 
 
The number of shares outstanding of the registrant’s common stock as of September 23, 2024 was 1,599,367.
 
 
 
 

 
 
SCWORX CORP.
ANNUAL
REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
 
 
 
Page no
 
 
 
 
PART I
 
 
 
 
Item 1.
Business
1
Item 1A.
Risk Factors
7
Item 1B.
Unresolved Staff Comments
20
Item 2.
Properties
21
Item 3.
Legal Proceedings
21
Item 4.
Mine Safety Disclosures
21
 
 
 
 
PART II
 
 
 
 
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
22
Item 6.
[Reserved]
22
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
34
Item 8.
Financial Statements and Supplementary Data
34
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
34
Item 9A.
Controls and Procedures
34
Item 9B.
Other Information
34
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
34
 
 
 
 
PART III
 
 
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
35
Item 11.
Executive Compensation
38
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
39
Item 13.
Certain Relationships and Related Transactions, and Director Independence
40
Item 14.
Principal Accountant Fees and Services
40
 
 
 
 
PART IV
 
 
 
 
Item 15.
Exhibits and Financial Statement Schedules
42
 
Signatures
43
 
Index to Consolidated Financial Statements
F-1
 
Index to Exhibits
44
 
i

 
 
Cautionary Statement Regarding Forward-Looking Statements
 
Certain statements that we make from time to time, including statements contained in this Annual Report on Form 10-K constitute “forward-looking statements”
within the meaning Private Securities Litigation Reform Act of 1995, and of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Annual Report on Form 10-K are
forward-looking statements. These statements, among other things, relate to our business strategy, goals and expectations concerning our services, future operations, prospects,
plans and objectives of management. The words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”,
and similar terms and phrases are used to identify forward-looking statements in this presentation.
 
Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our
results of operations and whether the forward-looking statements ultimately prove to be correct. We have based these forward-looking statements largely on our current
expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term
business operations and objectives, and financial needs. Forward-looking statements in this Annual Report on Form 10-K include, without limitation, statements reflecting
management’s expectations for future financial performance and operating expenditures (including our ability to continue as a going concern, to raise additional capital and to
succeed in our future operations), expected growth, profitability and business outlook, and operating expenses.
 
Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, among other things, the
unknown risks and uncertainties that we believe could cause actual results to differ from these forward looking statements as set forth under the heading, “Risk Factors” and
elsewhere in this Annual Report on Form 10-K. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties
that could have an impact on the forward-looking statements, including without limitation, risks and uncertainties relating to our ability to:
 
 
●
reverse the recent decline in our revenue and resume growing our revenue;
 
 
●
resolve the various litigation proceedings and investigations pending against us on favorable terms or at all;
 
 
●
obtain additional financing in sufficient amounts or on acceptable terms so that we can fund our business plan;
 
 
●
reduce our dependence on third-party subcontractors to perform some of the work on our contracts;
 
 
●
mitigate the impact of new or changed laws, regulations or other industry standards that could adversely affect our ability to conduct our business;
 
 
●
mitigate the impact of the COVID-19 pandemic on our revenues;
 
 
●
adopt and master new technologies and adjust certain fixed costs and expenses to adapt to our industry’s and customers’ evolving demands; and
 
 
●
mitigate the impact of changes in general market, economic and political conditions in the United States and global economies or financial markets, including
those resulting from natural or man-made disasters.
 
Although we believe that the expectations reflected in the forward-looking statements contained in this Annual Report on Form 10-K are reasonable, we cannot
guarantee future results, levels of activity, performance, or achievements. In light of inherent risks, uncertainties and assumptions, the future events and trends discussed in this
Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Except as required by law, we are under no duty to update or revise any of such forward-looking statements, whether as a result of new information, future events, or otherwise,
after the date of this Annual Report on Form 10-K.
 
You should read this Annual Report on Form 10-K with the understanding that our actual future results, levels of activity, performance and events and circumstances
may be materially different from what we expect.
 
All references to “SCWorx,” “we,” “us,” “our” or the “Company” mean SCWorx Corp., a Delaware corporation, and where appropriate, its wholly owned
subsidiaries.
 
ii

 
 
PART I
 
Item 1. Business
 
Corporate Information
 
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”), 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 surviving 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 subscriptions and issued 3,125 shares of common stock to new
third-party investors. In addition, on February 1, 2019, (i) SCWorx Corp. (f/k/a SCWorx Acquisition Corp.) changed its name to SCW FL Corp. (to allow Alliance to change its
name to SCWorx Corp.) and (ii) Alliance acquired SCWorx Corp. (n/k/a SCW FL Corp.) in a stock-for-stock exchange transaction and changed Alliance’s name to SCWorx
Corp., which is the Company’s current name, with SCW FL Corp. becoming the Company’s subsidiary. 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 which it has since
ceased.
 
On October 6, 2023, following stockholder approval at the Company’s annual meeting, the Company amended its certificate of incorporation to implement a 1 for 15
reverse split of its common stock. The effect of the reverse stock split was to combine every 15 shares of outstanding common stock into one share of common stock. The
reverse stock split was effective at the opening of the trading day on October 11, 2023.
 
The effects of the reverse stock split have been reflected in this Annual Report on Form 10-K for all periods presented.
 
Our principal executive offices are located at 100 S Ashley Dr, Suite 100 Tampa, FL 33602. Our telephone number is (844) 472-9679.
 
In this Annual Report, the terms “SCWorx”, “Alliance,” “Alliance MMA,” the “Company,” “we,” “us” and “our” refer to SCWorx, Corp. (f/k/a Alliance MMA, Inc.).
Unless specified otherwise, the historical financial results in this Annual Report are those of SCWorx and its subsidiaries on a consolidated basis.
 
Our Business
 
SCWorx is a provider of data content and services related to the repair, normalization and interoperability of information for healthcare providers, as well as big data
analytics for the healthcare industry.
 
SCWorx has developed and markets health care information technology solutions and associated services that improve healthcare processes and information flow
within hospitals and other healthcare facilities. SCWorx’s software enables a healthcare provider to simplify and organize its data (“data normalization”), allows the data to be
utilized across multiple internal software applications (“interoperability”) and provides the basis for sophisticated data analytics (“big data”). Customers use our software to
achieve multiple operational benefits, such as supply chain cost reductions, decreased accounts receivables aging, accelerated and completed patient billing in less than 72
hours, contract optimization, increased supply chain management and total cost visibility via dynamic AI connections that automatically structures, repairs, synchronizes and
maintains purchasing (“MMIS”), Clinical (“EMR”) and finance (“CDM”) systems. SCWorx’s customers include some of the most prestigious healthcare organizations in the
United States. SCWorx offers an advanced software solution for the management of health care providers’ foundational business applications, empowering its customers to
significantly reduce costs, drive better clinical outcomes and enhance their revenue. SCWorx supports the interrelationship between the three core healthcare provider systems:
Supply Chain, Financial and Clinical. This solution integrates common keys within distinct and variable databases that allows the repaired foundational data to move
seamlessly from one application to another enabling our Customers to drive supply chain cost reductions, optimize contracts, increase supply chain management (“SCM”), cost
visibility, control rebates and contract administration fees.
 
1

 
   
Currently, the business systems of hospitals are frequently deficient and often unconnected from each other. These deficiencies in part result from the vast amount of
unstructured, manually created and managed data that proliferates within the hospital’s supply chain, clinical and billing systems. SCWorx’s solutions are designed to improve
the flow of information quickly and accurately between the buy-side (supply chain purchasing systems), the consumption-side (clinical documentation systems like the
electronic medical records (“EMR”)) and billing and collection systems (patient billing systems). The currently poor state of interoperability limits the potential value of each
independent system and requires significant expense and extensive human resource commitments from senior personnel to stay ahead of problems and complete basic
administrative tasks. SCWorx provides an information service that ultimately leads to safer, more cost effective and financially efficient patient care.
  
SCWorx has demonstrated that in order for the core hospital systems to function properly there must be a Single Source of Truth (“SSOT”) for all products utilized and
ultimately billed for. The Item Master File (“IMF”), which is a database of all known products used in hospital and health care settings, must be accurate at all times and
expanded upon to hold both clinical and financial attributes. An accurate and expanded Item Master File supports interoperability between the supply chain, clinical and
financial systems by delivering, on demand, reports detailing the purchasing, utilization and revenue associated with each and every item used, allowing hospitals to better
manage their business. The Single Source of Truth establishes a common vernacular and syntax, while assigning a consistent meaning across the healthcare provider’s core
systems and accurately migrating data from one application to another and removing disconnects between critical business systems.
 
SCWorx’s Software Solutions/Services
 
SCWorx empowers healthcare providers to maintain comprehensive access and visibility to an advanced business intelligence that enables better decision-making and
reductions in product costs and utilization, ultimately leading to accelerated and accurate patient billing. SCWorx’s software modules perform separate functions as follows:
 
 
●
Virtualized Item Master File repair, expansion and automation — The process begins with data normalization — data is put into a simplified and normalized
structure and location for use throughout the enterprise. The SCWorx software normalizes, automates and builds interoperability via advanced attribution, vendor
and contract mapping, product categorization, repairing the unit of measure and establishing revenue codes and flags. SCWorx improves the healthcare providers’
business processes through the establishment of a clean and normalized Item Master File that improves efficiencies, eliminates cumbersome and error-prone
manual processes, and provides an integrated cloud-based suite of services that enhances the productivity of operating room staff, supply chain margins and
billing revenue through the seamless sharing and accuracy of critical business data.
 
 
●
Electronic Medical Record Management — The Electronic Medical Record (EMR) module integrates the advanced data attributes created by SCWorx in the Item
Master into the EMR. The EMR serves as the database that hospitals use to document all clinical procedures in terms of the products used and the costs that
should be charged. What makes this module special is that prior to its creation there was no mechanism that tied product purchases to actual utilization. Hospitals,
being mass consumption businesses, had no way to identify excess ordering that always accompanies mass consumption organizations. In addition, the automation
and consistency of delivered attributes dramatically reduces the administrative burden as today these additional attributes are being created by expensive clinical
resources manually — over and over again by each hospital. The SCWorx EMR management system creates one vernacular for each hospital so they see the data
in a manner that suits them — and then creates a universal vernacular so they can see their performance against other like institutions.
  
 
●
Charge Description Master Management — The Charge Description Master (CDM) Management module assists healthcare providers by integrating the CDM
data into the workflow of the hospitals purchasing systems so that the latest costs can be automatically updated against the hospitals charging systems. The CDM
data provided by SCWorx is made more accurate, and the resulting data is integrated to the Item Master for real-time delivery to the EMR — this data is the last
remaining piece of information that is consumed by the EMR and passed ultimately to the patient billing systems. SCWorx provides real-time integration,
automation and management of Item Master File, Clinical Information Systems and the Charge Description Master.
 
2

 
 
 
●
Contract Management — SCWorx’s Contract Management Module assists healthcare providers to establish an efficient contract management system and to
provide first class care to patients, while reducing operating costs, assuring adherence to compliance requirements, and mitigating risk. By linking the Item Master
File to the healthcare providers contract management system and procedures, SCWorx simplifies the way contracts are managed from start to finish by
streamlining the processes of creating, routing, reviewing and approving contracts. SCWorx delivers a data warehouse platform which integrates item master
management, spend analysis, and contract management. These solutions enable financial staff across the healthcare provider to drill down quickly and deeply into
actionable and real-time financial data and key performance indicators to improve revenue realization and staff efficiency. This suite of solutions includes the
ability to automatically push price changes to a contract, compliance for standard and non-standard products, contract compliance and optimization reporting,
reliable cost data for current and alternate products, cost performance metrics, matching purchase order price to contract and contract repository.
 
 
●
Request for Proposal (“RFP”) Automation — With the reality of shrinking operating margins, increasing operating expenses and decreasing insurance
reimbursements, hospitals must evaluate all major expenditures. In addition, requirements for provable quality of service supported by trackable metrics now
frequently necessitate the search for better options available in the marketplace. Since hospital-based provider subsidies are often a major expense item and since
there are often perceived opportunities for quality improvement, it is a reasonable practice for hospital leadership to carefully evaluate all of their current hospital-
based services and associated financial support before each contract renegotiation. The proliferation of large regional and national providers, with their ability to
derive benefits from economies of scale, have made RFPs much more of a competitive process. Hospital administrators, however, often rely on poor or conflicting
data when creating an RFP. Through the integration and utilization of the SSOT SCWorx automates the RFP process and makes it more accurate. SCWorx
automates the core sourcing processes with the intention to accelerate cycle times, surveys and confirms business preferred processes, designs and builds a flow
chart for the current and desired workflows, cross references bid analysis, implements bid scoring, customizes software to support automation and customizes the
report writer and output documents.
 
 
●
Integration of Acquired Businesses — The agnostic design of the SCWorx solution enables rapid deployment of a virtual Item Master File to quickly and easily
allow combining healthcare providers to share information and achieve cost synergies and interoperability without large and cumbersome upgrades or
implementations. During the consolidation of healthcare providers, SCWorx cleans the data and makes the data available to the disparate systems. In addition,
M&A activity requires in-depth reporting for comparison of Group Purchasing Organization (“GPO”) contract overlap. When healthcare providers that use
different GPOs merge, or are acquired, there is a lack of information to compare contracts. SCWorx provides information for comparative purposes to solve these
issues rapidly.
 
 
●
Rebate Management — Frequently, vendors use rebates and incentives as a key part of their pricing strategy and structure when selling to hospitals. This tactic
makes pricing more attractive to healthcare providers. When tracked through Accounts Payable, and issued correctly, rebates can help healthcare organizations
save money. At any large healthcare provider, vendor rebates can be difficult to manage since they require a multi-step process to track dollars earned, credits
issued, and monies paid. Rebates frequently cause tracking challenges for Accounts Payable departments. Inconsistent tracking is the primary problem for loss of
savings with vendor rebate programs. SCWorx’s Rebate Management Module enables healthcare providers to correctly calculate and track rebates provided by
healthcare provider vendors. Purchasing or Contracting departments monitor rebates by creating and maintaining a Rebates Master List which is provided to the
Accounts Payable department. To assist in this cumbersome process, SCWorx provides information from the SSOT, such as historical data, frequent updates,
advanced administrative fee reporting, purchase rebate tracking, early payment/discount management and Vendor Master Data alignment.
 
3

 
  
 
●
Big Data Analytics Model — SCWorx provides an in-depth, easy-to-use web portal for display, reporting and analysis of the information contained within the
SCWorx data warehouse. SCWorx’s analytics solution enables healthcare providers to view benchmarking information, quickly add new items to the SSOT and
identify cost savings through this real-time and on-demand solution. In addition to simplifying the item add process, SCWorx provides peer comparison reporting
against similar healthcare providers and a list of informative reports for business measurement, such as spend trend analysis, contract gap analysis, market price
comparison, etc. The SCWorx product line is a simplified user experience and visual display for the hospital employee which does not require access to the
SCWorx application.
 
 
●
Data Integration and Warehousing — Healthcare providers maintain a significant amount of data. In many cases the data is not useful for analytics since the data
is held within an individual “silo.” SCWorx establishes an expandable, data warehouse of items that have been normalized, repaired and enriched as the SSOT for
useful benchmarking, interoperability and analytics. SCWorx’s data warehouse allows healthcare providers to effectively use the data contained in their
environment and efficiently establish the supply chain as a leading driver of revenue cycle management. The data warehouse is updated as frequently as every five
minutes without intervention.
  
 
●
ScanWorx — Our mobile perioperative closed loop scanning solution is driven by the SCWorx foundational data structure, and utilizes interoperable data
exchanges to push and secure the customer’s enriched item master, all built around the customer’s internal business rules and chart of account requirements
offering the following:
 
 
■
Cloud hosted mobile scanning solution, which automates the consumption of known and unknown implant device utilization during surgical procedures via
intuitive Scanning or smart searching features.
 
 
■
All scanned device utilization will capture all available attributes, such as Global Trade Item Number, Lot, Serial numbers, expiration dates.
 
 
■
ScanWorx will establish the following connections with existing Enterprise Resource Planning (“ERP”) and Electronic Medical Record (“EMR”) enterprise
systems for the following:
 
 
○
EMR — Daily scheduling feeds with case information
 
 
○
ERP — Bill-Only electronic purchase orders
 
 
○
EMR — Case closure with device utilization integration
 
 
■
ScanWorx has the ability to consume additional product utilization per case when provided by the EMR for surgical preference cards, central sterile
processing products, and anesthesia gas.
 
 
■
ScanWorx will identify and automate the Item-Add process for unknown items introduced during surgical procedures based on customer’s existing business
rules.
 
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.
  
SCWorx’s software solutions are delivered to clients within a fixed term period, typically a three-to-five-year contracted term, where such software is hosted in
SCWorx data centers (Amazon Web Service’s “AWS” or RackSpace) and accessed by the client through a secure connection in a software as a service (“SaaS”) delivery
method.
 
4

 
 
SCWorx currently sells its solutions and services in the United States to hospitals and health systems through its direct sales force and its distribution and reseller
partnerships.
 
Impact of the COVID-19 Pandemic
 
The Company’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 outbreak adversely impacted new customer acquisition. The Company has followed the recommendations of local 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 supply 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 response to the COVID-19 pandemic. Thus, 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 addition, the financial impact of COVID-19 on the Company’s hospital customers could cause the hospitals to delay payments due to the Company for services, which could
negatively impact the Company’s cash flows.
 
Clients and Strategic Partners
 
SCWorx continues to provide transformational data-driven solutions to some of the finest, most well-respected healthcare providers in the United States. Clients are
geographically dispersed throughout the country and the continued focus is to assist healthcare providers with issues they have pertaining to data interoperability. SCWorx
provides these solutions through a combination of direct sales and relationships with strategic partners.
 
Competition
 
SCWorx competes against a variety of vendors and smaller companies which provide solutions in the specific markets we address. Our principal competitors include:
 
 
●
purchasing departments that have limited budgets and may be attempting to manually repair the item master file;
 
 
●
large companies with a long list of products and services and small companies which may provide item master normalization and data cleanse services; and
 
 
●
software companies or service providers, as well as small, specialized vendors, that provide complementary or competitive solutions in benchmarking or data
analytics and data warehousing that may compete with our offerings.
 
Some of our actual and perceived competitors have advantages over us, such as longer operating histories, greater financial, technical, marketing or other resources,
stronger brand and business user recognition, larger intellectual property portfolios, broader distribution and presence, and competitive pricing. In addition, our industry is
evolving rapidly and is becoming increasingly competitive.
 
Barriers to entry to the data management market include technological and application sophistication, the ability to offer a proven product, creating and utilizing a
well-established client base and distribution channels, brand recognition, the ability to provide agnostic interoperability and to operate on a variety of MMIS, EMR and
financial platforms, the ability to integrate with pre-existing systems and capital for sustained development and marketing activities.  
 
SCWorx believes that these obstacles taken together represent a moderate to high-level barrier to entry on the data management side of our business. The principal
competitive factors in our markets are product features, functionality and support, product depth and breadth (number of items in the central data warehouse), flexibility, ease of
deployment and use, total cost of ownership and time to value. We believe that we generally compete favorably on the basis of these factors. For example, besides our agnostic
interoperability, additional key strengths include the SCWorx data warehouse, which exceeds 12 million items, SCWorx Big Data analytics and benchmarking.
 
5

 
 
Contracts, License and Service Fees
 
SCWorx enters into agreements with its clients that specify the scope of the solution to be installed and/or services to be provided by SCWorx, as well as the agreed-
upon aggregate price, applicable duration and the timetable for the associated licenses and services.
 
