SCWorx Corp. 10-K

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, 2020, 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 President/COO 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 President and Chief Financial Officer concluded that, due to deficiencies in the design of internal controls and lack of segregation of duties, our Disclosure Controls were not effective as of December 31, 2020, 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. 40 Management Report on Internal Controls over Financial Reporting Our management has identified material weaknesses in our internal controls related to deficiencies in the design of internal controls and segregation of duties. Management is planning to meet with the Audit Committee to discuss remediation efforts, which are expected to be resolved during 2021, or until such time as management is able to conclude that its remediation efforts are designed and operating effectively. Our management is actively looking for additional accounting and finance personnel to assist in the remediation efforts. Notwithstanding the foregoing, our management, including our President 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. During the year ended December 31, 2020, the Company hired a new CFO to manage financial reporting, increase the segregation of duties, and implement increased financial controls. Item 9B. Other Information None. 41 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 52 President & Chief Operating Officer Chris Kohler 40 Chief Financial Officer Alton Irby 80 Director Marc S. Schessel 58 Director Mark Shefts 63 Director Steven Wallitt 59 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 has over 29 years’ experience in SaaS and cloud technology, driving revenue, go-to-market strategies, mergers and acquisitions and executive management. Mr. Hannibal Joined the Company in January 2019 as our Chief Revenue Officer. He was appointed interim Chief Financial Officer on June 10, 2020. On August 10, 2020, Mr. Hannibal was appointed President, Chief Operating Officer and a member of the Board of Directors. Prior to joining the Company, Mr. Hannibal was an executive at Primrose Solutions (the predecessor to the 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, a company he founded, for thirteen years. VaultLogix was a leading SaaS company in the cloud backup industry before being acquired by J2 Global. 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 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 on several public and private companies including 17 years as a director of The McKesson Corporation chairing both the Compensation and Finance Committees. 42 Marc Schessel Mr. Schessel, is SCWorx’s founder and former Chief Executive Officer. He continues to serve on the Board of Directors, though he has not been renominated to serve on the Board after the Special Meeting in lieu of 2020 Annual Meeting to be held in May 2021. He also serves as a consultant to the Company. He founded SCWorx’s predecessor (Primrose LLC) in 2012 and has been Chairman and CEO of SCWorx since then. Commencing his work in supply chain during his ten years in the Marine Corps, Mr. Schessel was awarded the Naval Achievement medal along with the Naval Commendation medal for services rendered in creating the first automated supply and logistics software (M triple S) which was ultimately put in service at leading corporations such as Sears and IBM. Since leaving the Marine Corps, Mr. Schessel has continued his work in refining programmatic solutions for the most complex and critical supply chains in the country — the healthcare industry. Working in all facets of the Healthcare Supply Chain, Mr. Schessel spent over ten years as a Vice President of Supply Chain for a large NYC based Integrated Delivery Network before forming his own consultancy — focused on delivering automated solutions to Providers, Business-to-Business (B2B) e-commerce companies (GHX), tier one consulting firms, GPOs, distributors, payors and manufacturers. Mr. Schessel also served as a consultant to the United Nations — developing an automated Emergency Medical Response program that, based on the event, forecasts the items, quantities and logistical delivery networks crucial for responders, allowing countries by region to better plan, stock and store critical supplies. Mark Shefts Mr. Shefts, has served as a director and a member of our audit committee, compensation committee and nominating committee since May 15, 2020. Mr. Shefts was a member of the board of directors and chairman of the audit committee of Alliance MMA, Inc. from August 2016 to October 2017. Since 2004, Mr. Shefts has served as the Chief Executive Officer of The Rushcap Group, Inc., a privately held investment and consulting firm. Since 2005, Mr. Shefts has served as a Trustee of The Onyx & Breezy Foundation, a non-profit organization. Previously, Mr. Shefts was the Director, President and co-owner of All-Tech Investment Group Inc., from 1987 to 2001, and Domestic Securities, Inc., from 1993 to 2011, each an SEC-registered broker dealer. Mr. Shefts has previously owned seats on both the New York Stock Exchange and the Chicago Stock Exchange. Mr. Shefts has been an arbitrator for the American Arbitration Association and FINRA Dispute Resolution, Inc. with an area of specialization in the field of financial services. Mr. Shefts has held FINRA Series 7, 24 and 63 licenses and a Series 27 qualification as a Financial and Operations Principal. Mr. Shefts is also certified as Financial Services Auditor and a Certified Fraud Examiner. Mr. Shefts has been a Director, EVP & Chief Financial officer of Arbor Entech Corp. and Solar Products Sun-Tank, Inc., each a publicly traded company. Mr. Shefts holds a BS in accounting from Brooklyn College of The City University of New York. Steven Wallitt Mr. Wallitt, has worked as owner and director of a packaging materials company since 1981. He is responsible for decision making in all areas of the company, including sourcing the best and most efficient methods for achieving maximum profitability and the highest quality standards. He has extensive knowledge in evaluating sales and marketing proposals. Beginning in 2008, he has been an investor in both private and public companies, as well as early-stage public companies with personal investments of $50,000 to more than $3,000,000. He has consulted for many of these companies in areas ranging from public market strategies, growth strategies, evaluating contract proposals, cost control and evaluating employee responsibilities in order to achieve maximum efficiencies. Since 2014, Mr. Wallitt has been an advisory board member to Redtower Capital, a California-based investment firm where he advises on all aspects of client identification, sales and marketing strategies and profit maximization. Since 2017, he has been a significant investor in Alliance MMA and SCWorx. Mr. Wallitt holds a BA degree in communications from Rider College, Lawrenceville, NJ. 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. 43 Family Relationships There are no family relationships between any of our directors, executive officers or significant employees, except that Mr. Schessel, who is currently a director, is the father-in-law of Chad Otens and Theodore Dembowski, two of our significant software developers. Involvement in Certain Legal Proceedings During the past ten years, none of our officers, directors, significant employees or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K. Board Composition The Board of Directors currently consists of five directors. Each director will serve in office until the Special Meeting in lieu of 2020 annual meeting of stockholders (to be held in May 2021) or until their successors have been duly elected and qualified, or until the earlier of their respective 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. 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 will operate 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. Shefts, Mr. Wallitt and Mr. Irby. The audit committee consists exclusively of directors who are financially literate. In addition, Mr. Shefts will be considered an “audit committee financial expert” as defined by the SEC’s rules and regulations. All members of the Audit Committee currently satisfy the independence requirements and other established criteria of Nasdaq. Compensation Committee The Compensation Committee oversees our executive compensation and recommends various incentives for key employees to encourage and reward increased corporate financial performance, productivity and innovation. The members of the compensation committee are Mr. Shefts and Mr. Wallitt. 44 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. Shefts and Mr. Wallitt, 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. 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, 2020, our officers and directors, and all of the persons known to us to beneficially own more than 10% of our common stock filed all required reports on a timely basis except for an initial Form 4 filing by our newly appointed CFO due to his needing to apply for Edgar codes. 45 Item 11. Executive Compensation The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2020 and 2019 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. Name and Principal Fiscal Salary Bonus Stock Awards Option Awards Non-Equity Incentive Plan Compensation Changes in Pension Value and Non-Qualified Deferred Compensation Earnings All Other Compensation Total Position Year ($) ($) ($) ($) ($) ($) ($) ($) Marc Schessel (1) 2020 373,750 - 240,000 - - - 29,805 643,555 Chairman and Former Chief Executive Officer 2019 366,667 - 486,750 - - - 27,528 880,945 Timothy Hannibal (2) 2020 244,000 - 1,881,101 37,394 2,162,495 President, Chief Operating Officer and director 2019 200,000 - 324,500 - - - 22,916 547,416 Chris Kohler (3) 2020 12,000 - - - - - - 12,000 Chief Financial Officer 2019 - - - - - - - - James Schweikert (4) 2020 - - - - - - - - Former Chief Operating Officer 2019 145,833 - 1,263,750 - - - 17,519 1,427,102 John Price (5) 2020 - - - - - - - - Former Chief Financial Officer 2019 237,500 - 1,839,250 - - - 41,959 2,172,709 (1) Mr. Schessel was appointed Chairman and Chief Executive Officer of SCWorx Corp (f/k/a Alliance MMA, Inc.) on February 1, 2019. On January 19, 2020 Mr. Schessel resigned as Chief Executive Officer but remains as Chairman. (2) 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. (3) Mr. Kohler was hired as Chief Financial Officer on November 1, 2020. (4) Mr. Schweikert was appointed Chief Operating Officer on May 31, 2019. Mr. Schweikert’s employment was terminated by mutual agreement on April 29, 2020. (5) Mr. Price was President and Chief Financial Officer of Alliance MMA, until the acquisition on February 1, 2019, at which time he was appointed our Chief Financial Officer. He resigned on October 25, 2019. 46 Directors’ Compensation The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2020 and 2019 awarded to, earned by or paid to our directors. The value attributable to any stock option awards reflects the grant date fair values of stock awards calculated in accordance with ASC Topic 718. Fees Earned or Paid in Cash Stock Award Option Award Non-equity Incentive Plan Compensation Non-qualified Deferred Compensation Earnings All Other Compensation Total Name Year ($) ($) ($) ($) ($) ($) ($) Mark Shefts (1) 2020 - 727,685 - - - - 727,685 Director 2019 - - - - - - - Steven Wallitt (2) 2020 - 240,000 - - - - 240,000 Director 2019 - - - - - - - Alton Irby (3) 2020 - - - - - - - Director 2019 - - - - - - - Francis Knuettel (4) 2020 - - - - - - - Former Director 2019 - 135,000 73,528 - - - 208,528 Ira Ritter (5) 2020 - - - - - - - Former Director 2019 - - 203,108 - - - 203,108 Joseph Gamberale (6) 2020 - - - - - - - Former Director 2019 - - - - - 20,955 20,955 Charles K. Miller (7) 2020 - 240,000 - - - - 240,000 Former Director 2019 - - 203,108 - - - 203,108 Robert Christie (8) 2020 - - - - - - - Former Director 2019 - - 203,108 - - - 203,108 Joel D Tracy 2020 - - - - - - - Former Director 2019 - - - - - 29,777 29,777 Burt Watson 2020 - - - - - - - Former Director 2019 - - - - - - - (1) Mark Shefts was appointed as a Director on May 15, 2020. (2) Steven Wallitt was appointed as a Director on October 4, 2019. (3) Alton Irby was appointed as a Director on March 16, 2021. (4) Francis Knuettel was appointed as a Director on February 1, 2019 and resigned on December 31, 2019. (5) Ira Ritter was appointed as a Director on February 1, 2019 and resigned on December 31, 2019. (6) Joseph Gamberale was appointed as a Director on February 12, 2015 and resigned on February 1, 2019. His other compensation includes the costs of health insurance premiums paid on his behalf. (7) Charles K Miller was appointed as a Director on October 24, 2018 and resigned September 25, 2020. (8) Robert Christie was appointed as a Director on February 1, 2019 and resigned April 29, 2020. (9) Joel D. Tracy was appointed as a Director on September 30, 2016 and resigned February 1, 2019. His other compensation includes the costs of health insurance premiums paid on his behalf. (10) Burt Watson was appointed as a Director on September 30, 2016 and resigned February 1, 2019. 