For clients purchasing software to be installed locally or provided on a SaaS model, these are multi-element arrangements that include a term license granting the right
to access the applicable software functionality (whether installed locally at the client site or the right to use our company’s solutions as a part of SaaS services), terms regarding
maintenance and support services, terms for any third-party components such as infrastructure and software, and professional services for implementation, integration, process
engineering, optimization and training, as well as fees and payment terms for each of the foregoing. If the client purchases solutions on a long-term license model, the client
may be billed the license fee up front or on a monthly or quarterly basis. Maintenance and support are provided on a term basis for separate fees, with an initial term of typically
three to five years. The license, maintenance and support fee is charged annually in advance, commencing either upon contract execution or deployment of the solution in live
production. If the client purchases solutions on a term-based model, the client is billed periodically a combined access fee for a specified term, typically three to five years in
length.
  
SCWorx also generally provides software and SaaS client’s professional services for implementation, integration, process engineering, and optimization and training.
These services and the associated fees are separate from the license, maintenance and access fees. Professional services are provided on either a fixed-fee or hourly
arrangements billable to clients based on agreed-to payment milestones (fixed fee) or monthly payment structure on hours incurred (hourly). These services can either be
included at the time the related SaaS solution is licensed as part of the initial purchase agreement or added on afterward as an addendum to the existing agreement for services
required after the initial implementation.
  
For one-time data normalization services clients, these normalization services are provided either through a stand-alone services agreement or services addendum to an
existing master agreement with the client. These normalization services are available as either a one-time service or recurring monthly, quarterly or annual review structure.
These services are typically provided on a per item basis. Payment typically occurs upon completion of the applicable normalization project. The commencement of revenue
recognition varies depending on the size and complexity of the system and/or services involved, the implementation or performance schedule requested by the client and usage
by clients of SaaS for software-based components. SCWorx’s agreements are generally non-cancellable but provide that the client may terminate its agreement upon a material
breach by SCWorx and/or may delay certain aspects of the installation or associated payments in such events. SCWorx does allow for termination for convenience in certain
situations. SCWorx also includes trial or evaluation periods for certain clients, especially for new or modified solutions. Therefore, it is difficult for SCWorx to accurately
predict the revenue it expects to achieve in any particular period, and a termination or installation delay of one or more phases of an agreement, or the failure of SCWorx to
procure additional agreements, could have a material adverse effect on SCWorx’s business, financial condition, and results of operations. Historically, SCWorx has not
experienced a material amount of contract cancellations; however, SCWorx sometimes experiences delays during contract implementation, and SCWorx accounts for them
accordingly.
 
Third Party License Fees
 
SCWorx incorporates software licensed from various third-party vendors into its proprietary software. Stand-alone third-party software is also required to operate
certain of SCWorx’s proprietary software and/or SaaS services. SCWorx licenses these software products and pays the required license fees when such software is delivered to
clients.
 
Government Regulation
 
Management believes that governmental regulation is not material to our current core data management business.
 
6

 
 
Intellectual Property
 
We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary
technology by entering into confidentiality agreements, invention assignment agreements and work for hire agreements with our employees and contractors, and confidentiality
agreements with third parties. We further control the use of our proprietary technology and intellectual property through provisions in our websites’ terms of use. Agreements
between the Company and end-users includes a license agreement in which a non-transferable non-sublicensable, non-exclusive, limited use license to use the licensed products
for the duration of the service order. Customers may not modify, copy, translate, decompile, disassemble, reverse engineer, loan, rent, lease, sublicense, or create derivative
works of the licensed products, in whole or in part. Customer agrees to maintain software and data as Confidential Information.
 
The Company currently hosts our solution, serves our customers, and supports our operations in the United States through an agreement with a third-party hosting and
infrastructure provider, Rackspace. The Company incorporates standard IT security measures, including but not limited to; firewalls, disaster recovery, backup, etc.
 
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in
the United States or other countries in which we seek protection of our marks or our copyrighted works. Also, the efforts we have taken to protect our proprietary rights may not
be sufficient or effective. Any significant impairment of our intellectual property rights may harm our business or our ability to compete.
 
Seasonality
 
We do not believe that SCWorx’s revenues are impacted by seasonality.
 
Employees
 
As of December 31, 2023, we had 7 employees, of which 2 were management and finance and the rest in operations. We primarily utilize independent contractors and
third-party vendors for software, maintenance of our database and customer software installation.
 
Available Information
 
Our website address is www.SCWorx.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are filed with the U.S. Securities and Exchange
Commission (SEC). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC.
Such reports and other information filed by us with the SEC are available free of charge on our website at www.SCWorx.com when such reports become available on the SEC’s
website. The public may read and copy any materials filed by SCWorx Corp. with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington,
DC 20549 on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC at www.sec.gov. The contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these websites are
intended to be inactive textual references only.
  
Item 1A. Risk Factors
 
Certain factors could have a material adverse effect on our business, financial condition, results of operations and prospects. You should carefully consider the risks
and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related
notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties of which we are unaware, or that we currently believe are
not material, may also become important factors that adversely affect our business, financial condition, results of operations and prospects. If any of the following risks occurs,
our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could
decline, and you could lose part or all of your investment.
 
7

 
 
Risks Related to Our Financial Results and Financing Plans
 
The COVID-19 pandemic has disrupted our business and the business of our hospital customers.
 
The Company’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 outbreak adversely impacted new customer acquisition. The Company has followed the recommendations of local 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 supply 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 response to the COVID-19 pandemic. Thus, 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 addition, the financial impact of COVID-19 on the Company’s hospital customers could cause the hospitals to delay payments due to the Company for services, which could
negatively impact the Company’s cash flows.
 
We have a history of losses and may continue to incur losses in the future.
 
We have a history of losses and may continue to incur losses in the future, which could negatively impact the trading value of our common stock. For the year ended
December 31, 2023, our revenues were $3,804,943, and we had a net loss of $3,981,144. For the year ended December 31, 2022, our revenues were $4,038,188, and we had a
net loss of $1,847,406. At December 31, 2023, we had an accumulated deficit of $29,839,841.
 
We incurred losses from operations of $1,450,662 for the year ended December 31, 2023 and $2,126,597 for the year ended December 31, 2022. We may continue to
incur operating and net losses in future periods. These losses may increase, and we may never achieve profitability for a variety of reasons, including increased competition,
decreased growth in our target market and other factors described elsewhere in this “Risk Factors” section. If we cannot achieve sustained profitability, our stockholders may
lose all or a portion of their investment in our company.
 
If we are unable to grow our revenue, we may never achieve or sustain profitability.
 
To become profitable, we must, among other things, increase our revenues. Our total revenues declined approximately $233,000 (5.7%) to $3,804,943 in the year
ended December 31, 2023 as compared to $4,038,188 in the year ended December 31, 2022.  This decline in revenue may continue if we are unable to develop and market new
products, which could help us increase our sales to existing customers or develop new customers. Even if we are able to grow our revenues, they may not be sufficient to
exceed increases in our operating expenses or to enable us to achieve or sustain profitability.
 
Risks Related to Our Business
 
There is substantial doubt about our ability to continue as a going concern.
 
Our auditors have indicated in their report on our financial statements for the year ended December 31, 2023 that conditions exist that raise substantial doubt about our
ability to continue as a going concern since we may not have sufficient capital resources from operations and existing financing arrangements to meet our operating expenses
and working capital requirements.
 
8

 
 
As of December 31, 2023, we had only limited cash on hand, a working capital deficit of $1,898,625 and accumulated deficit of $29,839,841. During the year ended
December 31, 2023, we had a net loss of $3,981,144 and used $806,164 of cash in operations. We have historically incurred operating losses and may continue to incur
operating losses for the foreseeable future. We believe that these conditions raise substantial doubt about our ability to continue as a going concern. This may hinder our ability
to obtain financing or may force us to obtain financing on less favorable terms than would otherwise be available. If we are unable to develop sufficient revenues and additional
customers for our products and services, we may not generate enough revenue to sustain our business, and we may fail, in which case our stockholders would suffer a total loss
of their investment. There can be no assurance that we will be able to continue as a going concern.
  
We currently have an immediate need for additional capital. If we are unable to obtain additional capital, we will not be able to implement our business strategy or
successfully operate our business; however, additional financings will subject our existing stockholders to dilution.
 
To continue our growth path, we expect to finance our future expansion plans through public or private equity offerings or debt financing. Additional funds may not be
available when we need them on terms that are acceptable to us, or at all. We have recently encountered some difficulty in raising funds from external sources. If adequate
funds are not available, we may be required to further delay or reduce the scope of our business plans. To the extent that we raise additional funds by issuing equity securities,
our stockholders will experience dilution. In addition, debt financing, if available, may involve restrictive covenants. We may seek to access the public or private capital
markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our access to the financial markets and the pricing and
terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates.
 
Our future funding requirements will depend on many factors, including, but not limited to, the costs and timing of our future acquisitions.
 
A failure to successfully execute our growth strategy could adversely affect our business, financial condition, results of operations and prospects.
 
Subject to the receipt of sufficient funding, which we currently do not have, we intend to pursue growth through expanding our sales force, product offerings and
project skill-sets and capabilities, as well as increasing critical mass to enable us to bid on larger contracts.
 
We may also consider potential acquisitions if conditions permit. However, we may be unable to find suitable acquisition candidates or to complete acquisitions on
favorable terms, if at all. Moreover, any completed acquisition may not result in the intended benefits. For example, while the historical financial and operating performance of
an acquisition target are among the criteria we evaluate in determining which acquisition targets we will pursue, there can be no assurance that any business or assets we
acquire will continue to perform in accordance with past practices or will achieve financial or operating results that are consistent with or exceed past results. Any such failure
could adversely affect our business, financial condition or results of operations. In addition, any completed acquisition may not result in the intended benefits for other reasons
and our acquisitions will involve a number of other risks, including:
 
 
●
We may have difficulty integrating the acquired companies;
 
 
●
Our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically
or culturally diverse enterprises;
 
 
●
We may not realize the anticipated cost savings or other financial benefits we anticipated;
 
 
●
We may have difficulty retaining or hiring key personnel, customers and suppliers to maintain expanded operations;
 
 
●
Our internal resources may not be adequate to support our operations as we expand, particularly if we are awarded a significant number of contracts in a short time
period;
 
9

 
 
 
●
We may have difficulty retaining and obtaining any required regulatory approvals, licenses and permits;
 
 
●
We may not be able to obtain additional equity or debt financing on terms acceptable to us or at all, and any such financing could result in dilution to our
stockholders, impact our ability to service our debt within the scheduled repayment terms and include covenants or other restrictions that would impede our ability
to manage our operations;
 
 
●
We may have failed to, or be unable to, discover liabilities of the acquired companies during the course of performing our due diligence; and
 
 
●
We may be required to record additional goodwill as a result of an acquisition, which will reduce our tangible net worth.
 
Any of these risks could prevent us from executing on any acquisition we might complete, which could adversely affect our business, financial condition, results of
operations and prospects. At this time, we are not considering any acquisition.
 
Our contracts may require us to perform extra or change order work, which can result in disputes and adversely affect our business, financial condition, results of
operations and prospects.
 
Our contracts generally require us to perform extra or change order work as directed by the customer, even if the customer has not agreed in advance on the scope or
price of the extra work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project
plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. Even when
the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved by the customer
and we are paid by the customer.
 
To the extent that actual recoveries with respect to change orders or amounts subject to contract disputes or claims are less than the estimates used in our financial
statements, the amount of any shortfall will reduce our future revenues and profits, and this could adversely affect our reported working capital and results of operations. In
addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.
 
We derive a significant portion of our revenue from a few customers and the loss of one of these customers, or a reduction in their demand for our services, could adversely
affect our business, financial condition, results of operations and prospects.
 
Our customer base is highly concentrated. Due to the size and nature of our contracts, one or a few customers have during any given year, as well as over a period of
consecutive years, represented a substantial portion of our consolidated revenues and gross profits, see Note 3, Summary of Significant Accounting Policies for further detail.
Revenues under our contracts with significant customers may continue to vary from period to period depending on the timing or volume of work that those customers contract
from us. A limited number of customers may continue to comprise a substantial portion of our revenue for the foreseeable future.
  
A default or delay in payment on a significant scale could adversely affect our business, financial condition, results of operations and prospects. We could lose business
from a significant customer for a variety of reasons, including:
 
 
●
the consolidation, merger or acquisition of an existing customer, resulting in a change in procurement strategies employed by the surviving entity that could
reduce the amount of work we receive;
 
 
●
our performance on individual contracts or relationships with one or more significant customers could become impaired due to another reason, which may cause
us to lose future business with such customers and, as a result, our ability to generate income would be adversely impacted;
  
 
●
key customers could slow or stop spending on initiatives related to projects we are performing for them due to increased difficulty in the markets as a result of
economic downturns or other reasons.
 
10

 
 
Since many of our customer contracts allow our customers to terminate the contract without cause, our customers may terminate their contracts with us at will, which
could impair our business, financial condition, results of operations and prospects.
 
Our failure to adequately expand our direct sales force will impede our growth.
 
We will need to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to expand our account management/sales
force when and if we have sufficient capital to do so. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. If we are
unable to hire, develop and retain talented account management/sales personnel or if the personnel are unable to achieve desired productivity levels in a reasonable period of
time, we may not be able to realize the intended benefits of this investment or increase our revenue.
 
If we are unable to attract and retain qualified executive officers and managers and consultants, we will be unable to operate efficiently, which could adversely affect our
business, financial condition, results of operations and prospects.
 
We depend on the continued efforts and abilities of our management and consultants, to establish and maintain our customer relationships and identify strategic
opportunities. The loss of any one of them could negatively affect our ability to execute our business strategy and adversely affect our business, financial condition, results of
operations and prospects. Competition for managerial talent with significant industry experience is high, and we may lose access to executive officers/consultants for a variety
of reasons, including more attractive compensation packages offered by our competitors. Although we have entered into employment agreements with certain of our senior
level management, we cannot guarantee that any of them or other key management/consulting personnel will remain employed by us for any length of time.
 
Fines, judgments and other consequences resulting from our failure to comply with regulations or adverse outcomes in litigation proceedings could adversely affect our
business, financial condition, results of operations and prospects.
 
From time to time, we may be involved in lawsuits and regulatory actions, including class action lawsuits that are brought or threatened against us in the ordinary
course of business. These actions may seek, among other things, compensation for alleged personal injury, workers’ compensation, violations of the Fair Labor Standards Act
and state wage and hour laws, employment discrimination, breach of contract, property damage, punitive damages, civil penalties, and consequential damages or other losses,
or injunctive or declaratory relief.
 
Please refer to Item 3. Legal Proceedings of this Annual Report on Form 10-K for a detailed description of the pending legal actions and investigations.
 
Any defects or errors, or failures to meet our customers’ expectations could result in large damage claims against us. Claimants may seek large damage awards and,
due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. Any failure to properly estimate or manage cost, or
delay in the completion of projects, could subject us to penalties.
 
The ultimate resolution of these matters through settlement, mediation or court judgment could have a material adverse effect on our financial condition, results of
operations and cash flows. Regardless of the outcome of any litigation, these proceedings could result in substantial cost and may require us to devote substantial resources to
defend ourselves. When appropriate, we establish reserves for litigation and claims that we believe to be adequate in light of current information, legal advice and professional
indemnity insurance coverage, and we adjust such reserves from time to time according to developments. If our reserves are inadequate or insurance coverage proves to be
inadequate or unavailable, our business, financial condition, results of operations and prospects may suffer.
 
11

 
 
If we are required to reclassify independent contractors as employees, we may incur additional costs and taxes which could adversely affect our business, financial
condition, results of operations and prospects.
 
We use a significant number of independent contractors in our operations for whom we do not pay or withhold any federal or state employment tax. There are a
number of different tests used in determining whether an individual is an employee or an independent contractor and such tests generally take into account multiple factors.
There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations
that would change, or at least challenge, the classification of our independent contractors. Although we believe we have properly classified our independent contractors, the
U.S. Internal Revenue Service or other U.S. federal or state authorities or similar authorities of a foreign government may determine that we have misclassified our independent
contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties. If we are required to pay employer
taxes or pay backup withholding with respect to prior periods with respect to or on behalf of our independent contractors, our operating costs will increase, which could
adversely impact our business, financial condition, results of operations and prospects.
 
Our dependence on subcontractors and suppliers could increase our cost and impair our ability to complete contracts on a timely basis or at all.
 
We rely on third-party subcontractors to perform some of the work on our contracts. We also rely on third-party suppliers to provide materials needed to perform our
obligations under those contracts. We generally do not bid on contracts unless we have the necessary subcontractors and suppliers committed for the anticipated scope of the
contract and at prices that we have included in our bid. Therefore, to the extent that we cannot engage subcontractors or suppliers, our ability to bid for contracts may be
impaired. In addition, if a subcontractor or third-party supplier is unable to deliver its goods or services according to the negotiated terms for any reason, we may suffer delays
and be required to purchase the services from another source at a higher price. We sometimes pay our subcontractors and suppliers before our customers pay us for the related
services. If customers fail to pay us and we choose, or are required, to pay our subcontractors for work performed or pay our suppliers for goods received, we could suffer an
adverse effect on our business, financial condition, results of operations and prospects.
 
Our insurance coverage may be inadequate to cover all significant risk exposures.
 
We will be exposed to liabilities that are unique to the services we provide. While we intend to maintain insurance for certain risks, the amount of our insurance
coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also
not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could
have a material adverse effect on our business, financial condition, results of operations and prospects.
  
Risks Related to Our Industry
 
Our industry is highly competitive, with a variety of larger companies with greater resources competing with us, and our failure to compete effectively could reduce the
number of new contracts awarded to us or adversely affect our market share and harm our financial performance.
 
The contracts on which we bid are generally awarded through a competitive bid process, with awards generally being made to the lowest bidder, but sometimes based
on other factors, such as shorter contract schedules, larger scale to complete projects or prior experience with the customer. Within our markets, we compete with many other
service providers. Price is often the principal factor in determining which service provider is selected by our customers, especially on smaller, less complex projects. As a result,
any organization with adequate financial resources and access to technical expertise may become a competitor. Smaller competitors are sometimes able to win bids for these
projects based on price alone because of their lower costs and financial return requirements. Additionally, our competitors may develop the expertise, experience and resources
to provide services that are equal or superior in price to our services, and we may not be able to maintain or enhance our competitive position.
 
12

 
 
Some of our competitors have already achieved greater market penetration than we have in the markets in which we compete, and some have greater financial and
other resources than we do. A number of national companies in our industry are larger than we are and, if they so desire, could establish a presence in our markets and compete
with us for contracts. As a result of this competition, we may need to accept lower contract margins in order to compete against competitors that have the ability to accept
awards at lower prices or have a pre-existing relationship with a customer. If we are unable to compete successfully in our markets, our business, financial condition, results of
operations and prospects could be adversely affected.
 
Many of the customers we serve are subject to consolidation and rapid technological and regulatory change, and our inability or failure to adjust to our customers’
changing needs could reduce demand for our services.
 
We derive, and anticipate that we will continue to derive, a substantial portion of our revenue from customers in the medical industry. This industry is subject to rapid
changes in technology and governmental regulation. Changes in technology may reduce the demand for the services we provide. Additionally, the medical industry has been
characterized by a high level of consolidation that may result in the loss of one or more of our customers. Our failure to rapidly adopt and master new technologies as they are
developed in any of the industries we serve or the consolidation of one or more of our significant customers could adversely affect our business, financial condition, results of
operations and prospects.
 