47 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 May 15, 2021: (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 May 15, 2021, there were 10,029,433 shares of our common stock outstanding. Amount and Nature of Beneficial Ownership as of May 15, 2021 (1) Named Executive Officers and Directors Common Stock Preferred Stock Options/​ Warrants Total Percentage Ownership Current ​ ​ ​ ​ Marc Schessel (5) 1,506,606 — — 1,506,606 15 Timothy Hannibal 368,420 — — 368,420 3.7 Chris Kohler — — — — * Steven Wallitt(4) 200,120 5,000 — 213,278 2.1 Mark Shefts(3) 159,391 — 2,340 159,391 1.6 Alton Irby — — — — * Directors and Executive Officers as a Group (6 persons) 2,234,537 5,000 — 2,247,695 22.4 Former ​ ​ ​ ​ Ira Ritter — — — — * Frank Knuettel II — — — — * Charles K. Miller 3,289 — — 3,289 * Joseph Gamberale 400,780 — 82,238 438,018 4.4 Robert Christie — — — — * Joel D. Tracy(2) 19,026 24,105 — 82,461 * Burt Watson 878 — — 878 * John Price — — 34,211 34,211 * * 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 May 15, 2021. In determining the percent of common stock owned by a person or entity on May 15, 2021, (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 May 15, 2021 upon the exercise of stock options, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on May 15, 2021 and (ii) the total number of shares that the beneficial owner may acquire upon exercise of stock options within 60 days of May 15, 2021. Unless otherwise indicated, the address of each of the individuals and entities named below is c/o SCWorx Corp., 590 Madison Avenue, 21st Floor, New York, New York 10022. (2) In addition to the 11,131 shares of common stock held directly, also includes 7,895 shares of common stock held by a relation of Mr. Tracy. Mr. Tracy has voting and disposition power over the shares. Total holdings also includes 63,435 Common Shares issuable upon conversion of Series A Preferred Stock (3) In addition to the 11,704 shares of common stock held directly, also includes 7,968 shares held by the Rushcap Group, Inc., of which Mr. Shefts and his spouse, Wanda Shefts, are the sole stockholders. Mr. Shefts has voting and dispositive power over the shares held by the Rushcap Group, Inc. (4) Total holdings includes 13,158 Common Shares issuable upon conversion of Series A Preferred Stock. (5) Mr. Schessel resigned as Chief Executive Officer on January 9, 2021 but remains as Chairman as of the date of this filing. 48 Employee Grants of Plan Based Awards and Outstanding Equity Awards at Fiscal Year-End Prior to the completion of our initial public offering, our Board of Directors adopted the Alliance MMA 2016 Equity Incentive Plan (the “2016 Plan”) pursuant to which we may grant shares of our common stock to our directors, officers, employees or consultants. Our stockholders approved the 2016 Plan at our annual meeting of stockholders held September 1, 2017, and on January 30, 2019 approved the Amended and Restated 2016 Plan, which permits the issuance of up to 3,000,000 shares. Unless earlier terminated by the Board of Directors, the 2016 plan will terminate, and no further awards may be granted, after July 30, 2026. The following sets forth the stock option awards to our officers and directors as of December 31, 2020. Outstanding Equity Awards at December 31, 2020 Option Awards Stock Awards Name Number of securities underlying unexercised options exercisable Number of securities underlying unexercised options unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options Option exercise price Option expiration date Number of shares or units of stock that have not vested Market value of shares or units of stock that have not vested Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested Current Officers Timothy Hannibal First award - - - $ - - - $ - 20,833 $ 135,208 Second award - - - $ - - - $ - 205,054 $ 635,667 Third award - - - $ - - - $ - 100,000 $ 310,000 Item 13. Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Transactions The Company incurred interest expense of $23,720 to Mark Munro, a related party during the year ended December 31, 2019, which was accrued and converted to Series A Preferred Stock in 2019. On July 24, 2020, the Company’s then Chief Executive Officer, Marc Schessel, transferred 20,000 of his personally held common shares to Mark Shefts, a Director as compensation for acting as a director. The company deemed this transfer to be in consideration for services and recorded a non-cash expense of $115,100 for the fair value of the shares transferred. Included in accounts payable at December 31, 2020 are amounts due to officers of the Company in the amount of $153,838. Included in accounts receivable at December 31, 2020 are amounts due from a former officer and director of the Company in the amount of $28,673. On January 19, 2020, Marc. S. Schessel’s employment as CEO of SCWorx, Corp., a Delaware corporation, ceased by mutual agreement, and the Company and Mr. Schessel concurrently entered into a consulting agreement under which Mr. Schessel will provide consulting services to the Company. The Consulting Agreement provides for annual consulting fees of $295,000. In addition, such agreement provides for cash and equity bonuses based on revenue generation. The Consulting Agreement is for a term of two years, but may be terminated by the Company for “cause” (as defined) or by either party for any reason or no reason upon sixty days prior notice. The Consulting Agreement also contains non-competition and non-solicitation provisions which are applicable during the term of the Consulting Agreement and for a period of two years thereafter. 49 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 Mark Schessel, and 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 BF Borgers CPA PC, an independent registered public accounting firm, to audit our financial statements for the year ending December 31, 2020. BF Borgers CPA PC has served as our independent registered public accounting firm since April 2021. Prior to April 2021, the Company’s independent registered public accounting firm was Sadler Gibb & Associates, LLC, and for the year ending December 31, 2019, Withum served as the Company’s independent registered public accounting firm. Principal Accountant Fees and Services During 2020 and 2019, fees for services provided by Sadler Gibb were as follows: For the year ended December 31, 2020 2019 Audit Fees $ 10,000 $ - Audit-Related Fees - - Tax Fees - - All Other Fees - - Total $ 10,000 $ - During 2020 and 2019, fees for services provided by Withum were as follows: For the year ended December 31, 2020 2019 Audit Fees $ 131,637 $ 233,589 Audit-Related Fees - - Tax Fees - - All Other Fees - - Total $ 131,637 $ 233,589 50 Audit Fees Audit fees for 2020 and 2019 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 There were no other fees billed for services rendered to our company, other than the services described above, in 2020 and 2019. 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. 51 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. 52 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 Operating Officer May 19, 2021 By: /s/ Chris Kohler Chris Kohler Chief Financial Officer May 19, 2021 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 Operating Officer May 19, 2021 /s/ Chris Kohler Chris Kohler Chief Financial Officer May 19, 2021 /s/ Mark Shefts Mark Shefts, Director May 19, 2021 /s/ Steven Wallitt Steven Wallitt, Director May 19, 2021 /s/ Alton Irby Alton Irby Director May 19, 2021 53 Index to Consolidated Financial Statements SCWorx Corp. Consolidated Financial Statements Page Number Consolidated balance sheets as of December 31, 2020 and 2019 F-4 Consolidated statements of operations for the years ended December 31, 2020 and 2019 F-5 Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2020 and 2019 F-6 Consolidated statements of cash flows for the years ended December 31, 2020 and 2019 F-7 Notes to consolidated financial statements F-8 F- 1 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of SCWorx Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of SCWorx Corp. (the "Company") as of December 31, 2020, the related statement of operations, stockholders' equity (deficit), and cash flows for the year then ended, 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, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. 