Further, our customers are regulated by the Department of Health and Human Services and other regulators. These regulators may interpret the application of their
regulations in a manner that is different than the way such regulations are currently interpreted and may impose additional regulations, either of which could reduce demand for
our services and adversely affect our business and results of operations.
 
Economic downturns could cause capital expenditures in the industries we serve to decrease, which may adversely affect our business, financial condition, results of
operations and prospects.
 
The demand for our services has been and may be vulnerable to general downturns in the United States economy. Our customers are affected by economic changes
that decrease the need for or the profitability of their services. This can result in a decrease in the demand for our services and potentially result in the delay or cancellation of
projects by our customers. As a result, some of our customers may opt to defer or cancel pending projects. A downturn in overall economic conditions also affects the priorities
placed on various projects funded by governmental entities and federal, state and local spending levels.  
  
In general, economic uncertainty makes it difficult to estimate our customers’ requirements for our services. Subject to receipt of sufficient funding, which we
currently do not have, we plan to expand our sales force to enable us to grow our revenues. If economic factors in any of the regions in which we plan to expand are not
favorable to the growth and development of the medical industry, we may not be able to carry out our growth strategy, which could adversely affect our business, financial
condition, results of operations and prospects.
 
Other Risks Relating to Our Company and Results of Operations
 
Our operating results may fluctuate due to factors that are difficult to forecast and not within our control.
 
Our past operating results may not be accurate indicators of future performance, and you should not rely on such results to predict our future performance.
 
Our operating results have fluctuated and could fluctuate in the future. Factors that may contribute to fluctuations include:
 
 
●
our ability to effectively manage our working capital;
 
 
●
our ability to satisfy customer demands in a timely and cost-effective manner; and
 
 
●
pricing and availability of labor.
 
13

 
 
Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.
 
To prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions as of the date of the financial statements that
affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our
management include:
 
 
●
contract costs and profits and revenue recognition of contract change order claims;
 
 
●
provisions for uncollectible receivables and customer claims;
 
 
 
 
●
recoveries of costs from subcontractors, suppliers and others;
 
 
●
valuation of assets acquired and liabilities assumed in connection with business combinations;
 
 
●
accruals for estimated liabilities, including litigation and insurance reserves; and
 
 
●
goodwill and intangible asset impairment assessment.
 
At the time the estimates and assumptions are made, we believe they are accurate based on the information available. However, our actual results could differ from,
and could require adjustments to, those estimates.
 
We exercise judgment in determining our provision for taxes in the United States that are subject to tax authority audit review that could result in additional tax liability
and potential penalties that would negatively affect our net income.
 
The amounts we record in intercompany transactions for services, licenses, funding and other items affects our potential tax liabilities. Our tax filings are subject to
review or audit by the U.S. Internal Revenue Service and state, local and foreign taxing authorities. We exercise judgment in determining our worldwide provision for income
and other taxes and, in the ordinary course of our business, there may be transactions and calculations where the ultimate tax determination is uncertain. Examinations of our
tax returns could result in significant proposed adjustments and assessment of additional taxes that could adversely affect our tax provision and net income in the period or
periods for which that determination is made.
  
Risks Related to our Common Stock
 
Our common stock price has fluctuated substantially, and the trading price of our common stock is likely to continue to be volatile, which could result in losses to investors
and litigation.
 
In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “Risk Factors” section, the market price of and
trading volume for our common stock may change for a variety of other reasons, not necessarily related to our actual operating performance. The capital markets have
experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the
trading price of our common stock. In addition, the average daily trading volume of the securities of small companies can be very low, which may contribute to future volatility.
Recently, the average daily trading volume of our common stock has decreased. Factors that could cause the market price of our common stock to fluctuate significantly
include:
 
 
●
the results of operating and financial performance and prospects of other companies in our industry;
 
 
●
strategic actions by us or our competitors, such as acquisitions or restructurings;
 
 
●
announcements of innovations, increased service capabilities, new or terminated customers or new, amended or terminated contracts by our competitors;
 
14

 
 
 
●
the public’s reaction to our press releases, media coverage and other public announcements, and filings with the SEC;
 
 
●
market conditions for providers of services to the medical industry;
 
 
●
lack of securities analyst coverage or speculation in the press or investment community about us or opportunities in the markets in which we compete;
 
 
●
changes in government policies in the United States;
 
 
●
changes in earnings estimates or recommendations by any securities or research analysts who track our common stock or failure of our actual results of operations
to meet any such expectations;
 
 
●
dilution caused by the conversion into common stock of convertible securities or by the exercise of outstanding warrants or options;
 
 
●
market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
 
 
●
changes in accounting standards, policies, guidance, interpretations or principles;
 
 
●
any lawsuit involving us, our services or our products;
 
 
●
arrival and departure of key personnel;
 
 
●
government investigations of our business activities;
 
 
●
sales of common stock by us, our investors or members of our management team; and
 
 
●
changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from
natural or man-made disasters.
 
Any of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume of our common stock and could
seriously harm the market price of our common stock, regardless of our operating performance. This may prevent stockholders from being able to sell their shares at or above
the price they paid for shares of our common stock, if at all. In addition, following periods of volatility in the market price of a company’s securities, stockholders often institute
securities class action litigation against that company. Our involvement in any class action suit or other legal proceeding could divert our senior management’s attention and
could adversely affect our business, financial condition, results of operations and prospects.
 
The sale or availability for sale of substantial amounts of our common stock could adversely affect the market price of our common stock.
 
Sales of substantial amounts of shares of our common stock, or the perception that these sales could occur, would likely adversely affect the market price of our
common stock and could impair our future ability to raise capital through common stock offerings. 
 
As of December 31, 2023, there were outstanding warrants to purchase an aggregate of 11,394 shares of our common stock at a weighted-average exercise price of
$58.72 per share, all of which were exercisable as of such date. As of December 31, 2023, there were outstanding options to purchase an aggregate of 3,333 shares of our
common stock at a weighted-average exercise price of $39.60 per share, all of which were exercisable as of such date. The market price of our common stock also may be
adversely affected by our issuance of shares of our capital stock or convertible securities in connection with future acquisitions, or in connection with our financing efforts.
 
15

 
 
We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock.
 
We have never paid cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain any
earnings to finance our operations and growth. As a result, any short-term return on your investment will depend on the market price of our common stock, and only
appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. The decision whether to pay dividends will be made by our board
of directors in light of conditions then existing, including, but not limited to, factors such as our financial condition, results of operations, capital requirements, business
conditions, and covenants under any applicable contractual arrangements. Investors seeking cash dividends should not invest in our common stock.
 
If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the market
price of our common stock will likely decline.
 
The trading market for our common stock will rely in part on the research and reports that equity research analysts, over whom we have no control, publish about us
and our business. We may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the
market price for price of our common stock could decline. In the event we obtain securities or industry analyst coverage, the market analysts issue unfavorable commentary,
even if it is inaccurate, or cease publishing reports about us or our business.
 
A failure by us to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business and operating results.
 
Maintaining effective internal control over financial reporting is necessary for us to produce accurate and complete financial reports and to help prevent financial
fraud. In addition, such control is required in order to maintain the listing of our common stock on the Nasdaq Capital Market. While we have undertaken remedial steps to
improve our financial reporting process, including the implementation of a firm-wide accounting information system that collects, stores and processes financial and accounting
data on a consolidated basis for use in meeting our reporting obligations, our internal control over financial reporting has not been effective. For the year ended December 31,
2023, we did not have effective controls over financial reporting. Our management has identified material weaknesses in our internal controls related to deficiency in our ability
to have proper segregation of duties.
 
If we are unable to maintain adequate internal controls or fail to correct material weaknesses in such controls noted by our management or our independent registered
public accounting firm, our business and operating results could be adversely affected, we could again fail to meet our obligations to report our operating results accurately and
completely and our continued listing on the Nasdaq Capital Market could be jeopardized. We have implemented a policy whereby any external communications need to be
reviewed and approved by a member of our Board of Directors, as well as our outside legal counsel.
  
Complying with the laws and regulations affecting public companies will increase our costs and the demands on management and could harm our operating results.
 
As a public company and particularly after we cease to be an “emerging growth company,” we will incur significant additional legal, accounting, and other expenses.
In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and the Nasdaq Capital Market impose various requirements on public companies,
including requiring changes in corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to
make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and
regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or as executive officers. 
 
16

 
 
If we do not manage our planned growth effectively, our revenue, business and operating results may be harmed.
 
Our future expansion strategy could include possible acquisitions of other SaaS companies. We may not be able to identify, secure and manage future acquisitions
successfully. The acquisition of any future businesses may require a greater than anticipated investment of operational and financial resources as we seek to institute uniform
standards and controls across acquired businesses. Acquisitions may also result in the diversion of management and resources, increases in administrative costs, including those
relating to the assimilation of new employees, and costs associated with any financings undertaken in connection with such acquisitions. We cannot assure you that any
acquisition we undertake, including those we have already made, will be successful. Future growth will also place additional demands on our management, sales, and marketing
resources, and may require us to hire and train additional employees. We will need to expand and upgrade our systems and infrastructure to accommodate our growth, and we
may not have the resources to do so in the time frames required. The failure to manage any future growth effectively will materially and adversely affect our business, financial
condition and results of operations.
 
We may explore acquiring additional companies and such acquisitions may subject us to additional unknown risks.
 
We may make future acquisitions of SaaS or other companies in markets that we do not serve now. We may not be able to reach agreements with such companies on
favorable terms or at all. In completing acquisitions, we will rely upon the representations and warranties and indemnities made by the sellers with respect to each acquisition as
well as our own due diligence investigation. We cannot assure you that such representations and warranties will be true and correct or that our due diligence will uncover all
materially adverse facts relating to the operations and financial condition of the acquired companies or their businesses. To the extent that we are required to pay for
undisclosed obligations of an acquired company, or if material misrepresentations exist, we may not realize the expected economic benefit from such acquisition and our ability
to seek legal recourse from the seller may be limited.
 
The value of our goodwill and other intangible assets may decline.
 
As of December 31, 2023, the Company had goodwill of $5,842,433. We evaluate goodwill at least annually, and will do so more frequently if events or circumstances
indicate that impairment may have occurred. Many of the assumptions and estimates that we make in order to estimate the fair value of our intangible assets directly impact the
results of impairment testing, including an estimate of future expected revenues, earnings and cash flows, and the discount rates applied to expected cash flows. We are able to
influence the outcome and ultimate results based on the assumptions and estimates we choose for testing. To avoid undue influence, we have set criteria that are followed in
making assumptions and estimates. The determination of whether goodwill or acquired intangible assets have become impaired involves a significant level of judgment in the
assumptions underlying the approach used to determine the value of our reporting unit. Changes in our strategy or market conditions could significantly impact these judgments
and require adjustments to recorded amounts of intangible assets.
  
Any future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of indebtedness and increased amortization expense.
 
Any future acquisitions are likely to result in issuances of equity securities, which will be dilutive to the equity interests of existing stockholders, and may involve the
incurrence of debt, which will require us to maintain cash flows sufficient to make payments of principal and interest, the assumption of known and unknown liabilities, and the
amortization of expenses related to intangible assets, all of which could have an adverse effect on our business, financial condition and results of operations.
 
We may become involved in litigation which could harm the value of our business.
 
Because of the nature of our business and the exit from lines of business, there is a risk of litigation. Any litigation could cause us to incur substantial expenses
whether or not we prevail, which would reduce the capital available for our operations.
 
Please refer to Item 3. Legal Proceedings of this Annual Report on Form 10-K for a detailed description of the pending legal actions and investigations.
 
17

 
 
Economic uncertainty impacts our business and financial results, and a renewed recession could materially affect us in the future.
 
Periods of economic slowdown or recession could lead to a reduction in demand for our software and services, which in turn would reduce our revenues and adversely
affect our results of operations and our financial position. Our business will be dependent upon business discretionary spending and therefore is affected by business confidence
as well as the future performance of the United States and global economies. As a result, our results of operations are susceptible to economic slowdowns and recessions.
 
We depend on the services of key executives and consultants, and the loss of these persons could materially harm our business and our strategic direction if we were unable
to replace them with persons of equal experience and capabilities.
 
Our future success significantly depends on the continued service and performance of our key management and other personnel. We cannot prevent members of senior
management/consultants from terminating their employment with us even if we have an employment or consulting agreement with them. Losing the services of members of
senior management/consultants could materially harm our business until a suitable replacement is found, and such replacement may not have equal experience and capabilities.
We have not purchased life insurance covering any members of our senior management.
 
The markets in which we operate are highly competitive, rapidly changing and increasingly fragmented, and we may not be able to compete effectively, especially against
competitors with greater financial resources or marketplace presence.
 
We face competition from other SaaS companies. Many of the companies with which we will compete have greater financial and technical resources than are available
to us. Our failure to compete effectively could result in a significant loss of customers, which would adversely affect our operating results.
 
We need additional capital to support our operations and the growth of our business, and we cannot be certain that this capital will be available on reasonable terms when
required, or at all.
 
In order for us to grow and execute our business plan successfully, we  require additional financing which may not be available on acceptable terms or at all. If such
financing is available, it may be dilutive to the equity interests of existing stockholders. Failure to obtain financing will have a material adverse effect on our financial position.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the operation or growth of our
business could be significantly impaired and our operating results may be harmed.
  
Our common stock may be affected by limited trading volume and price fluctuations, which could adversely impact the value of our common stock and our ability to grow
our business.
 
There has been limited trading in our common stock, and there can be no assurance that an active trading market in our common stock will either develop or be
maintained. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market
price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes
in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short
sellers to enter the market periodically in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no
assurances that the market for our common stock will be stable or that our share price will appreciate over time.
 
18

 
 
Our stock price has been volatile.
 
The market price of our common stock has been highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our
control, including the following:
 
 
●
our ability to obtain working capital financing;
 
 
 
 
●
additions or departures of key personnel;
 
 
 
 
●
sales of our common stock;
 
 
 
 
●
our ability to execute our business plan;
 
 
 
 
●
operating results that fall below expectations;
 
 
 
 
●
regulatory developments; and
 
 
 
 
●
economic and other external factors.
 
In addition, the securities markets from time to time experience significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
  
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
 
The periodic availability of shares for sale upon the expiration of any statutory holding period or lockup agreements, could create a circumstance commonly referred to
as an “overhang”, in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring,
also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem
reasonable or appropriate.
 
We may be unable to establish, protect or enforce our intellectual property rights adequately.
 
Our success will depend in part on our ability to establish, protect and enforce our intellectual property and other proprietary rights. Our inability to protect our
tradenames, service marks and other intellectual property rights from infringement, piracy, counterfeiting or other unauthorized use could negatively affect our business. If we
fail to establish, protect or enforce our intellectual property rights, we may lose an important advantage in the market in which we compete. Our intellectual property rights may
not be sufficient to help us maintain our position in the market and our competitive advantages. Monitoring unauthorized uses of and enforcing our intellectual property rights
can be difficult and costly. Legal intellectual property actions are inherently uncertain and may not be successful, and may require a substantial resources and management
attention.
  
We currently host our solution, serve our customers, and support our operations in the United States through an agreement with a third party hosting and infrastructure
provider, Rackspace. We incorporate standard IT security measures, including but not limited to; firewalls, disaster recovery, backup, etc.
 
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in
the United States or other countries in which we seek protection of our marks or our copyrighted works. Also, the efforts we have taken to protect our proprietary rights may not
be sufficient or effective. Any significant impairment of our intellectual property rights may harm our business or our ability to compete.
 
Changes in laws, regulations and other requirements could adversely affect our business, results of operations or financial condition.
 
We are subject to the laws, regulations and other requirements of the jurisdictions in which we operate. Changes to these laws could have a material adverse impact on
the revenue, profit or the operation of our business.
 
19

 
 
Disruptions in our information technology systems or security breaches of confidential customer information or personal employee information could have an adverse
impact on our operations.
 
Our operations are dependent upon the integrity, security and consistent operation of various information technology systems and data centers that process
transactions, communication systems and various other software applications used throughout our operations. Disruptions in these systems could have an adverse impact on our
operations. We could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to
losses due to disruption in our business operations.
  
In addition, our information technology systems are subject to the risk of infiltration or data theft. The techniques used to obtain unauthorized access, disable or
degrade service, or sabotage information technology systems change frequently and may be difficult to detect or prevent over long periods of time. Moreover, the hardware,
software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the
security of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud or deception aimed at our employees,
contractors or temporary staff. In the event that the security of our information systems is compromised, confidential information could be misappropriated, and system
disruptions could occur. Any such misappropriation or disruption could cause significant harm to our reputation, lead to a loss of sales or profits or cause us to incur significant
costs to reimburse third parties for damages.
 
Our current insurance policies may not provide adequate levels of coverage against all claims, and we may incur losses that are not covered by our insurance.
 
We believe we maintain insurance coverage that is customary for businesses of our size and type; however, we may be unable to insure against certain types of losses
or claims, or the cost of such insurance may be prohibitive. For example, although we carry insurance for breaches of our computer network security, there can be no assurance
that such insurance will cover all potential losses or claims or that the dollar limits of such insurance will be sufficient to provide full coverage against all losses or claims.
Uninsured losses or claims, if they occur, could have a material adverse effect on our financial condition, business and results of operations. Our insurance policies may also be
subject to substantial deductibles/retentions.
 
We may be required to pay for the defense of our clients, officers, or directors in accordance with certain indemnification provisions.
 
Our company provides indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from
the use of our services. In accordance with authoritative guidance for accounting for guarantees, we evaluate estimated losses for such indemnification. Management considers
such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, no such claims have been filed
against our company and, as a result, no liability has been recorded in our financial statements.
  
As permitted under Delaware law, our company has agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or
director is, or was, serving at our company’s request in such capacity. The maximum potential amount of future payments we could be required to make under these
indemnification agreements is unlimited; however, we have directors’ and officers’ liability insurance coverage that is intended to reduce our financial exposure and may enable
us to recover a portion of any such payments.
 
Please refer to Item 3. Legal Proceedings of this Annual Report on Form 10-K for a detailed description of the various actions and investigations for which we are
obligated to indemnify our officers and directors.
  
Item 1B. Unresolved Staff Comments
 
None.
 
20

 
 
Item 2. Properties
 
The Company does not own any real property. The principal executive offices are located at an office complex in Tampa, Florida, consisting of shared office space that
we are leasing. The lease is under a month-to-month lease agreement. The lease allows for the limited use of private offices, conference rooms, mail handling,
videoconferencing, and certain other business services.
 
We believe that our facilities are adequate for our current needs.
 
Item 3. Legal Proceedings
 
In conducting our business, we may become involved in legal proceedings. We will accrue a liability for such matters when it is probable that a liability has been
incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount
within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might
include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
 
CorProminence d/b/a Core IR v. SCWorx
 
AAA Arbitration Case 01-22-0001-5709
 
As previously disclosed in the Company’s periodic reports filed with the SEC, on April 25, 2022, the Company received a Demand for Arbitration along with a
Statement of Claim filed by Core IR with the American Arbitration Association seeking damages in the amount of approximately $190,000. arising out of a marketing and
consulting agreement. The Company filed its answer, affirmative defenses and counterclaims on May 16, 2022. By order of the arbitrator dated November 1, 2022, Core IR
received permission to amend its Statement of Claim to increase its request for damages to $257,546. The Company received the final decision of the Arbitrator on October 16,
2023, awarding Core IR $461,856 including unpaid compensation, indemnification for legal fees and costs, prevailing party legal fees and interest (the “Award”). Core IR has
since obtained a judgement in the amount of approximately $502,000 (including interest) (“Judgement”). The Company and Core IR entered into a settlement agreement dated
July 12, 2024 under which the Company agreed to issue Core IR shares of its common stock with a value of $502,000 (determined based on sales proceeds realized by Core
IR), in full and complete satisfaction of the Judgement. The settlement agreement is filed as exhibit 10.5 to this annual report on Form 10-K.
 