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 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 audit. 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion. /s BF Borgers CPA PC BF Borgers CPA PC We have served as the Company's auditor since 2021 Lakewood, CO May 19, 2021 F- 2 Report of Independent Registered Public Accounting Firm To the Stockholders’ and the Board of Directors of SCWorx Corp.: Opinion On The Financial Statements We have audited the accompanying consolidated balance sheet of SCWorx Corp. (the "Company") as of December 31, 2019, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt Regarding Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the entity has suffered recurring losses from operations, has negative cash flows from operations, and has an accumulated deficit, that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we were 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 audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company's auditor since 2018. /s/ WithumSmith+Brown, PC East Brunswick, NJ June 12, 2020 F- 3 SCWorx Corp. Consolidated Balance Sheets December 31, December 31, 2020 2019 ASSETS Current assets: Cash $ 376,425 $ 487,953 Accounts receivable - net 722,159 799,246 Inventory 998,440 - Prepaid expenses and other assets 87,630 11,160 Total current assets 2,184,651 1,298,359 Fixed assets - net 76,156 105,199 Goodwill 8,366,467 8,366,467 Intangible assets - net - 205,219 Other assets - 17,561 Total assets $ 10,627,274 $ 9,992,805 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,570,115 $ 2,010,556 Accounts payable and accrued liabilities – related party 153,838 - Shareholder advance 475,000 - Deferred revenue 2,025,333 1,056,637 Equity financing 375,000 - Total current liabilities 4,599,286 3,067,193 Long-term liabilities: Loan payable 293,972 - Total long-term liabilities 293,972 - Total liabilities 4,893,258 3,067,193 Commitments and contingencies Stockholders’ equity: Series A Convertible Preferred stock, $0.001 par value; 900,000 shares authorized; 84,872 and 578,567 shares issued and outstanding, respectively 85 579 Common stock, $0.001 par value; 45,000,000 shares authorized; 9,895,600 and 7,390,261 shares issued and outstanding, respectively 9,896 7,391 Additional paid-in capital 25,920,858 19,712,115 Accumulated deficit (20,196,823 ) (12,794,473 ) Total stockholders’ equity 5,734,016 6,925,612 Total liabilities and stockholders’ equity $ 10,627,274 $ 9,992,805 The accompanying notes are an integral part of these consolidated financial statements. F- 4 SCWorx Corp. Consolidated Statements of Operations For the years ended December 31, 2020 2019 Revenue $ 5,213,118 $ 5,548,119 Operating expenses: Cost of revenues 3,515,279 4,382,083 General and administrative 7,742,850 13,063,527 Total operating expenses 11,258,129 17,445,610 Loss from operations (6,045,011 ) (11,897,491 ) Other income (expenses): Interest expense - (23,720 ) Interest income - 37,773 Gain on fair value of convertible notes receivable - 372,282 Gain on fair value of warrant asset - 55,000 Loss on settlement of accounts payable (1,357,339 ) - Other expense - (7,990 ) Gain on exchange of debt for common stock – related party - 151,646 Total other income (expense) (1,357,339 ) 584,991 Net loss before income taxes (7,402,350 ) (11,312,500 ) Provision for (benefit from) income taxes - - Net loss $ (7,402,350 ) $ (11,312,500 ) Net loss per share, basic and diluted $ (0.88 ) $ (1.81 ) Weighted average common shares outstanding, basic and diluted 9,057,127 6,263,846 The accompanying notes are an integral part of these consolidated financial statements. F- 5 SCWorx Corp. Consolidated Statements of Changes in Stockholders’ Equity Preferred Stock Common stock Additional paid-in Accumulated Year ended December 31, 2020 Shares $ Shares $ capital deficit Total Balances, December 31, 2019 578,567 $ 579 7,390,261 $ 7,391 $ 19,712,115 $ (12,794,473 ) $ 6,925,612 Conversion of Series A Convertible Preferred Stock into common stock (493,695 ) (494 ) 1,299,200 1,299 (805 ) - - Settlement of Accounts Payable - - 441,567 441 2,747,086 - 2,747,527 Shares issued in cashless exercise of warrants - - 415,904 416 (416 ) - - Shares issued in cashless exercise of options - - 86,424 86 (86 ) - - Warrants exercised for cash - - 7,000 7 38,563 - 38,570 Shares issued to current and former employees and directors - - 218,402 218 146,007 - 146,225 Stock based compensation - - - - 3,138,432 3,138,432 Shares issued for equity financing - - 36,842 38 139,962 - 140,000 Net Loss - - - - - (7,402,350 ) (7,402,350 ) Ending balance, December 31, 2020 84,872 $ 85 9,895,600 $ 9,896 $ 25,920,858 $ (20,196,823 ) $ 5,734,016 Preferred Stock Common stock Additional paid-in Accumulated Year ended December 31, 2019 Shares $ Shares $ capital deficit Total Balances, December 31, 2018 - $ - 5,838,149 $ 5,838 $ 1,244,273 $ (1,481,973 ) $ (231,862 ) Surrender of common shares in settlement of due from stockholder balance - - (574,991 ) (575 ) (1,608,258 ) - (1,608,833 ) Series A Convertible Preferred share issuance (Alliance MMA) 629,138 629 - - 5,980,501 - 5,981,130 Issuance of common stock in settlement of Series A Convertible Preferred Stock contractual fee - - 73,156 73 209,885 - 209,958 Conversion of Series A Convertible Preferred Stock into common stock (240,571 ) (240 ) 633,082 634 (394 ) - Issuance of common stock - - 1,283,124 1,283 5,883,078 - 5,884,361 Series A Convertible Preferred share issuance - - - - - - Conversion of notes payable - related party into Series A Convertible Preferred share issuance 190,000 190 - - 1,899,810 - 1,900,000 Exercise of warrants - - 11,075 11 67,537 - 67,548 Settlement of disputed contractual claim - - 19,801 20 117,982 - 118,002 Issuance of warrants in settlement of lease dispute - - - - 66,275 - 66,275 Shares issued in cashless exercise of warrants - - 3,732 4 (4 ) - - Stock-based compensation related to founder’s transfers of common shares to contractors - - - - 5,322,930 - 5,322,930 Stock-based compensation related to employee and contractor equity awards - - 78,290 78 2,159,247 - 2,159,325 Common stock issued in settlement of litigation 24,843 25 74,975 75,000 Stock and warrant dividend - - - - (1,705,722 ) - (1,705,722 ) Net loss - - - - - (11,312,500 ) (11,312,500 ) Ending balance, December 31, 2019 578,567 $ 579 7,390,261 $ 7,391 $ 19,712,115 $ (12,794,473 ) $ 6,925,612 The accompanying notes are an integral part of these consolidated financial statements. F- 6 SCWorx Corp. Consolidated Statements of Cash Flows For the years ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (7,402,350 ) $ (11,312,500 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 29,043 6,453 Amortization of intangibles 205,219 34,781 Stock-based compensation 3,284,570 7,482,254 Loss on settlement of accounts payable 1,612,538 - Bad debt expense 73,993 344,412 Gain (loss) on change in fair value of warrant assets - (55,000 ) Settlement of disputed contractual claim - 118,002 Issuance of warrants in settlement of lease dispute - 66,275 Common stock issued in settlement of litigation - 75,000 Gain on exchange of debt for common stock - (151,646 ) Issuance of common stock in settlement of Series A Convertible Preferred Stock contractual fee - 209,958 Gain (loss) on change in fair value of convertible notes receivable - (372,282 ) Non cash interest income - (37,773 ) Non cash interest expense - 23,720 Other income - 7,990 Changes in operating assets and liabilities (net of amounts acquired): Accounts receivable 3,097   (622,966 ) Prepaid expenses and other assets (76,470 ) (11,160 ) Inventory (523,440 ) - Other assets 17,561 (17,561 ) Accounts payable and accrued liabilities 848,473 (719,170 ) Deferred revenue 968,696 239,923 Net cash used in operating activities (959,070 ) (4,691,290 ) Cash flows from investing activities: Cash acquired in reverse acquisition - 5,441,437 Investment in AMMA warrant - (19,000 ) Advances to shareholder - (199,549 ) Purchase of convertible notes receivable - Alliance MMA - (196,000 ) Purchase of fixed assets - (111,652 ) Net cash provided by investing activities - 4,915,236 Cash flows from financing activities: Proceeds from equity financing 515,000 - Proceeds from loan payable 293,972 - Proceeds from notes payable - related party - 120,000 Proceeds from exercise of warrants 38,570 67,548 Net cash provided by financing activities 847,542 187,548 Net (decrease) increase in cash (111,528 ) 411,494 Cash, beginning of period 487,953 76,459 Cash, end of period $ 376,425 $ 487,953 Supplemental disclosures of cash flow information: Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Non-cash investing and financing activities: Cashless exercise of warrant $ 416 $ 4 Cashless exercise of options $ 86 $ - Settlement of accounts payable with issuance of common stock $ 2,747,615 $ - Shareholder advances for purchase of inventory $ 475,000 $ - Issuance of warrant in settlement of vendor liability $ - $ 66,275 Conversion of Series A Convertible Preferred Stock into common shares $ 2,092,445 Common stock issued in settlement of litigation $ 75,000 Surrender of common stock in settlement of due from shareholder balance $ - $ 1,608,833 Stock and warrant dividend $ - $ 1,705,722 Warrants issued to company $ - $ 19,000 Issuance of preferred stock penalty $ 209,958 Interest receivable converted to common stock $ 145,000 Conversion of notes payable-related party into common stock $ 151,646 Conversion of notes payable-related party and interest into Series A Convertible Preferred Stock $ - $ 1,900,000 Issuance of preferred and common stock in connection with acquisition of Alliance MMA, net of cash $ - $ 6,424,054 Measurement period goodwill adjustment $ 99,815 Settlement of disputed contractual claim with issuance of common stock $ - $ 118,002 The accompanying notes are an integral part of these consolidated financial statements. F- 7 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. Business Combination and Related Transactions On February 1, 2019, Alliance MMA completed the acquisition of SCWorx, changed its name to SCWorx Corp., changed its ticker symbol to “WORX”, and effected a one-for-nineteen reverse stock split of its common stock which combined the 100,000,000 Alliance shares of common stock issued to the Company’s shareholders into 5,263,158 shares of common stock of the newly combined company. From a legal perspective, Alliance MMA acquired SCWorx FL Corp, and as a result, historical equity awards including stock options and warrants are carried forward at their historical basis. From an accounting perspective, Alliance MMA was acquired by SCWorx FL Corp in a reverse merger and as a result, the Company has completed purchase accounting for the transaction. Operations of the Business SCWorx is a leading 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. F- 8 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 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. On March 16, 2020, in response to the COVID-19 pandemic, SCWorx established a wholly-owned subsidiary, Direct-Worx, LLC, with the intention of utilizing the SCWorx database to identify trends within the purchasing supply chain and then use this information to assist the Company in its endeavors to provide critical, difficult-to-find items for the healthcare industry. The Company sought to provide COVID-19 Rapid Test Kits and PPE — Personal Protective Equipment to the healthcare industry. PPE includes items such as masks, gloves, gowns, shields, etc. The Company has extensive experience in the healthcare industry and industry contacts, and a database of items specifically designated to assist the healthcare industry in fulfilling its inventory demands. The sale of PPE and rapid test kits for COVID-19 represented a new business for the Company and is subject to the myriad risks associated with any new venture. The Company encountered great difficulty in attempting to secure reliable sources of supply for both COVID-19 Rapid Test Kits and PPE The Company currently has no contracted supply of Rapid Test Kits or PPE. During the year ended December 31, 2020, the Company has completed only minimal sales of COVID-19 rapid test kits and PPE. In addition, changes in market conditions and FDA processes governing the sale of COVID-19 serology tests could have the effect of rendering the COVID-19 serology tests held by the Company not saleable in the United States, which could have a material adverse effect on the Company’s financial condition and results of operations. There can be no assurance that the Company will be able to generate any significant revenue from the sale of PPE products or rapid test kits, and as of the date of this report, the Company has not generated any material revenue from the sale of PPE or rapid test kits. The Company is no longer actively seeking to procure and sell Test Kits or PPE. Instead, the Company is focused on selling its current inventory of PPE and Test Kits. The Company may receive commissions for acting as an intermediary with respect to the sale of PPE and/or Test Kits. However, there is no assurance the Company will realize any material revenue from these activities. SCWorx, as part of the acquisition of Alliance MMA, operates an online event ticketing platform focused on serving regional MMA (“mixed martial arts”) promotions. F- 9 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 spreading throughout the United States and the world. The New York and New Jersey area, where the Company is headquartered, was at one of the early epicenters of the coronavirus outbreak in the United States. The outbreak has since spread to the rest of the country and is adversely impacting new customer acquisition. The Company has been following the recommendations of local health authorities to minimize exposure risk for its team members since the outbreak. In addition, the Company’s customers (hospitals) have 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 are currently 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 have not been able to focus resources on