Hadrian Equities Partners, LLC et ano. v. SCWorx Corp,
 
Case No. 22-cv-07096 (JLR) (S.D.N.Y)
 
On August 19, 2022, Hadrian Equities Partners, LLC and the Phillip W. Caprio, Jr. 2007 Irrevocable Trust filed a complaint in the United States District Court for the
Southern District of New York alleging that SCWorx was dilatory and did not comply with its alleged contractual duties to remove the restrictions from Plaintiffs’ converted
AMMA stock to SCWorx stock until August 10 and August 11, 2020. Plaintiffs allege that as a result, they were unable to sell their SCWorx stock when SCWorx was trading at
its highest price on April 13, 2020. The Complaint sought $500,000 in damages. Plaintiffs filed an Amended Complaint on November 28, 2022. On February 6, 2023, SCWorx
filed its answer to the Amended Complaint interposing numerous defenses. Plaintiff have since entered into a settlement agreement dated December 1, 2023 (effective as of
October 23, 2023) (as amended April 29, 2024), under which the Company agreed to pay Plaintiffs $20,000 and issue them 37,500 shares of common stock, all in full
settlement of the claims made in the lawsuit. The cash payment was made in July 2024, and the shares were issued in May 2024.
 
Carole R. Bernstein, Esq. v. SCWorx Corp.
 
As previously disclosed in the Company’s Form 10-Q for the quarter ended June 30, 2023, on June 7, 2023, Carole R. Bernstein, Esq. filed a complaint in the United
States District Court for the Southern District of New York against the Company. The complaint alleged that the Company breached its engagement agreement with Ms.
Bernstein by failing to pay legal fees when due. Ms. Bernstein sought to recover $69,164 fees owing for services, plus interest, costs, including her attorney’s fees. The
Company and the Plaintiff have since entered into a settlement agreement dated July 12, 2024, under which the Company agreed to pay Plaintiffs $80,000 in two equal
installments of $40,000, the first of which was paid August 9, 2024, and the second of which is payable on or about October 9, 2024.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 
21

 
 
PART II
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information for Common Stock
 
Our common stock was listed on the Nasdaq Capital Market under the symbol “AMMA” from October 6, 2016 through February 3, 2019. Our symbol was changed to
“WORX” on February 4, 2019 in connection with the closing of the SCWorx acquisition. The following table sets forth for the indicated periods the high and low closing prices
for SCWorx’s common stock as reported on the NASDAQ Capital Market.
 
On October 6, 2023, following stockholder approval at the Company’s annual meeting, the Company amended its certificate of incorporation to implement a 1 for 15
reverse split of its common stock. The effect of the reverse stock split was to combine every 15 shares of outstanding common stock into one share of common stock. The
reverse stock split was effective at the opening of the trading day on October 11, 2023.
 
The effects of the reverse stock split have been reflected in this Annual Report on Form 10-K for all periods presented.
 
 
 
2023
   
2022
 
 
 
High
   
Low
   
High
   
Low
 
First Quarter
  $
7.38    $
4.80    $
20.70    $
10.50 
Second Quarter
  $
9.90    $
3.18    $
16.95    $
9.75 
Third Quarter
  $
5.70    $
2.72    $
12.92    $
9.03 
Fourth Quarter
  $
3.23    $
1.65    $
10.95    $
5.70 
 
Holders of Record
 
As of September 23, 2024, there were 1,599,367 outstanding shares of common stock held by 433 stockholders of record.
 
Dividends
 
We have never declared or paid any cash dividends on our shares of common stock, and we do not expect to pay cash dividends in the foreseeable future. We anticipate
that we will retain any earnings to support operations and to finance the growth and development of our business. Any future determination relating to our dividend policy will
be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future
prospects and other factors the Board of Directors may deem relevant. Furthermore, our ability to pay dividends is limited by the Delaware General Corporation Law, which
provides that a corporation may pay dividends only out of existing “surplus,” which is defined as the amount by which a corporation’s net assets exceeds its stated capital.
 
Item 6. [Reserved]
 
22

 
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect
Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,”
“expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us
and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-
looking statements.
 
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange
Commission. Important factors known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that
its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of our company. No assurances
are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but
are not limited to, expected market demand for our services, fluctuations in pricing for materials, and competition.
 
Our Business
 
SCWorx is a provider of data content and services related to the repair, normalization and interoperability of information for healthcare providers and big data analytics
for the healthcare 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 data to be utilized across
multiple internal software applications (“interoperability”) and provides the basis for sophisticated data analytics (“big data”). SCWorx’s solutions are designed to improve the
flow of information quickly and accurately between the existing supply chain, electronic medical records, clinical systems, and patient billing functions. The software is
designed to achieve multiple operational benefits such as supply chain cost reductions, decreased accounts receivables aging, accelerated and more accurate billing, contract
optimization, increased supply chain management and cost visibility, synchronous Charge Description Master (“CDM”) and control of vendor rebates and contract
administration fees.
 
SCWorx empowers healthcare providers to maintain comprehensive access and visibility to an advanced business intelligence that enables better decision-making and
reductions in product costs and utilization, ultimately leading to accelerated and accurate patient billing. SCWorx’s software modules perform separate functions as follows:
 
 
●
virtualized Item Master File repair, expansion and automation;
 
 
●
CDM management;
 
 
●
contract management;
 
 
●
request for proposal automation;
 
 
●
rebate management;
 
 
●
big data analytics modeling; and
 
 
●
data integration and warehousing.
 
SCWorx continues to provide transformational data-driven solutions to many healthcare providers in the United States. The Company’s clients are geographically
dispersed throughout the country. The Company’s focus is to assist healthcare providers with issues that they have pertaining to data interoperability. SCWorx provides these
solutions through a combination of direct sales and relationships with strategic partners.
 
SCWorx’s software solutions are delivered to its clients within a fixed term period, typically a three-to-five-year contracted term, where such software is hosted in
SCWorx data centers (Amazon Web Service’s “AWS” or RackSpace) and accessed by such clients through a secure connection in a software as a service (“SaaS”) delivery
method.
 
SCWorx currently sells its solutions and services in the United States to hospitals and health systems through its direct sales force and its distribution and reseller
partnerships.
 
23

 
 
We currently host our solutions, serve our customers, and support our operations in the United States through an agreement with a third party hosting and infrastructure
provider, RackSpace. We incorporate standard IT security measures, including but not limited to; firewalls, disaster recovery, backup, etc. Our operations are dependent upon
the integrity, security and consistent operation of various information technology systems and data centers that process transactions, communication systems and various other
software applications used throughout our operations. Disruptions in these systems could have an adverse impact on our operations. We could encounter difficulties in
developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to losses due to disruption in our business
operations.
 
In addition, our information technology systems are subject to the risk of infiltration or data theft. The techniques used to obtain unauthorized access, disable or
degrade service, or sabotage information technology systems change frequently and may be difficult to detect or prevent over long periods of time. Moreover, the hardware,
software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the
security of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud or deception aimed at our employees,
contractors or temporary staff. In the event that the security of our information systems is compromised, confidential information could be misappropriated, and system
disruptions could occur. Any such misappropriation or disruption could cause significant harm to our reputation, lead to a loss of sales or profits or cause us to incur significant
costs to reimburse third parties for damages.
 
Critical Accounting Policies and Estimates
 
Management’s discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements. These
consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States which requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. By their nature,
these estimates and judgments are subject to an inherent degree of uncertainty. We evaluate our estimates based on our historical experience and various other assumptions that
are believed to be reasonable under the circumstances. These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, the
assessment of useful lives and the recoverability of property, plant and equipment, the valuation and recognition of stock-based compensation expense, recognition and
measurement of deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and others. Actual results could differ from those estimates, and material
effects on our consolidated operating results and consolidated financial position may result. Refer to Note 3, Summary of Significant Accounting Policies, in the accompanying
consolidated financial statements, for a full description of our accounting policies.
 
Basis of Presentation
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the
accounts of SCWorx and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
 
Cash
 
Cash is maintained with various financial institutions. Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash
deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000.
 
24

 
 
Fair 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. Management defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at
fair value, management considers the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market
participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the
following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that
is available and significant to the fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than
quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect
management’s estimate of assumptions that market participants would use in pricing the asset or liability.
 
Concentration of Credit and Other Risks
 
Financial instruments that potentially subject our company to significant concentrations of credit risk consist principally of cash, accounts receivable and warrants. We
believe that any concentration of credit risk in its accounts receivable is substantially mitigated by our evaluation process, relatively short collection terms and the high level of
credit worthiness of its customers. We perform ongoing internal credit evaluations of its customers’ financial condition, obtain deposits and limit the amount of credit extended
when deemed necessary but generally require 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:
 
 
 
Revenue
   
 
 
 
 
For the years ended
   
Accounts Receivable
 
 
 
December 31,
   
December 31,
 
Customers
 
2023
   
2022
   
2023
   
2022
 
Customer A
   
12%   
12%   
7%   
12%
Customer B
   
11%   
10%   
22%   
10%
Customer C
   
15%   
14%   
12%   
15%
Customer D
   
12%   
12%   
7%   
6%
Customer E
   
1%   
-%   
15%   
-%
Customer F
   
5%   
5%   
-%   
30%
 
Allowance for Credit Losses
 
Accounts receivable are comprised of amounts billed and currently due from customers. Accounts receivable are amounts related to any unconditional right the
Company has for receiving consideration and are presented as accounts receivable in the consolidated balance sheets. The Company maintains an allowance for credit losses for
estimated losses resulting from the inability of our customers to make required payments. The Company employs an expected credit loss model utilizing historical loss rates
and historical trends in credit quality indicators (e.g., delinquency, risk ratings), adjusted to reflect current economic conditions and knowledge or customer relationships.
 
Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history
with the customer, current industry trends, changes in customer payment terms, and specific customer situations. The Company’s normal collection cycle ranges between thirty
and 60 days. Estimated uncollectible amounts are charged to earnings and a credit to a valuation allowance. Balances which remain outstanding after reasonable collection
efforts are written off through a charge to the valuation allowance and a credit to accounts receivable The Company has assessed all receivables are collectable and did not
record an allowance for credit losses as of December 31, 2023 and 2022.
 
25

 
 
Leases
 
We determine if an arrangement is a lease at inception. The current portion of lease obligations are included in accounts payable and accrued liabilities on the
consolidated balance sheets. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make
lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the
lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in
determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease, which are included in the lease ROU asset when it is
reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with
lease components only, none with non-lease components, which are generally accounted for separately.
 
Goodwill and Identified Intangible Assets
 
Goodwill
 
Goodwill is recorded as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets
acquired under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. Management reviews
impairment of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. We first assess qualitative
factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, we determine that it
is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary.
 
For further discussion of goodwill, refer to Note 5, Goodwill.
 
Revenue Recognition
 
We recognize 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 we perform the following
steps:
 
 
●
Step 1: Identify the contract(s) with a customer
 
 
●
Step 2: Identify the performance obligations in the contract
 
 
●
Step 3: Determine the transaction price
 
 
●
Step 4: Allocate the transaction price to the performance obligations in the contract
 
 
●
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
 
26

 
 
We follow 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.
 
Management has identified the following performance obligations in our contracts with customers:
 
 
1.
Data Normalization: which includes data preparation, product and vendor mapping, product categorization, data enrichment and other data related services,
 
 
2.
Software-as-a-service (“SaaS”): which is generated from clients’ access of and usage of our hosted software solutions on a subscription basis for a specified
contract term, which is usually annually. In SaaS arrangements, the client cannot take possession of the software during the term of the contract and generally has
the right to access and use the software and receive any software upgrades published during the subscription period,
 
 
3.
Maintenance: which includes ongoing data cleansing and normalization, content enrichment, and optimization, and
 
 
4.
Professional Services: mainly related to specific customer projects to manage and/or analyze data and review for cost reduction opportunities.
 
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 judgement is required to determine the stand-alone
selling price for each distinct performance obligation and is typically estimated based on observable transactions when these services are sold on a stand-alone basis. At contract
inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to
transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, management 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. We consider control to have transferred upon delivery because we have a present right to payment at that time, we have 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.
 
Our 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 we have not satisfied a performance obligation, revenue recognition will be deferred until the performance obligation is deemed to be
satisfied.
 
Revenue recognition for our performance obligations are as follows:
 
Data Normalization and Professional Services
 
Our 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.
 
27

 
 
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 our
service is made available to customers.
 
Some contracts have payment terms that differ from the timing of revenue recognition, which requires us to assess whether the transaction price for those contracts
include a significant financing component. We have 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. We do 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.
 
As of December 31, 2023, we had $378,583 of remaining performance obligations recorded as deferred revenue. We expect to recognize sales relating to these existing
performance obligations of during 2024.
 
Costs to Fulfill a Contract
 
Costs to fulfill a contract typically include costs related to satisfying performance obligations as well as general and administrative costs that are not explicitly
chargeable to customer contracts. These expenses are recognized and expensed when incurred in accordance with Accounting Standard Codification (“ASC”) 340-40.
 
Cost of Revenue
 
Cost of revenues primarily represent data center hosting costs, consulting services and maintenance of our large data array that were incurred in delivering professional
services and maintenance of our large data array during the periods presented.
 
Contract Balances
 
Contract assets arise when the revenue associated prior to our unconditional right to receive a payment under a contract with a customer (i.e., unbilled revenue) and are
derecognized when either it becomes a receivable or the cash is received. There were no contract assets as of December 31, 2023 and 2022.
 
Contract liabilities arise when customers remit contractual cash payments in advance of our company satisfying our performance obligations under the contract and are
derecognized when the revenue associated with the contract is recognized when the performance obligation is satisfied. Deferred revenue for contract liabilities were $378,583
and $579,833 as of December 31, 2023 and 2022, respectively.
  
Income Taxes
 
Our company converted to a corporation from a limited liability company during 2018.
 
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is
recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have
been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
the results of operations in the period that includes the enactment date.
 
Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized. During the year ended December 31, 2023, we evaluated available evidence and concluded that we may not realize all the benefits of our deferred tax assets; therefore,
a valuation allowance was established for our deferred tax assets.
 
28

 
 
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
  
On December 22, 2017, the Tax Cuts and Jobs Act of 2017, (the “Tax Act”) was enacted. The Tax Act significantly revised the U.S. corporate income tax regime by,
including but not limited to, lowering the U.S. corporate income tax rate from 34% to 21% effective January 1, 2018, implementing a territorial tax system, imposing a one-
time transition tax on previously untaxed accumulated earnings and profits of foreign subsidiaries, and creating new taxes on foreign sourced earnings. During the years ended
December 31, 2023 and 2022, we completed the accounting for tax effects of the Tax Act under ASC 740. There were no impacts to the years ended December 31, 2023 and
2022.
 
Stock-based Compensation Expense
 
The Company accounts for stock-based compensation expense in accordance with the authoritative guidance on share-based payments. Under the provisions of the
guidance, stock-based compensation expense is measured at the grant date based on the fair value of the option or warrant using a Black-Scholes option pricing model and is
recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.
 
The authoritative guidance also requires that the Company measure and recognize stock-based compensation expense upon modification of the term of stock award.
The stock-based compensation expense for such modification is accounted for as a repurchase of the original award and the issuance of a new award.
  
Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price
volatility, and the pre-vesting option forfeiture rate. The Company estimates the expected life of options granted based on historical exercise patterns, which are believed to be
representative of future behavior. The Company estimates the volatility of the Company’s common stock on the date of grant based on historical volatility. The assumptions
used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of
management’s judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the
future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the
forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from the
estimate, stock-based compensation expense could be significantly different from what was recorded in the current period. The Company also grants performance based
restricted stock awards to employees and consultants. These awards will vest if certain employee\consultant-specific or company-designated performance targets are achieved.
If minimum performance thresholds are achieved, each award will convert into a designated number of the Company’s common stock. If minimum performance thresholds are
not achieved, then no shares will be issued. Based upon the expected levels of achievement, stock-based compensation is recognized on a straight-line basis over the requisite
service period. The expected levels of achievement are reassessed over the requisite service periods and, to the extent that the expected levels of achievement change, stock-
based compensation is adjusted in the period of change and recorded on the statements of operations and the remaining unrecognized stock-based compensation is recorded
over the remaining requisite service period. Refer to Note 9, Stockholders’ Equity, for additional detail.
 
Loss Per Share
 
We compute earnings (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings (loss) per
share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number
of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock
method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of
shares assumed to be purchased from the exercise of stock options and warrants and the exercise of fully vested restricted stock units. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive. As of December 31, 2023 and 2022, we had 273,059 and 180,390, respectively, common stock equivalents outstanding.
 
29

 
 
Indemnification
 
We provide indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from the use of our
software. In accordance with authoritative guidance for accounting for guarantees, we evaluate estimated losses for such indemnification. We consider such factors as the
degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, no such claims have been filed against our
company and no liability has been recorded in our financial statements.
  
As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director
is, or was, serving at our company’s request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification
agreements is unlimited. In addition, we have directors’ and officers’ liability insurance coverage that is intended to reduce our financial exposure and may enable us to recover
any payments above the applicable policy retention.
 
In connection with the Class Action claims and investigations described in Item 3. Legal Proceedings of this Annual Report on Form 10-K, the Company is obligated
to indemnify its officers and directors for costs incurred in defending against these claims and investigations. 
 
Contingencies
 
From time to time, we may be involved in legal and administrative proceedings and claims of various types. We record a liability in our consolidated financial
statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Management reviews these estimates in each accounting
period as additional information becomes known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not
recorded in the consolidated financial statements. If a loss is probable but the amount of loss cannot be reasonably estimated, we disclose the loss contingency and an estimate
of possible loss or range of loss (unless such an estimate cannot be made). We do not recognize gain contingencies until they are realized. Legal costs incurred in connection
with loss contingencies are expensed as incurred. Refer to Note 8, Commitments and Contingencies, for further information.
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported and disclosed in the consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to allowance for
credit losses, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset
valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not
readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are
material differences between the estimates and the actual results, future results of operations will be affected.
 
Recently Issued Accounting Pronouncements
 
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed,
management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon
adoption.
 
30

 
 
Results of Operations
 
The COVID-19 Pandemic has disrupted our business and the business of our hospital customers.
 
Our 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 Company has followed the recommendations of local 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 supply 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 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 addition, the financial impact of COVID-19 on the Company’s hospital customers could cause the hospitals to delay payments due to the Company for services,
which could negatively impact the Company’s cash flows.
 
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
 
The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2023
and 2022.
 
Our operating results for the years ended December 31, 2023 and 2022 are summarized as follows:
 
 
 
Years ended
     
 
 
 
December 31,
2023
   
December 31,
2022
   
Difference
 
 
   
     
     
 
Revenue
  $
3,804,943    $
4,038,188    $
(233,245)
Cost of revenues
   
2,535,865     
2,624,553     
(88,688)
General and administrative
   
2,719,740     
3,537,077     
(817,337)
Other income (expense)
   
(2,530,482)    
276,036     
(2,806,518)
Provision for income taxes
   
-     
-     
- 
Net loss
  $
(3,981,144)   $
(1,847,406)   $
(2,133,738)
 
Revenues
 
Revenue for the year ended December 31, 2023 was $3,804,943, compared to $4,038,188 in revenue for the year ended December 31, 2022. The decline in revenue is
primarily related to a slight decrease in overall revenues from SaaS customer sales during the period due to fluctuations in our customer base.
 
Cost of Revenues
 
Cost of revenues for the year ended December 31, 2023 was $2,535,865, compared to $2,624,553 for the year ended December 31, 2022. The $88,688 decrease is
primarily related to a decrease in labor costs during the current year.
 
Expenses
 
General and administrative expenses decreased $817,337 to $2,719,740 for the year ended December 31, 2023, as compared to $3,537,077 in the same period of 2022.
This decrease was primarily due decreases in non-cash stock compensation expense of approximately $780,000, legal and professional fees of approximately $87,000,
inventory write-downs of approximately $157,000 and bad debt expense of approximately $30,000, partially offset by to an increase in accruals for legal settlement of
approximately $462,000. We expect general and administrative expenses (excluding non-cash compensation expenses) to remain relatively flat during 2024 with the exception
of increases in our sales force.
 
We had other losses of $2,530,482 During the year ended December 31, 2023 consisting of write-down of goodwill of $2,524,034 and interest expense of $6,448.
 
We had other income of $276,036 during the year ended December 31, 2022 related primarily to the forgiveness of PPP loans.
 
31

 
 
Liquidity and Capital Resources
 
Going Concern
 
Management has concluded on our consolidated financial statements for the year ended December 31, 2023 that conditions exist that raise substantial doubt about our
ability to continue as a going concern since we may not have sufficient capital resources from operations and existing financing arrangements to meet our operating expenses
and working capital requirements. As of December 31, 2023, we had a working capital deficit of $1,898,625 and accumulated deficit of $29,839,841. During the year ended
December 31, 2023, we had a net loss of $3,981,144 and used $806,164 of cash in operations. We have historically incurred operating losses and may continue to incur
operating losses for the foreseeable future. We believe that these conditions raise substantial doubt about our ability to continue as a going concern. This may hinder our future
ability to obtain financing or may force us to obtain financing on less favorable terms than would otherwise be available. If we are unable to develop sufficient revenues and
additional customers for our products and services, we may not generate enough revenue to sustain our business, and we may fail, in which case our stockholders would suffer a
total loss of their investment. There can be no assurance that we will be able to continue as a going concern.
 
Recent Fundraising
 
During the year ended December 31, 2023, the Company issued an aggregate 134,056 shares of common stock for aggregate gross proceeds of $572,906 as under its
existing equity line of credit.
 
Liquidity
 
We are currently experiencing a working capital deficiency, have limited cash on hand, and we are experiencing negative cash flows from operations. Consequently,
we have an immediate need for additional capital to fund our operations and the implementation of our business plan.
 
Based on our current business plan, if we had sufficient capital resources, we anticipate that our operating activities would use a net of approximately $70,000 in cash
per month over the next twelve months, or approximately $800,000. Currently we have only limited cash on hand, and consequently, we are unable to implement our current
business plan. Accordingly, we have an immediate need for additional capital to fund our operating activities.
 
In order to remedy this liquidity deficiency, we have cut spending and are actively seeking to raise additional funds through the sale of equity and debt securities.
Ultimately, we will need to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to
realize substantial additional revenues from the sale of our products and services. As previously stated, our operations are generating negative cash flows, and thus adversely
affecting our liquidity. If we are able to secure sufficient funding in the first half of 2024 to fully implement our business plan, we expect that our operations could begin to
generate positive cash flows by the end of 2024, which should ameliorate our liquidity deficiency. If we are unable to raise additional funds in the near term, we will not be able
to fully implement our business plan, in which case there could be a material adverse effect on our results of operations and financial condition.
 
In the event we do not generate sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we will be unable to fully
implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial
condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the
value of its assets or satisfy its liabilities (see Note 2 to the Financial Statements – Liquidity and Going Concern).
 
Based on our current limited availability of funds, we expect to spend minimal amounts on expansion of our sales organization, software development and capital
expenditures. We expect to fund any future software development expenditures through a combination of cash flows from operations and proceeds from equity and/or debt
financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our software
development expenditures, in which case, there could be an adverse effect on our business and results of operations.
 
32

 
 
Cash Flows
 
 
 
Years ended
December 31,
 
 
 
2023
   
2022
 
 
   
     
 
Net cash used in operating activities
  $
(806,164)   $
(540,036)
Net cash provided by investing activities
   
165,000     
- 
Net cash provided by financing activities
   
483,138     
718,423 
Change in cash
  $
(158,026)   $
178,387 
  
Our operations through December 31, 2023 have resulted in negative cash flows from operations of $806,164. If we are able to raise additional capital during first half
of 2024 and generate additional revenue through the acquisition of new customers, we believe we may begin to generate positive operating cash flows by the end of 2024.
However, there is no assurance we will be able to increase our revenue sufficiently so as to generate positive operating cash flows within this time frame.
 
Operating Activities
 
Net cash used in operating activities was $806,164 for the year ended December 31, 2023, mainly related to the net loss of $3,981,144, a decrease in deferred revenue
obligations of $201,250 and an increase in net accounts receivable of $16,780, partially offset by non-cash stock-based compensation of $361,363 related to various equity
awards to employees and non-employees, $48,000 in bad debt expense, a $25,647 decrease in prepaid expenses and an increase of $433,966 in accounts payable and accrued
liabilities.
  
Net cash used in operating activities was $540,036 for the year ended December 31, 2022, mainly related to the net loss of $1,847,406 and a gain on forgiveness of
PPP Loans of $279,191, partially offset by non-cash stock-based compensation of $1,141,932 related to various equity awards to employees and non-employees, $78,125 in bad
debt expense, and a $156,600 decrease in inventory valuation.
 
Investing Activities
 
The Company received $165,000 in investing activities during the year ended December 31, 2023 related to a potential reverse acquisition. Under the terms of the
agreement, all funds received by the Company were contributed upon the termination of the acquisition agreement.
 
The Company did not have any investing activities during the year ended December 31, 2022.
 
Financing Activities
 
Net cash provided by financing activities was $483,138 for the year ended December 31, 2023. This consisted of $572,906 in proceeds from a common stock
placement and $193,558 in proceeds from advances, partially offset by repayments of $193,558 in proceeds from advances, $57,390 in repayments on notes payable and
$32,378 in payments on shareholder advance.
 
Net cash provided by financing activities was $718,423 for the year ended December 31, 2022. This consisted of proceeds of $725,050 from a common stock
placement partially offset by loan repayments of $6,627.
 
Contractual Cash Obligations
 
Refer to Note 8, Commitments and Contingencies, in the accompanying consolidated financial statements for additional detail.
 
Off-Balance Sheet Arrangements
 
As of December 31, 2023 and 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
 
33

 
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
 
Item 8. Financial Statements and Supplementary Data
 
The consolidated financial statements are included in Part IV, Item 15 (a) (1) of this Report.
 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
On May 3, 2024, the US Securities and Exchange Commission (“Commission”) entered an Order denying BF Borgers CPA PC (“BF Borgers”) the privilege of
appearing or practicing before the Commission as an accountant. As a result, BF Borgers may not participate in or perform the audit or review of financial information included
in Commission filings, issue audit reports included in Commission filings, provide consents with respect to audit reports, or otherwise appear or practice before the
Commission. practicing before the SEC. As a result of the foregoing, On May 7, 2024, the board of directors of the Company terminated BF Borgers as the Registrant’s
independent registered public accounting firm. BF Borgers had audited the Company’s financial statements since 2021.
 
BF Borger’s report on the Company’s financial statements for the fiscal year ended December 31, 2022 did not contain an adverse opinion or disclaimer of opinion,
nor was such report qualified or modified as to uncertainty, audit scope or accounting principle, except for an explanatory paragraph relating to a substantial doubt regarding the
Company’s ability to continue as a going concern. During the fiscal year ended December 31, 2022, and through May 7, 2024, there were no disagreements with BF Borgers on
any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to BF Borgers’s satisfaction, would have
caused BF Borgers to make reference to the subject matter of the disagreement in connection with its report.
 
During the fiscal year ended December 31, 2022, and through May 7, 2024, there were no “reportable events” as defined under Item 304(a)(1)(v) of Regulation S-K,
except for material weaknesses in internal control over financial reporting. 
 
On May 16, 2024, the Company appointed Astra Audit and Advisory, LLC (“Astra”) as its new independent registered public accounting firm, effective immediately,
for the fiscal years ending December 31, 2023, and 2022. This appointment was authorized and approved by the Audit Committee of the Company’s Board of Directors.
 
Item 9A. Controls and Procedures
 
Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
 
Management conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-
15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2023, the end of the period covered by this Annual Report on Form 10-K,
as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The Disclosure Controls evaluation was done under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, based on the 2013 framework and criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, due to deficiencies caused by a lack of segregation of duties, our Disclosure Controls were not effective as of December 31, 2023, such
that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules  and forms and (ii)  accumulated and communicated to our management, including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding disclosure.
  
Management Report on Internal Controls over Financial Reporting
 
Our management has identified material weaknesses in our internal controls related to a lack of segregation of duties. Management continues to work with the Audit
Committee to discuss remediation efforts. Our management is currently considering looking for additional accounting and finance personnel to assist in the remediation efforts.
 
Notwithstanding the foregoing, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that the consolidated financial
statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods
presented in conformity with accounting principles generally accepted in the United States.
 
We may in the future identify other material weaknesses or significant deficiencies in connection with our internal control over financial reporting. Material
weaknesses and significant deficiencies that may be identified in the future will need to be addressed as part of our quarterly and annual evaluations of our internal controls
over financial reporting under Sections 302 and 404 of the Sarbanes-Oxley Act. Any future disclosures of a material weakness, or errors as a result of a material weakness,
could result in a negative reaction in the financial markets and a decrease in the price of our common stock.
 
Changes in Internal Control over Financial Reporting.
 
None
 
Item 9B. Other Information
 
None.
 
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
 
Not applicable.
34

 
 
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance
 
The following table presents information with respect to our officers, directors and significant employees as of the date of filing of this Report:
 
Name
 
Age
 
Position(s)
Timothy A. Hannibal
 
55
  President & Chief Executive Officer, Director
Chris Kohler
 
43
  Chief Financial Officer
Alton Irby
 
83
  Director
Steven Horowitz
 
53
  Director
Vincent Matozzo
 
40
  Director
 
Background of Officers and Directors
 
The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s
principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
 
Timothy A. Hannibal
 
Mr.  Hannibal is a seasoned technology executive and entrepreneur, with nearly 30  years’ experience in SaaS and cloud technology, driving revenue, go-to-
market strategies, business development and mergers and acquisitions. Mr. Hannibal joined the Company in January 2019 and currently serves as its Chief Executive Officer.
Prior to joining the Company, Mr.  Hannibal was an employee at Primrose Solutions (the predecessor to SCWorx)  which he joined in September of 2016. At Primrose,
Mr. Hannibal was responsible for overseeing marketing, sales and operations, including executing the Company’s business plan. Mr. Hannibal has a successful track record of
growth and management at both startup and national companies.
 
Prior to joining Primrose, Mr.  Hannibal was the President and CEO of VaultLogix for thirteen  years, a company he founded. VaultLogix was a private equity
sponsored leading SaaS company in the cloud backup industry before being acquired by J2 Global, a publicly traded technology company ($3.2b market cap) focused on cloud
services and digital media.
 
Chris Kohler
 
Mr. Kohler was appointed CFO on November 1, 2020, at which time Mr. Hannibal resigned as Interim CFO. Mr. Kohler has over 15 years of experience serving in a
wide variety roles in the finance and accounting sectors. Mr. Kohler is the founder and CEO of Kohler Consulting, Inc., which he founded in 2012. The firm, through Mr.
Kohler, provides outsourced CFO and advisory services to private and public companies, with a focus on small cap and start-up businesses.
 
Alton Irby
 
Mr. Irby was appointed to the Board of Directors on March 10, 2021. Alton Irby is a co-founder of London Bay Capital and has been Chairman of the firm since 2006.
London Bay Capital makes investments in private companies, and also provides business advisory services. Mr. Irby is a seasoned executive with a highly successful track
record in the financial services and investment banking industries in both the UK and the US from 1982 to the present. Mr. Irby has served on the boards of several public and
private companies including 17 years as a director of The McKesson Corporation chairing both the Compensation and Finance Committees.
 
35

 
 
Steven Horowitz
 
Mr. Horowitz was appointed to the Board of Directors in August 2021. Mr. Horowitz is currently the Chief Executive Officer of CareCentrix, a multi-billion dollar
health care services company, after previously serving as its Chief Financial Officer since 2012.
 
Prior to joining CareCentrix, Steve was the Vice President of business planning for Medco Health Solutions, a Fortune 50 pharmacy benefit manager. In this role,
Steve was the CFO for three key U.S.-based divisions as well as all international markets, which together generated over $2 billion in annual revenue. Previously, Steve held
the position of controller at National Medical Health Card Systems, a pharmacy benefit manager, and at The Fantastic Corporation, a global broadband multimedia corporation.
Earlier, Steve was CFO at the Mount Vernon Neighborhood Health Center.
 
Steve received his MBA from Adelphi University and earned his BS in business management from Cornell University. He is a licensed CPA and Chartered Global
Management Accountant (CGMA). Steve is a member of the American Institute of Certified Public Accountants (AICPA).
 
Vincent Matozzo
 
Mr. Matozzo is an innovative strategist and leader recognized for driving results through effective supply chain strategies and product innovation. He is a dynamic
leader who drives change and delivers results for clients, corporations, and consortiums. He is passionate about automating processes and delivering a superior customer
experience while enabling teams. Mr. Matozzo is a subject matter expert in Lean and Agile process modeling, with experience in all aspects of pre-award modeling to post-
award monitoring, requisitioning to reimbursement- including data visualization and procurement. He has expertise in technical execution and supply chain innovation and
enjoys deploying initiatives in technology development to continuously improve interoperability and operations. Mr. Matozzo is a featured speaker and expert in supply chain
organizational development and business continuity. He is skilled in designing and implementing innovative business models that produce dramatic results. Mr. Matozzo has
served in various supply chain capacities across manufacturing, aerospace, and healthcare at organizations including Yale New Haven Health, Vizient, and NYU Langone
Health.
 
Code of Business Conduct and Ethics
 
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions and also to other employees. Our Code of Business Conduct can be found on our website at www.SCWorx.com.
 
Family Relationships
 
There are no family relationships between any of our directors, executive officers or significant employees.
 
Involvement in Certain Legal Proceedings
 
During the past ten years, none of our current officers, directors, significant employees or control persons have been involved in any legal proceedings as described in
Item 401(f) of Regulation S-K. Litigation involving our former CEO, Marc S. Schessel, is described in Item 3, “Legal Proceedings.”
 
Board Composition
 
The Board of Directors currently consists of four directors. Each director will serve in office until the next annual meeting of stockholders or until their successors
have been duly elected and qualified, or until the earlier of their death, resignation or removal.
 
Our certificate of incorporation provides that that the number of authorized directors will be determined in accordance with our bylaws. Our bylaws provide that the
number of authorized directors shall be determined from time to time by a resolution of the Board of Directors, and any vacancies in our board and newly created directorships
may be filled only by our Board of Directors.
 
36

 
 
Term of Office
 
All of our directors are elected on an annual basis to serve until the next annual meeting of shareholders or until the earlier of their death, resignation or removal.
 
Committees of the Board of Directors
 
Our Board of Directors has established an audit committee, a compensation committee and a nominating and governance committee. Each of these committees
operates under a charter that has been approved by our Board of Directors.
 
Audit Committee
 
We have a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee has
authority to review our financial records, engage with our independent auditors, recommend policies with respect to financial reporting to the Board of Directors and investigate
all aspects of our business. The members of the audit committee are Mr. Horowitz (chair), Mr. Irby and Mr. Matozzo. The audit committee consists exclusively of directors who
are financially literate. In addition, Mr. Horowitz is considered an “audit committee financial expert” as defined by the SEC’s rules and regulations. All members of the Audit
Committee currently satisfy the independence requirements and other established criteria of Nasdaq.
 
Compensation Committee
 
The Compensation Committee oversees our executive compensation and recommends various incentives for key employees to encourage and reward increased
corporate financial performance, productivity and innovation. The members of the compensation committee are Mr. Irby (chair), Mr. Horowitz and Mr. Matozzo.
  
Nominating and Governance Committee
 
The Nominating and Corporate Governance Committee identifies and nominates candidates for membership on the Board of Directors, oversees Board of Directors’
committees, advises the Board of Directors on corporate governance matters and any related matters required by the federal securities laws. The members of the Nominating
Committee are Mr. Matozzo (chair), Mr. Irby and Mr. Horowitz, and all currently satisfy the independence requirements and other established criteria of Nasdaq.
 
The Nominating and Governance Committee will consider stockholder recommendations for candidates for the Board of Directors.
 
Our bylaws provide that, in order for a stockholder’s nomination of a candidate for the board to be properly brought before an annual meeting of the stockholders, the
stockholder’s nomination must be delivered to the Secretary of our company no later than 120 days prior to the one-year anniversary date of the prior year’s annual meeting.
 
Charters for all three committees are available on our website at www.SCWorx.com.
 
Changes in Nominating Procedures
 
None.
 
37

 
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity
securities to file with the SEC initial statements of beneficial ownership, statements of changes in beneficial ownership and annual statements of changes in beneficial
ownership with respect to their ownership of our securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish us with copies of all Section 16(a) reports they file.
 
Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with
the applicable reporting requirements under Section 16(a) of the Exchange Act, and without conducting an independent investigation of our own, we believe that with respect to
the fiscal year ended December 31, 2023, our officers and directors, and all of the persons known to us to beneficially own more than 10% of our common stock filed all
required reports on a timely basis.
  
Item 11. Executive Compensation
 
The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2023 and 2022 awarded to,
earned by or paid to our executive officers. The value attributable to any option awards and stock awards reflects the grant date fair values of stock awards calculated in
accordance with FASB Accounting Standards Codification Topic 718. As described further in Note 9, Stockholders’ Equity, to our consolidated year-end financial statements,
the assumptions made in the valuation of these option awards and stock awards is set forth therein.
 
 
 
 
 
 
   
 
   
 
   
 
   
Non-Equity    
 
   
 
 
 
 
 
 
 
   
 
   
Stock
   
Option
   
Incentive
Plan
   
All Other
   
 
 
 
 
Fiscal
 
Salary
   
Bonus
   
Awards
   
Awards
    Compensation    Compensation   
Total
 
Name and Principal Position
 
Year
 
$
   
($)
   
($)
   
($)
   
($)
   
($)
   
($)
 
Timothy Hannibal (1)
 
2023
   
250,000     
      -     
      -     
     -     
       -     
27,445     
277,445 
President, Chief Executive Officer
and Director
 
2022
   
250,000     
-     
-     
-     
-     
44,996     
294,996 
 
 
 
   
      
      
      
      
      
      
  
Chris Kohler (2)
 
2023
   
108,000     
-     
-     
-     
-     
4,000     
112,000 
Chief Financial Officer
 
2022
   
90,000     
-     
-     
-     
-     
-     
90,000 
 
(1) Mr. Hannibal was hired as Chief Revenue Officer on February 1, 2019 and was appointed Interim Chief Financial Officer on June 10, 2020. On August 10, 2020 Mr.
Hannibal was appointed President and Chief Operating Officer. On May 28, 2021 Mr. Hannibal was appointed President and Chief Executive Officer.
 
(2) Mr. Kohler has served as Chief Financial Officer since November 1, 2020.
 
38

 
 
Directors’ Compensation
 
The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2023 and 2022 awarded to,
earned by or paid to our directors. The value attributable to any stock option awards reflects the grant date fair values of stock awards calculated in accordance with ASC Topic
718.
 
 
 
 
 
Fees
   
 
   
 
   
 
   
Non-Equity    
 
   
 
 
 
 
 
 
Earned or    
 
   
 
   
 
   
Incentive
   
 
   
 
 
 
 
 
 
Paid in
   
 
   
Stock
   
Option
   
Plan
   
All Other
   
 
 
 
 
Fiscal
 
Cash
   
Bonus
   
Awards
   
Awards
    Compensation    Compensation   
Total
 
Name and Principal Position
 
Year
 
($)
   
($)
   
($)
   
($)
   
($)
   
($)
   
($)
 
Alton Irby (1)
 
2023
 
 
    -     
-     
-     
    -     
    -     
      -     
- 
Chairman and Director
 
2022
 
 
-     
-     
-     
-     
-     
-     
- 
 
 
 
 
 
      
      
      
      
      
      
  
Vincent Matozzo (2)
 
2023
 
 
-     
-     
-     
-     
-     
-     
- 
Director
 
2022
 
 
-     
-     
-     
-     
-     
-     
- 
 
 
 
 
 
      
      
      
      
      
      
  
Steven Horowitz (3)
 
2023
 
 
-     
-     
-     
-     
-     
-     
- 
Director
 
2022
 
 
-     
-     
-     
-     
-     
-     
- 
 
 
 
 
 
      
      
      
      
      
      
  
John Ferrara (4)
 
2023
 
 
-     
-     
27,977     
-     
-     
-     
27,977 
Former Director
 
2022
 
 
-     
-     
124,200     
-     
-     
-     
124,200 
 
 
 
 
 
      
      
      
      
      
      
  
Steven Wallitt (5)
 
2023
 
 
-     
-     
-     
-     
-     
-     
- 
Former Director
 
2022
 
 
-     
-     
110,400     
-     
-     
-     
110,400 
 
(1) Alton Irby was appointed as a Director on March 16, 2021. Effective May 15, 2024, Mr Irby returned all previously received stock grants to the Company.
 
(2) Vincent Matozzo was appointed as a Director on August 17, 2023. Effective May 15, 2024, Mr Matozzo returned all previously received stock grants to the Company.
 
(3) Steven Horowitz was appointed as a Director on August 11, 2021.  Effective May 15, 2024, Mr Horowitz returned all previously received stock grants to the Company.
 
(4) John Ferrara was appointed as a Director on August 11, 2021. Mr Ferrera resigned as a director effective August 18, 2023
 
(5) Steven Wallitt was appointed as a Director on October 4, 2019. Mr Wallitt’s service was not continued effective approval of the Company’s proxy statement nominations at
our shareholder meeting held December 22, 2022.
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The following table sets forth certain information regarding beneficial ownership of our common stock as of September 23, 2024: (i) by each of our directors, (ii) by
each of the named executive officers, (iii) by all of our executive officers and directors as a group, and (iv) by each person or entity known by us to beneficially own more than
five percent (5%) of any class of our outstanding shares. As of September 23, 2024, there were 1,599,367 shares of our common stock outstanding.
 
Amount and Nature of Beneficial Ownership as of September 23, 2024 (1)
 
 
 
Common
   
Preferred
   
Options/
   
 
   
Percentage
 
Named Executive Officers and Directors
 
Stock
   
Stock
   
Warrants
   
Total
   
Ownership
 
Current
   
     
     
     
     
 
Timothy Hannibal
   
54,788     
-     
       -     
54.788     
3.3%
Chris Kohler
   
6,983     
-     
-     
6.983     
*%  
Alton Irby
   
-     
-     
-     
-     
*% 
Vincent Matozzo
   
-     
-     
-     
-     
*%
Steven Horowitz
   
-     
-     
-     
-     
*%
Directors and Executive Officers as a Group (5 persons)
   
61,771     
-     
-     
61,771     
3.6%
 
   
      
      
      
      
  
Former
   
      
      
      
      
  
Steven Wallitt
   
-     
5000     
-     
5000     
*%
John Ferrera
   
13,055     
-     
-     
-     
1.0%
 
*
Represents beneficial ownership of less than 1% of our outstanding stock.
 
(1) In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock that may be acquired upon the
exercise of stock options within 60 days of September 23, 2024. In determining the percent of common stock owned by a person or entity on September 23, 2024, (a) the
numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days of September 23, 2024
upon the exercise of stock options, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on September 23, 2024 and (ii) the total number
of shares that the beneficial owner may acquire upon exercise of stock options within 60 days of September 23, 2024. Unless otherwise indicated, the address of each of the
individuals and entities named below is c/o SCWorx Corp., 100 S Ashley Dr, Suite 100 Tampa, FL 33602.
 
39

 
 
Item 13. Certain Relationships and Related Transactions, and Director Independence
 
Certain Relationships and Related Transactions
 
At December 31, 2023 and 2022 Company had amounts due to officers in the amount of $149,838 and $153,838, respectively.
 
During September 2021, the Company’s former CEO (also a significant shareholder) advanced $100,000 in cash to the Company for short term capital requirements.
This amount is non-interest bearing and payable upon demand. The Company had balances of $67,622 and $100,000 included in shareholder advance on the Company’s
consolidated balance sheets as of December 31, 2023 and 2022, respectively.
 
Between May 24, 2023 and November 29, 2023, the Company’s CFO advanced an aggregate $193,558 in cash to the Company for short term capital requirements. As
of December 31, 2023, all advanced amounts have been repaid.
 
Director Independence
 
The rules of the Nasdaq Capital Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors
within one year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating
and governance committees be independent. Under the Nasdaq Rules, a director will qualify as an independent director only if, in the opinion of our Board of Directors, that
person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also
require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act, as amended. In order to be considered independent for
purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of
directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or
otherwise be an affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules
require that our Board of Directors must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation we
pay to the director and any affiliations with our company.
 
Our Board of Directors undertook a review of the composition of our Board of Directors and its committees and the independence of each director. Based upon
information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has
determined that each of our directors other than Tim Hannibal, is independent based on the definition of independence in the Nasdaq listing standards.
 
Item 14. Principal Accountant Fees and Services
 
The Audit Committee of the Board of Directors has selected Astra Audit and Advisory, LLC (“Astra”), an independent registered public accounting firm, to audit our
financial statements for the years ended December 31, 2023 and 2022.
 
BF Borgers CPA PC served as our independent registered public accounting firm from April 2021 through May 2024 at which time the US Securities and Exchange
Commission (“Commission”) entered an Order denying BF Borgers CPA PC (“BF Borgers”) the privilege of appearing or practicing before the Commission as an accountant.
The Company subsequently terminated BF Borgers as its independent registered public accounting firm.
 
40

 
 
Principal Accountant Fees and Services
 
During 2023 and 2022, fees for services provided by Astra Audit and Advisory, LLC were as follows:
 
 
   
For the year ended
December 31,
 
 
   
2023
     
2022
 
Audit Fees
  $
-    $
- 
Audit-Related Fees
   
-     
- 
Tax Fees
   
-     
- 
All Other Fees
   
-     
- 
Total
  $
-    $
- 
 
During 2023 and 2022, fees for services provided by BF Borgers CPA PC were as follows:
 
 
 
For the year ended
December 31,
 
 
 
2023
   
2022
 
Audit Fees
  $
192,500    $
179,400 
Audit-Related Fees
   
-     
- 
Tax Fees
   
-     
- 
All Other Fees
   
-     
- 
Total
  $
192,500    $
179,400 
 
Audit Fees
 
Audit fees for 2023 and 2022 include amounts related to the audit of our annual consolidated financial statements and quarterly review of the consolidated financial
statements included in our Quarterly Reports on Form 10-Q.
 
Audit Related Fees
 
Audit Related Fees include amounts related to accounting consultations and services.
 
Tax Fees
 
Tax Fees include fees billed for tax compliance, tax advice and tax planning services.
 
All Other Fees
 
The Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may
include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular
service or category of services. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the
extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.
  
41

 
 
PART IV
 
Item 15. Exhibits and Financial Statement Schedules
 
(a) The following documents are filed as a part of this report:
 
(1) Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The consolidated financial statements listed in the
accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.
 
 
(2) Financial Statement Schedules. Schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of
the schedule or because the information required is given in the consolidated financial statements or the notes thereto.
 
(3) Exhibits. The information required by this Item 15 is incorporated by reference to the Index to Exhibits accompanying this Annual Report on Form 10-K.
 
42

 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
 
SCWorx Corp.
 
 
 
 
By:
/s/ Timothy Hannibal
 
 
Timothy Hannibal
 
 
President, Chief Executive Officer
 
 
September 23, 2024
 
 
 
 
By:
/s/ Chris Kohler
 
 
Chris Kohler
 
 
Chief Financial Officer
 
 
September 23, 2024
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
 
 
/s/ Timothy Hannibal
 
Timothy Hannibal
 
President, Chief Executive Officer, Director
 
September 23, 2024
 
 
 
/s/ Chris Kohler
 
Chris Kohler
 
Chief Financial Officer
 
September 23, 2024
 
 
 
/s/ Alton Irby
 
Alton Irby,
Chairman
 
September 23, 2024
 
 
 
/s/ Vincent Matazzo
 
Vincent Matazzo
Director
 
September 23, 2024
 
 
 
/s/ Steven Horowitz
 
Steven Horowitz
Director
 
September 23, 2024
 
43

 
 
Index to Consolidated Financial Statements
 
SCWorx Corp.
Consolidated Financial Statements
 
 
 
Page
Number
Report of Independent Registered Accounting Firm (PCAOB ID Number 5041)
 
F-2
 
 
 
Consolidated balance sheets as of December 31, 2023 and 2022
 
F-3
 
 
 
Consolidated statements of operations for the years ended December 31, 2023 and 2022
 
F-4
 
 
 
Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2023 and 2022
 
F-5
 
 
 
Consolidated statements of cash flows for the years ended December 31, 2023 and 2022
 
F-6
 
 
 
Notes to consolidated financial statements
 
F-7
 
F-1

 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and
Stockholders of SCWorx Corp.
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of SCWorx Corp. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of
operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to
as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and
2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles
generally accepted in the United States of America.
 
Substantial Doubt about the Company’s ability to Continue as a Going Concern
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has incurred net
losses and working capital deficits. These factors, and the need for additional financing in order for the Company to meet its business plans raises substantial doubt about the
Company’s ability to continue as a going concern. Our opinion is not modified with respect to that matter.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
 
Astra Audit & Advisory, LLC
 
 
 
We have served as the Company’s auditor since 2024.
 
 
Tampa, Florida
 
 
 
September 23, 2024
 
 
 
 3702 West Spruce Street #1430 i Tampa, Florida 33607 i +1.813.441.9707
 
 
F-2

 
 
SCWorx Corp.
Consolidated Balance Sheets
 
 
 
December 31,
   
December 31,
 
 
 
2023
   
2022
 
ASSETS
   
     
 
Current assets:
   
     
 
Cash
  $
91,436    $
249,462 
Accounts receivable
   
304,813     
336,033 
Prepaid expenses and other assets
   
39,533     
295,180 
Total current assets
   
435,782     
880,675 
 
   
      
  
Goodwill
   
5,842,433     
8,366,467 
Total assets
  $
6,278,215    $
9,247,142 
 
   
      
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
   
      
  
 
   
      
  
Current liabilities:
   
      
  
Accounts payable and accrued liabilities
  $
1,613,364    $
1,364,202 
Accounts payable and accrued liabilities - related party
   
149,838     
153,838 
Stockholder advance
   
67,622     
100,000 
Deferred revenue
   
378,583     
579,833 
Equity financing
   
125,000     
125,000 
Total current liabilities
   
2,334,407     
2,322,873 
 
   
      
  
Long-term liabilities:
   
      
  
Loans payable
   
90,359     
147,749 
Total long-term liabilities
   
90,359     
147,749 
 
   
      
  
Total liabilities
   
2,424,766     
2,470,622 
 
   
      
  
Commitments and contingencies (Note 8)
   
-     
- 
 
   
      
  
Stockholders’ equity:
   
      
  
Series A Convertible Preferred stock, $0.001 par value; 900,000 shares authorized; 39,810 shares issued and outstanding
   
40     
40 
Common stock, $0.001 par value; 45,000,000 shares authorized; 1,232,333 and 867,574 shares issued and outstanding, respectively
   
1,232     
868 
Additional paid-in capital
   
33,692,018     
32,034,309 
Subscriptions payable
   
-     
600,000 
Accumulated deficit
   
(29,839,841)    
(25,858,697)
Total stockholders’ equity
   
3,853,449     
6,776,520 
 
   
      
  
Total liabilities and stockholders’ equity
  $
6,278,215    $
9,247,142 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-3

 
 
SCWorx Corp.
Consolidated Statements of Operations
 
 
 
For the years ended
 
 
 
December 31,
 
 
 
2023
   
2022
 
 
   
     
 
Revenue
  $
3,804,943    $
4,038,188 
Cost of revenues
   
2,535,865     
2,624,553 
Gross profit
   
1,269,078     
1,413,635 
 
   
      
  
Operating expenses:
   
      
  
Legal and Professional
   
839,183     
927,183 
Salaries and wages
   
310,988     
329,641 
Stock compensation
   
361,363     
1,141,932 
General and administrative
   
1,208,206     
1,138,321 
Total operating expenses
   
2,719,740     
3,537,077 
 
   
      
  
Loss from operations
   
(1,450,662)    
(2,123,442)
 
   
      
  
Other income (expense)
   
      
  
Interest expense
   
(6,448)    
(3,155)
Impairment of goodwill
   
(2,524,034)    
- 
Gain on forgiveness of PPP loan
   
-     
279,191 
Total other (expense) income
   
(2,530,482)    
276,036 
 
   
      
  
Net loss before income taxes
   
(3,981,144)    
(1,847,406)
 
   
      
  
Provision for (benefit from) income taxes
   
-     
- 
 
   
      
  
Net loss
  $
(3,981,144)   $
(1,847,406)
 
   
      
  
Net loss per share, basic and diluted
  $
(3.86)   $
(2.32)
 
   
      
  
Weighted average common shares outstanding, basic and diluted
   
1,032,666     
797,871 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-4

 
 
SCWorx Corp.
Consolidated Statements of Changes in Stockholders’ Equity
 
 
 
 
   
 
   
 
   
 
   
Additional    
 
   
 
   
 
 
Year ended
 
Preferred Stock
   
Common stock
   
paid-in
    Subscriptions    Accumulated   
 
 
December 31, 2023
 
Shares
   
$
   
Shares
   
$
   
capital
   
payable
   
deficit
   
Total
 
 
   
     
     
     
     
     
     
     
 
Balances, December 31, 2022
   
39,810    $
40     
867,574    $
868    $ 32,034,309    $
600,000    $ (25,858,697)   $
6,776,520 
 
   
      
      
      
      
      
      
      
  
Shares issued as settlement of
accounts payable
   
-     
-     
69,072     
69     
188,735     
-     
-     
188,804 
Shares issued under equity line of
credit, net of financing costs
   
-     
-     
134,056     
134     
342,772     
-     
-     
342,906 
Shares issued for vested restricted
stock units
   
-     
-     
16,935     
17     
(17)    
-     
-     
- 
Shares issued for settlement of
class action
   
-     
-     
129,458     
129     
599,871     
(600,000)    
-     
- 
Shares issued for cashless exercise
of warrants
   
-     
-     
15,238     
15     
(15)    
-     
-     
- 
Proceeds received from potential
acquisition
   
-     
-     
-     
-     
165,000     
-     
-     
165,000 
Stock based compensation
   
-     
-     
-     
-     
361,363     
-     
-     
361,363 
Net loss
   
-     
-     
-     
-     
-     
-     
(3,981,144)    
(3,981,144)
 
   
      
      
      
      
      
      
      
  
Ending balance, December 31,
2023
   
39,810    $
40     
1,232,333    $
1,232    $ 33,692,018    $
-    $ (29,839,841)   $
3,853,449 
 
 
 
 
   
 
   
 
   
 
   
Additional    
 
   
 
   
 
 
Year ended
 
Preferred Stock
   
Common stock
   
paid-in
    Subscriptions    Subscriptions   
 
 
December 31, 2022
 
Shares
   
$
   
Shares
   
$
   
capital
   
payable
   
deficit
   
Total
 
 
   
     
     
     
     
     
     
     
 
Balances, December 31, 2021
   
39,810    $
40     
753,081    $
753    $ 29,815,568    $
600,000    $ (24,011,291)   $
6,405,070 
 
   
      
      
      
      
      
      
      
  
Shares issued as settlement of
accounts payable
   
-     
-     
11,651     
12     
151,862     
-     
-     
151,874 
Shares issued for common stock
placement
   
-     
-     
76,923     
77     
724,973     
-     
-     
725,050 
Shares issued for vested restricted
stock units
   
-     
-     
7,400     
7     
(7)    
-     
-     
- 
Commitment shares issued in
conjunction with capital raise
   
-     
-     
18,519     
19     
199,981     
-     
-     
200,000 
Stock based compensation
   
-     
-     
-     
-     
1,141,932     
-     
-     
1,141,932 
Net loss
   
-     
-     
-     
-     
-     
-     
(1,847,406)    
(1,847,406)
 
   
      
      
      
      
      
      
      
  
Ending balance, December 31,
2022
   
39,810    $
40     
867,574    $
868    $ 32,034,309    $
600,000    $ (25,858,697)   $
6,776,520 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-5

 
 
SCWorx Corp.
Consolidated Statements of Cash Flows
 
 
 
For the years ended
 
 
 
December 31,
 
 
 
2023
   
2022
 
 
 
 
   
 
 
Cash flows from operating activities:
 
    
  
Net loss
  $
(3,981,144)   $
(1,847,406)
 
   
      
  
Adjustments to reconcile net loss to net cash used in operating activities:
   
      
  
Impairment of goodwill
   
2,524,034     
- 
Gain on forgiveness of PPP loan
   
-     
(279,191)
Impairment of inventory
   
-     
156,600 
Stock-based compensation
   
361,363     
1,141,932 
Bad debt expense
   
48,000     
78,125 
Changes in operating assets and liabilities:
   
      
  
Accounts receivable
   
(16,780)    
50,693 
Prepaid expenses and other assets
   
25,647     
(31,238)
Accounts payable and accrued liabilities
   
433,966     
83,366 
Deferred revenue
   
(201,250)    
107,083 
Net cash provided by (used in) operating activities
   
(806,164)    
(540,036)
 
   
      
  
Cash flows from investing activities:
   
      
  
Proceeds from potential acquisition
   
165,000     
- 
Net cash provided by investing activities
   
165,000     
- 
 
   
      
  
Cash flows from financing activities:
   
      
  
Proceeds from the sale of common stock
   
572,906     
725,050 
Payments of loans payable
   
(57,390)    
(6,627) 
Payments of stockholder advance
   
(32,378)    
- 
Proceeds from advances - related party
   
193,558     
- 
Payments of advances - related party
   
(193,558)    
- 
Net cash provided by financing activities
   
483,138     
718,423 
 
   
      
  
Net (decrease) increase in cash
   
(158,026)    
178,387 
 
   
      
  
Cash, beginning of period
   
249,462     
71,075 
 
   
      
  
Cash, end of period
  $
91,436    $
249,462 
 
   
      
  
Supplemental disclosures of cash flow information:
   
      
  
Cash paid for interest
  $
6,448    $
131 
Cash paid for income taxes
  $
-    $
- 
 
   
      
  
Non-cash investing and financing activities:
   
      
  
Commitment shares issued in conjunction with capital raise
  $
-    $
200,000 
Shares issued for  vested restricted stock units
  $
17    $
7 
Shares issued for settlement of class action
  $
600,000    $
- 
Shares issued for cashless exercise of warrants
  $
15    $
- 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-6

 
 
SCWorx Corp.
Notes to Consolidated Financial Statements
 
Note 1. Description of Business
 
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”), 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 surviving 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 subscriptions and issued 3,125 shares of common stock to new
third-party investors. In addition, on February 1, 2019, (i) SCWorx Corp. (f/k/a SCWorx Acquisition Corp.) changed its name to SCW FL Corp. (to allow Alliance to change its
name to SCWorx Corp.) and (ii) Alliance acquired SCWorx Corp. (n/k/a SCW FL Corp.) in a stock-for-stock exchange transaction and changed Alliance’s name to SCWorx
Corp., which is the Company’s current name, with SCW FL Corp. becoming the Company’s subsidiary. 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 which it has since
ceased.
 
On October 6, 2023, following stockholder approval at the Company’s annual meeting, the Company amended its certificate of incorporation to implement a 1 for 15
reverse split of its common stock. The effect of the reverse stock split was to combine every 15 shares of outstanding common stock into one share of common stock. The
reverse stock split was effective at the opening of the trading day on October 11, 2023.
 
The effects of the reverse stock split have been reflected in this Annual Report on Form 10-K for all periods presented.
 
On October 16, 2023, the Company entered into a letter of intent to merge with American Energy Partners, Inc. (“American Environmental”) and subsequently entered
into a definitive agreement and plan of merger (the “Merger Agreement”) on December 22, 2023. The Merger Agreement was mutually terminate on March 26, 2024. During
the year ended December 31, 2023, American Environmental contributed an aggregate $165,000 to the Company to assist in covering its operating expenses.
 
Operations of the Business
 
SCWorx is a provider of data content and services related to the repair, normalization and interoperability of information for healthcare providers and big data analytics
for the healthcare 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 data to be utilized across
multiple internal software applications (“interoperability”) and provides the basis for sophisticated data analytics (“big data”). SCWorx’s solutions are designed to improve the
flow of information quickly and accurately between the existing supply chain, electronic medical records, clinical systems, and patient billing functions. The software is
designed to achieve multiple operational benefits such as supply chain cost reductions, decreased accounts receivables aging, accelerated and more accurate billing, contract
optimization, increased supply chain management and cost visibility, synchronous Charge Description Master (“CDM”) and control of vendor rebates and contract
administration fees.
 
SCWorx empowers healthcare providers to maintain comprehensive access and visibility to an advanced business intelligence that enables better decision-making and
reductions in product costs and utilization, ultimately leading to accelerated and accurate patient billing. SCWorx’s software modules perform separate functions as follows:
 
●
virtualized Item Master File repair, expansion and automation;
 
●
CDM management;
 
●
contract management;
 
●
request for proposal automation;
 
●
rebate management;
 
●
big data analytics modeling; and
 
●
data integration and warehousing.
 
F-7

 
  
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.
 
SCWorx’s software solutions are delivered to clients within a fixed term period, typically a three-to-five-year contracted term, where such software is hosted in
SCWorx data centers (Amazon Web Service’s “AWS” or RackSpace) and accessed by the client through a secure connection in a software as a service (“SaaS”) delivery
method.
 
SCWorx currently sells its solutions and services in the United States to hospitals and health systems through its direct sales force and its distribution and reseller
partnerships.
 
Impact of the COVID-19 Pandemic
 
The Company’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 outbreak adversely impacted new customer acquisition. The Company has followed the recommendations of local 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 supply 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 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 addition, the financial impact of COVID-19 on the Company’s hospital customers could cause the hospitals to delay payments due to the Company for services,
which could negatively impact the Company’s cash flows.
 
Note 2 – Liquidity and Going Concern
 
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which
contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated
financial statements do not include any adjustment that might become necessary should the Company be unable to continue as a going concern.
 
The Company has suffered recurring losses from operations and incurred a net loss of $3,981,144 for the year ended December 31, 2023 and $1,847,406 for the year
ended December 31, 2022. The accumulated deficit as of December 31, 2023 was $29,839,841. The Company has not yet achieved profitability and expects to continue to incur
cash outflows from operations. It is expected that its operating losses will continue and, as a result, the Company will eventually need to generate significant increases in
product revenues to achieve profitability. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year
after the financial statement issuance date.
 
As of the filing date of this Report, the Company has only limited cash on hand, and management believes that there may not be sufficient capital resources from
operations and existing financing arrangements in order to meet operating expenses and working capital requirements for the next twelve months.
 
Accordingly, we are evaluating various alternatives, including reducing operating expenses, securing additional financing through debt or equity securities to fund
future business activities and other strategic alternatives. There can be no assurance that the Company will be able to generate the level of operating revenues in its business
plan, or if additional sources of financing will be available on acceptable terms, if at all. If no additional sources of financing are available, our future operating prospects may
be adversely affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Note 3. Summary of Significant Accounting Policies
 
Basis of Presentation and Principles of Consolidation
 
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the U.S. Securities and
Exchange Commission (“SEC”).
 
The accompanying consolidated financial statements include the accounts of SCWorx and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
  
F-8

 
 
Cash
 
Cash is maintained with various financial institutions. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company did not have any amounts in
excess of the FDIC insured limit for as of December 31, 2023 and 2022.
 
Fair 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. Management defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at
fair value, management considers the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market
participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the
following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that
is available and significant to the fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than
quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect
management’s estimate of assumptions that market participants would use in pricing the asset or liability.
 
Concentration of Credit and Other Risks
 
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The
Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection
terms and the high level of credit worthiness of its customers. The Company performs ongoing internal credit evaluations of its customers’ financial condition, obtains deposits
and limits the amount of credit extended when deemed necessary but generally requires no collateral.
 
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:
 
 
 
Revenue
   
 
 
 
 
For the years ended
   
Accounts Receivable
 
 
 
December 31,
   
December 31,
 
Customers
 
2023
   
2022
   
2023
   
2022
 
Customer A
   
12%   
12%   
7%   
12%
Customer B
   
11%   
10%   
22%   
10%
Customer C
   
15%   
14%   
12%   
15%
Customer D
   
12%   
12%   
7%   
6%
Customer E
   
1%   
-%   
15%   
-%
Customer F
   
5%   
5%   
-%   
30%
 
Allowance for Credit Losses
 
Accounts receivable are comprised of amounts billed and currently due from customers. Accounts receivable are amounts related to any unconditional right the
Company has for receiving consideration and are presented as accounts receivable in the consolidated balance sheets. The Company maintains an allowance for credit losses for
estimated losses resulting from the inability of our customers to make required payments. The Company employs an expected credit loss model utilizing historical loss rates
and historical trends in credit quality indicators (e.g., delinquency, risk ratings), adjusted to reflect current economic conditions and knowledge or customer relationships.
 
Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history
with the customer, current industry trends, changes in customer payment terms, and specific customer situations. The Company’s normal collection cycle ranges between thirty
and 60 days. Estimated uncollectible amounts are charged to earnings and a credit to a valuation allowance. Balances which remain outstanding after reasonable collection
efforts are written off through a charge to the valuation allowance and a credit to accounts receivable The Company has assessed all receivables are collectable and did not
record an allowance for credit losses as of December 31, 2023 and 2022.
 
F-9

 
 
Inventory
 
The inventory balance at December 31, 2022 is related to the Company’s Direct-Worx, LLC subsidiary and consisted of approximately 87,000 gowns. These items are
tracked based on average cost and carried on the consolidated balance sheet at the lower of cost or market.
 
During the year ended December 31, 2022, the Company wrote off all remaining $156,000 in the value of this inventory as unsellable. During the year ended
December 31, 2023, the Company disposed of all remaining inventory previously written off.
 
Leases
 
The Company determines if an arrangement is a lease at inception. The current portion of lease obligations are included in accounts payable and accrued liabilities on
the consolidated balance sheets. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the
lease, which are included in the lease ROU asset when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a
straight-line basis over the lease term. The Company has lease agreements with lease components only, none with non-lease components, which are generally accounted for
separately (refer to Note 7, Leases, for additional detail).
 
Goodwill and Purchased Identified Intangible Assets
 
Goodwill
 
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified
intangible assets acquired under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. The
Company reviews impairment of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. The
Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after assessing the totality of events or
circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill
impairment test is unnecessary.
 
For further discussion of goodwill, refer to Note 5, Goodwill.
 
F-10

 
 
Revenue Recognition
 
The Company recognizes 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 steps:
 
●
Step 1: Identify the contract(s) with a customer
 
●
Step 2: Identify the performance obligations in the contract
 
●
Step 3: Determine the transaction price
 
●
Step 4: Allocate the transaction price to the performance obligations in the contract
 
●
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
 
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:
 
1)
Data Normalization: which includes data preparation, product and vendor mapping, product categorization, data enrichment and other data related services,
 
2)
Software-as-a-service (“SaaS”): which is generated from clients’ access of and usage of the Company’s hosted software solutions on a subscription basis for a
specified contract term, which is usually annually. In SaaS arrangements, the client cannot take possession of the software during the term of the contract and
generally has the right to access and use the software and receive any software upgrades published during the subscription period,
 
3)
Maintenance: which includes ongoing data cleansing and normalization, content enrichment, and optimization, and
 
4)
Professional Services: mainly related to specific customer projects to manage and/or analyze data and review for cost reduction opportunities.
  
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 judgement is required to determine the stand-alone
selling price for each distinct performance obligation and is typically estimated based on observable transactions when these services are sold on a stand-alone basis. At contract
inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to
transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company 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.
 
F-11

 
 
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. When these
services are combined with SaaS or Maintenance revenues, revenues recognized ratably over the period of the contract.
  
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.
 
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.
 
Remaining Performance Obligations
 
As of December 31, 2023, the Company had $378,583 of remaining performance obligations recorded as deferred revenue. The Company expects to recognize sales
relating to these existing performance obligations of during 2024.
 
As of December 31, 2022, the Company had $579,833 of remaining performance obligations recorded as deferred revenue. The Company recognized sales relating to
those existing performance obligations of during 2023.
 
Costs to Fulfill a Contract
 
Costs to fulfill a contract typically include costs related to satisfying performance obligations as well as general and administrative costs that are not explicitly
chargeable to customer contracts. These expenses are recognized and expensed when incurred in accordance with ASC 340-40.
 
Cost of Revenue
 
Cost of revenues primarily represent data center hosting costs, consulting services and maintenance of the Company’s large data array that were incurred in delivering
professional services and maintenance of the Company’s large data array during the periods presented.
 
Contract Balances
 
Contract assets arise when the revenue associated prior to the Company’s unconditional right to receive a payment under a contract with a customer (i.e., unbilled
revenue) and are derecognized when either it becomes a receivable or the cash is received. There were no contract assets as of December 31, 2023 and 2022.
 
Contract liabilities arise when customers remit contractual cash payments in advance of our company satisfying our performance obligations under the contract and are
derecognized when the revenue associated with the contract is recognized when the performance obligation is satisfied. Contract liabilities were $378,583 and $579,833 as of
December 31, 2023 and 2022, respectively.
 
F-12

 
 
Income Taxes
 
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax
expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters
that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that includes the enactment date.
 
Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized. As of December 31, 2023 and 2022, the Company has evaluated available evidence and concluded that the Company may not realize all the benefits of its deferred tax
assets; therefore, a valuation allowance has been established for its deferred tax assets.
 
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax
positions for any of the reporting periods presented.
  
Stock-Based Compensation
 
The Company accounts for stock-based compensation expense in accordance with the authoritative guidance on share-based payments. Under the provisions of the
guidance, stock-based compensation expense is measured at the grant date based on the fair value of the option or warrant using a Black-Scholes option pricing model and is
recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.
 
The authoritative guidance also requires that the Company measures and recognizes stock-based compensation expense upon modification of the term of stock award.
The stock-based compensation expense for such modification is accounted for as a repurchase of the original award and the issuance of a new award.
 
Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price
volatility, and the pre-vesting option forfeiture rate. The Company estimates the expected life of options granted based on historical exercise patterns, which are believed to be
representative of future behavior. The Company estimates the volatility of the Company’s common stock on the date of grant based on historical volatility. The assumptions
used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of
management’s judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the
future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the
forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from the
estimate, stock-based compensation expense could be significantly different from what was recorded in the current period. The Company also grants performance based
restricted stock awards to employees and consultants. These awards will vest if certain employee\consultant-specific or company-designated performance targets are achieved.
If minimum performance thresholds are achieved, each award will convert into a designated number of the Company’s common stock. If minimum performance thresholds are
not achieved, then no shares will be issued. Based upon the expected levels of achievement, stock-based compensation is recognized on a straight-line basis over the requisite
service period. The expected levels of achievement are reassessed over the requisite service periods and, to the extent that the expected levels of achievement change, stock-
based compensation is adjusted in the period of change and recorded on the consolidated statements of operations and the remaining unrecognized stock-based compensation is
recorded over the remaining requisite service period. Refer to Note 9, Stockholders’ Equity, for additional detail.
  
F-13

 
 
Loss Per Share
 
The Company computes earnings (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings
(loss) per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the
treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock options or warrants and the exercise of fully vested restricted stock units. Diluted EPS excludes all
dilutive potential shares if their effect is anti-dilutive. As of December 31, 2023 and 2022, the Company had 180,390 and 273,059, respectively, common stock equivalents
outstanding.
 
Indemnification
 
The Company provides indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from
the use of the Company’s software. In accordance with authoritative guidance for accounting for guarantees, the Company evaluates estimated losses for such indemnification.
The Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, no
such claims have been filed against the Company and no liability has been recorded in its consolidated financial statements.
 
As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or
director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and
may enable it to recover any payments above the applicable policy retention.
 
In connection with the Class Action and derivative claims and investigations described in Note 8, Commitments and Contingencies, the Company is obligated to
indemnify its officers and directors for costs incurred in defending against these claims and investigations.
 
Contingencies
 
The Company records a liability when the Company believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If the
Company determines that a loss is reasonably possible, and the loss or range of loss can be estimated, the Company discloses the possible loss in the notes to the consolidated
financial statements. The Company reviews the developments in its contingencies that could affect the amount of the provisions that has been previously recorded, and the
matters and related possible losses disclosed. The Company adjusts provisions and changes to its disclosures accordingly to reflect the impact of negotiations, settlements,
rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount.
 
Legal costs associated with loss contingencies are accrued based upon legal expenses incurred by the end of the reporting period.
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts
reported and disclosed in the consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to the allowance
for credit losses, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax
asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that
are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent
there are material differences between the estimates and the actual results, future results of operations will be affected. Actual results could differ materially from those
estimates.
 
F-14

 
 
Recently Issued Accounting Pronouncements
 
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed,
management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon
adoption.
 
Note 4. Related Party Transactions
 
At December 31, 2023 and 2022, the Company had amounts due to officers in the amount of $149,838 and $153,838, respectively.
 
During September 2021, the Company’s former CEO (also a significant shareholder) advanced $100,000 in cash to the Company for short term capital requirements.
This amount is non-interest bearing and payable upon demand. The Company had balances of $67,622 and $100,000 included in stockholder advance on the Company’s
consolidated balance sheets as of December 31, 2023 and 2022, respectively. 
 
Between May 24, 2023 and November 29, 2023, the Company’s CFO advanced an aggregate $193,558 in cash to the Company for short term capital requirements. As
of December 31, 2023, all advanced amounts have been repaid.
 
The above amounts and terms are not necessarily what third parties would agree to.
 
Note 5. Goodwill
  
During the year ended December 31, 2023, the Company determined that the fair value of its goodwill was less than its carrying value. The Company determined the
carrying value to be $5,842,433 as of December 31, 2023 and recognized impairment expense $2,524,034.
 
There were no changes to the carrying value of goodwill for the year ended December 31, 2022.
 
F-15

 
 
Note 6. Loans Payable
 
Receipt of CARES funding
 
On May 5, 2020, the Company obtained a $293,972 unsecured loan payable through the Paycheck Protection Program (“PPP”), which was enacted as part of the
Coronavirus Aid, Relief and Economic Security Act (the “CARES ACT”). The funds were received from Bank of America through a loan agreement pursuant to the CARES
Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans
to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act and used for payroll costs, rent, mortgage interest,
and utility costs during the 24 week period after the date of loan disbursement is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight
week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. While the full loan
amount may be forgiven, the amount of loan forgiveness will be reduced if, among other reasons, the Company does not maintain staffing or payroll levels or less than 60% of
the loan proceeds are used for payroll costs. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred to the date the SBA
remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness
period for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan. In
May 2022, the Company was granted an extension on the maturity date of this note until March 5, 2025. The loan was partially forgiven in the amount of $139,596 in
September 2022 with the balance remaining due.
  
On March 17, 2021, the Company received $139,595 in financing from the U.S. government’s Payroll Protection Program (“PPP”). We entered into a loan agreement
with Bank of America. This loan agreement was pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the
economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed
under the CARES Act is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are
only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the
Company does not maintain staffing or payroll levels. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred for six
months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan. This note was fully
forgiven on March 12, 2022.
 
Note 7. Leases
 
Operating Leases
 
The Company’s principal executive office in Tampa Florida is under a month-to-month arrangement with a base rent of $250 per month.
 
The Company has operating leases for corporate, business and technician offices. Leases with a probable term of 12 months or less, including month-to-month
agreements, are not recorded on the consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or an option to renew the
arrangement, that the Company is reasonably certain to exercise (short-term leases). The Company recognizes lease expense for these leases on a straight-line bases over the
lease term. The Company’s only remaining lease is month-to-month. As a practical expedient, the Company elected, for all office and facility leases, not to separate non-lease
components (common-area maintenance costs) from lease components (fixed payments including rent) and instead to account for each separate lease component and its
associated non-lease components as a single lease component.
 
For the years ended December 31, 2023 and 2022, the components of lease expense were as follows:
 
 
 
For the years ended
 
 
 
December 31,
 
 
 
2023
   
2022
 
Operating lease cost
  $
3,523    $
1,043 
 
   
      
  
Total lease cost
  $
3,523    $
1,043 
 
As of December 31, 2023 and 2022, the Company has no additional operating leases, and no financing leases.
 
F-16

 
 
Note 8. Commitments and Contingencies
 
In conducting our business, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a
liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is
accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation
loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
 
CorProminence d/b/a Core IR v. SCWorx
 
AAA Arbitration Case 01-22-0001-5709
 
As previously disclosed in the Company’s periodic reports filed with the SEC, on April 25, 2022, the Company received a Demand for Arbitration along with a
Statement of Claim filed by Core IR with the American Arbitration Association seeking damages in the amount of approximately $190,000. arising out of a marketing and
consulting agreement. The Company filed its answer, affirmative defenses and counterclaims on May 16, 2022. By order of the arbitrator dated November 1, 2022, Core IR
received permission to amend its Statement of Claim to increase its request for damages to $257,546. The Company received the final decision of the Arbitrator on October 16,
2023, awarding Core IR $461,856 including unpaid compensation, indemnification for legal fees and costs, prevailing party legal fees and interest (the “Award”). Core IR has
since obtained a judgement in the amount of approximately $502,000 (including interest) (“Judgement”) which is included in accounts payable and accrued liabilities on the
Company’s consolidated balance sheet at December 31, 2023. The Company and Core IR entered into a settlement agreement dated July 12, 2024 under which the Company
agreed to issue Core IR shares of its common stock with a value of $502,000 (determined based on sales proceeds realized by Core IR), in full and complete satisfaction of the
Judgement. The settlement agreement is filed as exhibit 10.5 to this annual report on Form 10-K
 
Hadrian Equities Partners, LLC et ano. v. SCWorx Corp,
 
Case No. 22-cv-07096 (JLR) (S.D.N.Y)
 
On August 19, 2022, Hadrian Equities Partners, LLC and the Phillip W. Caprio, Jr. 2007 Irrevocable Trust filed a complaint in the United States District Court for the
Southern District of New York alleging that SCWorx was dilatory and did not comply with its alleged contractual duties to remove the restrictions from Plaintiffs’ converted
AMMA stock to SCWorx stock until August 10 and August 11, 2020. Plaintiffs allege that as a result, they were unable to sell their SCWorx stock when SCWorx was trading at
its highest price on April 13, 2020. The Complaint sought $500,000 in damages. Plaintiffs filed an Amended Complaint on November 28, 2022. On February 6, 2023, SCWorx
filed its answer to the Amended Complaint interposing numerous defenses. Plaintiff have since entered into a settlement agreement dated December 1, 2023 (effective as of
October 23, 2023) (as amended April 29, 2024), under which the Company agreed to pay Plaintiffs $20,000 and issue them 37,500 shares of common stock, all in full
settlement of the claims made in the lawsuit. The Company has accrued for this liability which is included in accounts payable and accrued liabilities on the Company’s
consolidated balance sheet at December 31, 2023. The cash payment was made in July 2024, and the shares were issued in May 2024.
 
Carole R. Bernstein, Esq. v. SCWorx Corp.
 
As previously disclosed in the Company’s Form 10-Q for the quarter ended June 30, 2023, on June 7, 2023, Carole R. Bernstein, Esq. filed a complaint in the United
States District Court for the Southern District of New York against the Company. The complaint alleged that the Company breached its engagement agreement with Ms.
Bernstein by failing to pay legal fees when due. Ms. Bernstein sought to recover $69,164 fees owing for services, plus interest, costs, including her attorney’s fees. The
Company has accrued for this liability which is included in accounts payable and accrued liabilities on the Company’s consolidated balance sheet at December 31, 2023. The
Company and the Plaintiff have since entered into a settlement agreement dated July 12, 2024, under which the Company agreed to pay Plaintiffs $80,000 in two equal
installments of $40,000, the first of which was paid August 9, 2024, and the second of which is payable on or about October 9, 2024.
 
F-17

 
 
Note 9. Stockholders’ Equity
 
Authorized Shares
 
The Company has 45,000,000 Common shares and 900,000 Series A convertible preferred shares authorized with a par value of $0.001 per share.
 
On October 6, 2023, following stockholder approval at the Company’s annual meeting, the Company amended its certificate of incorporation to implement a 1 for 15
reverse split of its common stock. The effect of the reverse stock split was to combine every 15 shares of outstanding common stock into one share of common stock. The
reverse stock split was effective at the opening of the trading day on October 11, 2023. The effects of the reverse stock split have been reflected in this Annual report on form
10/K for all periods presented.
 
Common Stock
 
Issuance of Shares for Vested Restricted Stock Units
 
Between January 10, 2023 and January 26, 2023, the Company issued a total of 756 shares of common stock to holders of fully vested restricted stock units.
 
Between June 5, 2023 and June 16, 2023, the Company issued a total of 14,445 shares of common stock to holders of fully vested restricted stock units.
 
Between July 5, 2023 and July 19, 2023, the Company issued a total of 956 shares of common stock to holders of fully vested restricted stock units.
 
On November 23, 2023, the Company issued a total of 778 shares of common stock to holders of fully vested restricted stock units.
 
Issuance of Shares as Settlement of Accounts Payable
 
On May 24, 2023, the Company issued 6,807 shares of common stock in full settlement of $26,545 of accounts payable. The shares had a fair value of $3.90 per share.
 
On June 22, 2023, the Company issued 3,264 shares of common stock in full settlement of $17,621 of accounts payable. The shares had a fair value of $5.40 per share.
 
On July 26, 2023, the Company issued 4,837 shares of common stock in full settlement of $16,686 of accounts payable. The shares had a fair value of $3.45 per share.
 
On August 18, 2023, the Company issued 8,734 shares of common stock in full settlement of $32,750 of accounts payable. The shares had a fair value of $3.75 per
share.
 
On September 27, 2023, the Company issued 7,910 shares of common stock in full settlement of $22,542 of accounts payable. The shares had a fair value of $2.85 per
share.
 
On October 23, 2023, the Company issued 17,000 shares of common stock in full settlement of $37,571 of accounts payable. The shares had a fair value of $2.21 per
share.
 
On December 22, 2023, the Company issued  20,520  shares of common stock in full settlement of $35,088  of accounts payable. The shares had a fair value of
$1.71 per share
 
F-18

 
 
Issuance of Shares under Common Stock Purchase Agreement
 
On June 1, 2023, the Company issued 200,000 shares of common stock for net proceeds of $127,053 under its common stock purchase agreement dated June 28, 2022.
 
On June 22, 2023, the Company issued 200,000 shares of common stock for net proceeds of $134,634 under its common stock purchase agreement dated June 28,
2022.
 
On Between July 7, 2023 and September 28, 2023, the Company issued a total of 94,056 shares of common stock for aggregate net proceeds of $311,220 under its
common stock purchase agreement dated June 28, 2022.
 
Issuance of Shares for the Exercise of Warrants
 
On June 15, 2023, the Company issued 15,238 shares of common stock in a cashless exchange for 54,872 warrants to purchase shares of common stock at $9.75 per
share. 
 
Issuance of Shares for Class Action Settlement
 
On June 5, 2023, the Company issued an aggregate 129,458 shares of common stock in full settlement of the previously accrued subscription payable valued at
$600,000. 
 
Stock Incentive Plan
 
The number of shares of the Company’s common stock that are issuable pursuant to warrant and stock option grants with time-based vesting as of and for the year
ended December 31, 2023 are:
 
 
 
Warrant Grants
   
Stock Option Grants
   
Restricted Stock
Units
 
 
 
Number of
shares subject
to warrants
   
Weighted-
average exercise
price per share    
Number of
shares subject
to options
   
Weighted-
average exercise
price per share    
Number of
shares subject
to restricted
stock units
 
Balance at December 31, 2022
   
104,515    $
20.25     
7,891    $
48.75     
160,653 
Granted
   
-     
-     
-     
-     
95,624 
Exercised
   
(54,872)    
9.75     
-     
-     
(86,003)
Cancelled/Expired
   
(38,249)    
23.73     
(4,558)    
55.43     
(4,611)
Balance at December 31, 2023
   
11,394    $
58.72     
3,333    $
39.60     
165,663 
Exercisable at December 31, 2023
   
11,394    $
58.72     
3,333    $
39.60     
165,663 
 
F-19

 
 
The number of shares of the Company’s common stock that are issuable pursuant to warrant and stock option grants with time-based vesting as of and for the year
ended December 31, 2022 are:
 
 
 
Warrant Grants
   
Stock Option Grants
   
Restricted Stock
Units
 
 
 
Number of
shares subject
to warrants
   
Weighted-
average exercise
price per share    
Number of
shares subject
to options
   
Weighted-
average exercise
price per share    
Number of
shares subject
to restricted
stock units
 
Balance at December 31, 2021
   
69,568    $
38.55     
7,891    $
48.75     
144,053 
Granted
   
34,947     
9.75     
-     
-     
31,021 
Exercised
   
-     
-     
-     
-     
(14,421)
Cancelled/Expired
   
-     
-     
-     
-     
- 
Balance at December 31, 2022
   
104,515    $
20.25     
7,891    $
48.75     
160,653 
Exercisable at December 31, 2022
   
104,515    $
20.25     
7,891    $
48.75     
151,145 
 
The Company has classified the warrant as having Level 2 inputs, and has used the Black-Scholes option-pricing model to value the warrant.
 
The Company’s outstanding warrants and options at December 31, 2023 are as follows:
 
Warrants Outstanding
   
Warrants Exercisable
 
Exercise Price Range   Number Outstanding   
Weighted Average
Remaining
Contractual Life
(in years)
   
Weighted
Average
Exercise Price
   
Number
Exercisable
   
Weighted Average
Exercise Price
   
Intrinsic Value
 
$51.30 – $60.00
   
11,394     
1.62    $
58.72     
11,394    $
58.72     
         - 
 
Options Outstanding
   
Options Exercisable
 
Exercise Price Range   Number Outstanding   
Weighted Average
Remaining
Contractual Life
(in years)
   
Weighted
Average
Exercise Price
   
Number
Exercisable
   
Weighted Average
Exercise Price
   
Intrinsic Value
 
$39.60
   
3,333     
0.91    $
39.60     
3,333    $
39.60     
         - 
 
F-20

 
 
As of December 31, 2023 and 2022, the total unrecognized expense for unvested stock options and restricted stock awards was none and approximately $220,000,
respectively, to be recognized over a one to three-year period for restricted stock awards and one year for option grants from the date of grant.
 
Stock-based compensation expense for the years ended December 31, 2023 and 2022 was as follows:
 
 
 
For the years ended
 
 
 
December 31,
 
 
 
2023
   
2022
 
Stock-based compensation expense
  $
361,363    $
1,141,932 
 
Stock-based compensation expense categorized by the equity components for the years ended December 31, 2023 and 2022 is as follows:
 
 
 
For the years ended
 
 
 
December 31,
 
 
 
2023
   
2022
 
Common stock
  $
361,363    $
1,141,932 
Total
  $
361,363    $
1,141,932 
 
Stock compensation is included in general and administrative expenses on the consolidated statements of operations.
 
Note 10. Net Loss Per Share
 
Basic net loss per share is computed by dividing net loss for the period by the weighted average shares of common stock outstanding during each period. Diluted net
loss per share is computed by dividing net loss for the period by the weighted average shares of common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. The Company uses the treasury stock method to determine whether there is a dilutive effect of outstanding option grants.
 
The following securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-
dilutive:
 
 
 
For the years ended
 
 
 
December 31,
 
 
 
2023
   
2022
 
Stock options
   
3,333     
7,891 
Warrants
   
11,394     
104,515 
Restricted stock units
   
165,663     
160,653 
Total common stock equivalents
   
180,390     
273,059 
 
Note 11. Income Taxes
 
By virtue of a merger of the limited liability company into a corporation, the Company became a corporation during 2018.
 
The significant items comprising the Company’s net deferred taxes as of December 31, 2023 and 2022 are as follows:
 
 
 
As of December 31,
 
 
 
2023
   
2022
 
Net operating loss
  $
8,790,076    $
8,541,890 
Stock options and compensation
   
2,440,539     
2,358,690 
Deferred revenue
   
324,159     
238,410 
Other
   
571,694     
- 
Valuation allowance
   
(12,126,468)    
(11,138,990)
Total deferred tax asset
   
-     
- 
 
   
      
  
Basis difference fixed assets
   
-     
- 
Total deferred tax liability
   
-     
- 
 
   
      
  
Net deferred tax asset (liability)
  $
-    $
- 
 
F-21

 
 
The components of the provision for (benefit from) income taxes consist of the following:
 
 
 
As of December 31,
 
 
 
2023
   
2022
 
Current tax:
 
    
  
Federal
  $
-    $
- 
State
   
-     
- 
Total
  $
-    $
- 
 
   
      
  
Deferred tax:
   
      
  
Federal
  $
(915,543)   $
(509,721)
State
   
(71,935)    
(40,049)
Less: change in valuation allowance
   
987,478     
549,770 
 
   
-     
- 
Total
  $
-    $
- 
 
The provision for (benefit from) income taxes varies from the amount computed by applying the statutory rate for reasons summarized below:
 
 
 
As of December 31, 2023
 
 
As of December 31, 2022
 
Net loss before tax per financial statements
  $
(3,981,144)    
  
  $
(1,847,406)    
  
 
   
      
  
   
      
  
Statutory rate
   
(836,040)    
21.00%    
(387,955)    
21.00%
State tax rate
   
(65,689)    
1.65 %    
(30,482)    
1.65%
Permanent items
   
(85,749)    
2.15 %    
(131,330)    
7.11%
Rate change
   
      
0.00 %    
-     
0.00%
Change in valuation allowance
   
987,478     
(24.80)%   
549,770     
(29.73)%
 
  $
-     
0.00%   $
-     
0.00%
 
As of December 31, 2023 and 2022, the Company had federal net operating loss carryforwards of approximately $38.8 million and $37.7 million, respectively,
available to offset future taxable income. As of December 31, 2023 and 2022, the Company had state loss carry-forwards of approximately $18.2 million and $17.1,
respectively. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code of 1986, as amended
(the “Code”). The federal net operating loss carryforwards can be carried forward indefinitely and state loss carryforwards begin to expire in 2039.
 
The valuation allowance as of December 31, 2023 and 2022 was $12,126,468 and $11,138,990, respectively. The net change in valuation allowance for the years
ended December 31, 2023 and 2022 was an increase of $987,478 and $549,770, respectively. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items,
management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation
allowance as of December 31, 2023 and 2022.
 
The Company had no unrecognized tax benefits during 2023 or 2022. By statute, all tax years are open to examination by the major taxing jurisdictions to which the
Company is subject.
 
F-22

 
 
Note 12. Subsequent Events
 
The Company has evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must
be reported. Management has determined that except as disclosed below, there were no additional reportable subsequent events to be disclosed.
 
Financing Transaction
 
On April 12, 2024, the Company issued a secured promissory note in the face amount of $330,000, in exchange for which it received cash in the amount of $300,000.
In addition to the original issue discount of $30,000, the note bears interest at the rate of 5% per annum, was originally due May 10, 2024 and was secured by all the Company
assets.
 
On July 16, 2024, the Company closed a Securities Purchase Agreement (the “SPA”) with certain accredited investors. Under the SPA, the Company sold a series of
senior secured convertible notes with an aggregate principal amount of $1,155,000, including the exchange of the April 12, 2024 secured promissory note, that had an initial
conversion price of $1.43 per share, subject to certain adjustments and maturity date of December 31, 2024. The Company also issued five year warrants to acquire up to an
aggregate 4,846,158 additional shares of the Company’s common stock with exercise prices ranging from $1.43 to $1.573 per share.
 
Issuance of Shares for Vested Restricted Stock Units
 
On March 27, 2024, the Company issued 1,667 shares of common stock to a holder of fully vested restricted stock units.
 
Issuance of Shares as Settlement of Accounts Payable
 
Between February 6, 2024 and July 11, 2024, the Company issued an aggregate 130,039 shares of common stock in full settlement of $239,809 of accounts payable.
The shares had a fair value ranging from $1.50 to $2.65 per share.
 
Issuance of Shares as settlement of other obligations
 
On May 30, 2024, the Company issued 37,500 shares owed as part a prior legal settlement.
 
On July 15, 2024, the Company issued 38,052 shares of common stock in full settlement of threatened litigation. The shares were valued at $1.41 per share.
 
On July 18, 2024, the Company issued 159,776 shares of common stock as part of a stock settlement agreement for payment of its obligation under its judgement from
Core IR.
 
F-23

 
 
EXHIBIT INDEX
 
Pursuant to the rules and regulations of the SEC, the Company has filed certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may
contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements
and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be
specified in such agreements and are subject to more recent developments, which may not be fully reflected in the Company’s public disclosure, (iii) may reflect the allocation
of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these
representations and warranties may not describe the Company’s actual state of affairs at the date hereof and should not be relied upon.
 
Exhibit
  Exhibit Description
3.1
  Certificate of Incorporation, as amended February 1, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s 10-K filed with the SEC on April 1,
2019)
 
   
3.3
  Amended and Restated By-laws (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No. 333-213166) filed
with the SEC on August 16, 2016)
 
   
4.1
  Form of Series A, Series B and Series C Warrant (incorporated by reference to Exhibit 4.1 to the Company’s 8-K filed with the SEC on July 15, 2024)
 
   
10.1
  Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s 8-K filed with the SEC on July 15, 2024)
 
   
10.2
  Form of Senior Secured Convertible Note (incorporated by reference to Exhibit 10.2 to the Company’s 8-K filed with the SEC on July 15, 2024)
 
   
10.3
  Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to the Company’s 8-K filed with the SEC on July 15, 2024)
 
   
10.4
  Form of Guaranty and Security Agreement (incorporated by reference to Exhibit 10.4 to the Company’s 8-K filed with the SEC on July 15, 2024)
 
   
10.5
  Settlement Agreement with CorProminence LLC, d/b/a Core IR (incorporated by reference to Exhibit 10.8 to the Company’s 8-K filed with the SEC on July
15, 2024)
 
   
31.1
  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
 
   
31.2
  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
 
   
32.1
  Section 1350 Certification of the Chief Executive Officer*
 
   
32.2
  Section 1350 Certification of the Chief Financial Officer*
 
   
101.INS*
  Inline XBRL Instance Document.
101.SCH*
  Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
  Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
  Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
  Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
  Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 
 *
Filed herewith
 
 
44
 

Exhibit 31.1
 
CERTIFICATION
 
I, Timothy A. Hannibal, certify that:
 
1.
I have reviewed this Annual Report on Form 10-K of SCWorx Corp.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods present in this report;
 
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
 
5.
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
 
Date: September 23, 2024
By:
/s/ Timothy A. Hannibal
 
 
Timothy A. Hannibal
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 

Exhibit 31.2
 
CERTIFICATION
 
I, Christopher J. Kohler, certify that:
 
1.
I have reviewed this Annual Report on Form 10-K of SCWorx Corp.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods present in this report;
 
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
 
5.
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
 
Date: September 23, 2024
By:
/s/ Christopher J. Kohler
 
 
Christopher J. Kohler
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)
 
 

Exhibit 32.1
 
Section 1350 CERTIFICATION
 
In connection with this Annual Report of SCWorx Corp. (the “Company”) on Form 10-K for the year ended December 31, 2023, as filed with the U.S. Securities and Exchange
Commission on the date hereof (the “Report”), I, Timothy A. Hannibal, President and Chief Operating Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: September 23, 2024
By:
/s/ Timothy A. Hannibal 
 
 
Timothy A. Hannibal
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 

Exhibit 32.2
 
Section 1350 CERTIFICATION
 
In connection with this Annual Report of SCWorx Corp. (the “Company”) on Form 10-K for the year ended December 31, 2023, as filed with the U.S. Securities and Exchange
Commission on the date hereof (the “Report”), I, Christopher J. Kohler, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: September 23, 2024
By:
/s/ Christopher J. Kohler 
 
 
Christopher J. Kohler
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)