expanding the utilization of the Company’s services, which has adversely impacted the Company’s future 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. The Company is endeavoring to mitigate these impacts to revenue through the sale of personal protective equipment (“PPE”) and COVID-19 rapid test kits to the health care industry, including many of the Company’s hospital customers. The Company’s Chief Executive Officer and employees have experience in the healthcare industry and industry contacts, and a database of items designed to assist the healthcare industry in fulfilling its inventory demands. On March 16, 2020, in response to the COVID-19 pandemic, SCWorx established a wholly-owned subsidiary, Direct-Worx, LLC to endeavor to source and provide critical, difficult-to-find items for the healthcare industry. Items have become difficult to source due to unexpected disruptions within the supply chain, such as the COVID-19 pandemic. Notwithstanding these efforts, the Company has to date realized only a minimal amount of revenue from the sale of PPE and Test Kits. Note 2. Liquidity and Going Concern 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 $7,402,350 for the year ended December 31, 2020 and $11,312,500 for the year ended December 31, 2019. The accumulated deficit as of December 31, 2020 was $20,196,823 The Company has not yet achieved profitability and expects to continue to incur cash outflows from operations. It is expected that its operating expenses will continue to increase 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. F- 10 Note 3. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance to 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. Reverse Stock Split On February 1, 2019, the Company effected a 1-for-19 reverse stock split with respect to the outstanding shares of its common stock. The reverse stock split was deemed effective on February 4, 2019. The reverse stock split did not affect the total number of shares of common stock that the Company is authorized to issue, which is 45,000,000 shares. The reverse stock split also did not affect the total number of shares of Series A preferred stock that the Company is authorized to issue, which is 900,000 shares. Share and per share data have been adjusted for all periods presented to reflect the reverse stock split unless otherwise noted. 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. Amounts in excess of the FDIC insured limit for the years ended December 31, 2020 and 2019 were $113,361 and zero, respectively. 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 on a recurring basis. Management defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, management considers the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. Concentration of Credit and Other Risks Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, accounts receivable, due from shareholder, convertible notes receivable and warrants. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing internal credit evaluations of its customers’ financial condition, obtains deposits and limits the amount of credit extended when deemed necessary but generally requires no collateral. The Company believes that any concentration of credit risk in its due from shareholder and convertible notes receivable was substantially mitigated by the shareholder’s material interest in the Company, ability to sell off portions of the interest, if necessary, and the closing of the acquisition of SCWorx by Alliance and conversion of the notes payable - related party into shares of Series A Convertible Preferred Stock and the settlement of the due from stockholder balance with the surrender of 1,401 SCWorx shares of common stock in January 2019. F- 11 For the year ended December 31, 2020 the Company had two customers representing 22% and 17% of aggregate revenues. For the year ended December 31, 2019, the Company had two customers representing 19% and 10% of aggregate revenues. At December 31, 2020, we had three customers representing 35%, 32% and 10% of aggregate accounts receivable. At December 31, 2019, the Company had four customers representing 17%, 14%, 10% and 10% of aggregate accounts receivable. Allowance for Doubtful Accounts The Company continually monitors customer payments and maintains a reserve for estimated losses resulting from its customers’ inability to make required payments. In determining the reserve, the Company evaluates the collectability of its accounts receivable based upon a variety of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, the Company records a specific allowance against amounts due. For all other customers, the Company recognizes allowances for doubtful accounts based on its historical write-off experience in conjunction with the length of time the receivables are past due, customer creditworthiness, geographic risk and the current business environment. Actual future losses from uncollectible accounts may differ from the Company’s estimates. The Company recorded an allowance for doubtful accounts as of December 31, 2020 and 2019 of $183,277 and $344,412, respectively. Inventory The inventory balance at December 31, 2020 is related to the Company’s Direct-Worx, LLC subsidiary and consisted of approximately 87,000 gowns and approximately 47,000 test kits. These items are carried on the consolidated balance sheet at cost. A company affiliated with a shareholder advanced the $475,000 in cash to the supplier of the test kits and the amount due is recorded in shareholder advance. Inventory is valued at the lower of cost or market value. When market value is determined to be less than cost, the Company records an allowance. As of December 31, 2020 and 2019, the Company had allowances of $0. 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). Business Combinations The Company includes the results of operations of a business it acquires in its consolidated results as of the date of acquisition. The Company allocates the fair value of the purchase consideration of its acquisition to the tangible assets, liabilities and intangible assets acquired, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the acquired businesses and the Company. Intangible assets are amortized over their estimated useful lives. The fair value of contingent consideration (earn out) associated with acquisitions is remeasured each reporting period and adjusted accordingly. Acquisition and integration related costs are recognized separately from the business combination and are expensed as incurred. For additional information regarding the Company’s acquisitions, refer to Note 5, Business Combinations. F- 12 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. Identified intangible assets Identified finite-lived intangible assets consist of ticketing software and promoter relationships resulting from the February 1, 2019 business combination. The Company’s identified intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 7 years. The Company makes judgments about the recoverability of finite-lived intangible assets whenever facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, the Company assesses recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the Company would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. For further discussion of goodwill and identified intangible assets, refer to Note 5, Business Combinations. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the related assets’ estimated useful lives. Equipment, furniture and fixtures are being amortized over a period of three years. Expenditures that materially increase asset life are capitalized, while ordinary maintenance and repairs are expensed as incurred. Depreciation expense for the years ended December 31, 2020 and 2019 was $29,043 and $6,453, respectively. 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 F- 13 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. Revenue recognition for the Company’s performance obligations are as follows: Data Normalization and Professional Services The Company’s Data Normalization and Professional Services are typically fixed fee. When these services are not combined with SaaS or Maintenance revenues as a single unit of accounting, these revenues are recognized as the services are rendered and when contractual milestones are achieved and accepted by the customer. SaaS and Maintenance SaaS and Maintenance revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date on which the Company’s service is made available to customers. The Company does have some contracts that have payment terms that differ from the timing of revenue recognition, which requires the Company to assess whether the transaction price for those contracts include a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if it expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. The Company does not maintain contracts in which the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service exceeds the one-year threshold. F- 14 In periods prior to the adoption of ASC 606, the Company recognized revenues when persuasive evidence of an arrangement existed, delivery had occurred, the sales price was fixed or determinable, and the collectability of the resulting receivable was reasonably assured. The adoption of Topic 606 did not result in a cumulative effect adjustment to the Company’s opening retained earnings since there was no significant impact upon adoption of Topic 606. There was also no material impact to revenues, or any other financial statement line items for the year ended December 31, 2018 as a result of applying ASC 606. The Company has one revenue stream, from the SaaS business, and believes it has presented all varying factors that affect the nature, timing and uncertainty of revenues and cash flows. PPE Inventory sales Revenues from the sale of inventory are typically recognized upon shipment to a customer as long as the Company has met all performance obligations related to the sale in accordance to Topic 606. Brokered PPE sales PPE revenues are recognized once the customer obtains physical possession of the product(s). Because the Company acts as an agent in arranging the relationship between the customer and the supplier, PPE revenues are presented net of related costs, including product procurement, warehouse and shipping fees, etc. Remaining Performance Obligations As of December 31, 2020, we had $2,025,333 of remaining performance obligations recorded as deferred revenue. We expect to recognize sales relating to these existing performance obligations of during 2021. 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, 2020 and 2019. 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 $2,025,333 and $1,056,637 as of December 31, 2020 and 2019, respectively. Income Taxes The Company converted to a corporation from a limited liability company during 2018. The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standard Codification (“ASC”) Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. 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, 2020 and 2019, 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. F- 15 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. The Company completed the accounting for tax effects of the Tax Act under ASC 740. There were no impacts to the years ended December 31, 2020 and 2019. 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 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 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. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2020 and 2019, the Company had 790,847 and 1,650,511, 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 financial statements. F- 16 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, should they occur. 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 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 doubtful accounts, 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. Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is provided for lessees of leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) Targeted Improvements (“ASU 2018-11”). ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. We adopted the provisions of ASU 2016-02 and ASU 2018-11 in the quarter beginning January 1, 2019. The adoption resulted in the recognition of additional disclosures and a right of use asset of approximately $53,000 included as a component of prepaid expenses and other assets and a lease liability of approximately $53,000, which is included as a component of accounts payable and accrued liabilities at December 31, 2019. The Company did not have any right of use assets or lease liabilities at December 31, 2020. In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). ASU 2018-17 provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. ASU 2018-17 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We adopted this new standard in the first quarter of fiscal 2020, and the adoption of the standard did not have a material impact on our consolidated financial statements. F- 17 In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective in the first quarter of fiscal 2020, and earlier adoption is permitted. We adopted this new standard in the first quarter of fiscal 2020, and the adoption of the standard did not have a material impact on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. We adopted this new standard in the first quarter of fiscal 2020, and the adoption of the standard did not have a material impact on our consolidated financial statements. In June 2018, the FASB issued ASU No. 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. The effective date for the standard is for interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, but no earlier than our adoption date of Topic 606. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. We adopted this new standard in the first quarter of fiscal 2019, and the adoption of the standard did not have a material impact on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) “Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)” (“ASC 2019-10”), which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for public entities which meet the definition of a smaller reporting company. The Company will adopt ASU 2016-13 effective January 1, 2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on the consolidated financial statements. The effect will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time of adoption. Note 4. Related Party Transactions The Company incurred interest expense of $23,720 to Mark Munro, a related party during the year ended December 31, 2019, which was accrued and converted to Series A Preferred Stock in 2019. During April, 2020, a company affiliated with a shareholder advanced $475,000 in cash to the supplier of test kits for their purchase. The amount due is recorded in shareholder advance. On July 24, 2020, the Company’s then Chief Executive Officer, Marc Schessel, transferred 20,000 of his personally held common shares to Mark Shefts, a Director as compensation for acting as a director. The company deemed this transfer to be in consideration for services and recorded a non-cash expense of $115,100 for the fair value of the shares transferred. Included in accounts payable at December 31, 2020 are amounts due to officers of the Company in the amount of $153,838. Included in accounts receivable at December 31, 2020 are amounts due from a former officer and director of the Company in the amount of $28,673. F- 18 Note 5. Business Combinations Purchase accounting On February 1, 2019, the Company’s shareholders exchanged all of its outstanding shares in exchange for 5,263,158 shares of Alliance common stock. Due to the Company’s shareholders acquiring a controlling interest in Alliance after acquisition, the transaction was treated as a reverse merger for accounting purposes, with SCWorx being the reporting company. In accordance with purchase accounting rules under ASC 805, the purchase consideration was $11,765,491. The acquisition was accounted for under the acquisition method of accounting. The assets acquired, liabilities assumed and purchase allocation, which is based on valuations of management, is as follows: Fair Value Cash $ 5,441,437 Goodwill 8,366,467 Identifiable intangible assets: Ticketing software 64,000 Promoter relationships 176,000 Total identifiable intangible assets 240,000 Account payable (1,901,624 ) Current liabilities - discontinued operations (380,789 ) Aggregate purchase price $ 11,765,491 Identified intangible assets consist of the following: December 31, 2020 Intangible assets Useful life Gross assets Accumulated amortization Net Ticketing software 2 years $ 64,000 $ (64,000 ) $ - Promoter relationships 2 years 176,000 (176,000 ) - Total intangible assets $ 240,000 $ (240,000 ) $ - During the year ended December 31, 2020, the Company determined that while its ticketing platform was still active, the negative impact that COVID 19 had on the overall MMA industry where it is currently being utilized had potentially lessened its useful life as currently deployed. Because of this potential impact, management has chosen to shorten the projected useful life of these assets and accelerate their amortization accordingly. Amortization expense for the years ended December 31, 2020 and 2019, was $205,219 and $34,781, respectively. F- 19 Goodwill The changes to the carrying value of goodwill for the years ended December 31, 2020 and 2019 are reflected below: Fair Value December 31, 2018 $ - Preliminary goodwill related to the acquisition 8,466,282 Measurement period adjustment (99,815 ) December 31, 2019 $ 8,366,467 Measurement period adjustment - December 31, 2020 $ 8,366,467 During the measurement period the Company adjusted the original goodwill amount by $99,815 during the year ended December 31, 2019. Note 6. Loan 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. The Company expects the loan to be fully forgiven. Note 7. Leases Operating Leases The Company’s principal executive office in New York City is under a month to month arrangement. The Company also had a lease in Greenwich, CT which expired in March 2020 and is now month-to-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 sheet, 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 two remaining leases are 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. The Company uses its incremental borrowing rate for purposes of discounting lease payments. F- 20 The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) electing the practical expedient that allows the Company not to restate its comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption. For the comparative periods prior to adoption, the Company presented the disclosures which were required under ASC 840. The Company elected the optional transition method and adopted the new guidance on January 1, 2019 on a modified retrospective basis with no restatement of prior period amounts. As allowed under the new accounting standard, the Company elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting of initial direct costs for all asset classes at the time of adoption. The Company also elected not to separate lease components from non-lease components and to exclude short-term leases from its consolidated balance sheet. The Company’s adoption of the new standard as of January 1, 2019 resulted in the recognition of right-of-use assets of approximately $53,000 and liabilities of approximately $53,000. There was no impact to the accumulated deficit upon adoption of Topic 842. As of December 31, 2020, assets recorded under operating leases were $0. Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The discount rate used to determine the commencement date present value of lease payment is the Company’s incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. For the year ended December 31, 2020 and 2019, the components of lease expense were as follows: For the years ended December 31, 2020 2019 Operating lease cost $ 61,895 $ 39,184 Total lease cost $ 61,895 $ 39,184 Other information related to leases was as follows: For the years ended December 31, 2020 2019 Cash paid for amounts included in the measurement of operating lease liabilities: Operating cash flows for operating leases $ 61,895 $ 39,184 Weighted average remaining lease term (months) – operating leases - 3 Weighted average discount rate– operating leases N/A 10 % The maturity analysis of the Company’s annual undiscounted cash flows of operating lease liabilities as of December 31, 2019 are as follows: Operating Lease Year Ending December 31, 2019 Total minimum lease payments $ 11,365 Lease amount representing interest (300 ) Total lease liabilities $ 11,065 There were no commitments for non-cancelable operating leases as of December 31, 2020 and as of December 31, 2019 there were non-cancellable lease liabilities of $11,365. As of December 31, 2020 and 2019, the Company has no additional operating leases, other than those noted above, and no financing leases. Note 8. Commitments and Contingencies 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. On April 29, 2020, a securities class action case was filed in the United States District Court for the Southern District of New York against us and our CEO. The action is captioned Daniel Yannes, individually and on behalf of all others similarly situated, Plaintiff vs. SCWorx Corp. and Marc S. Schessel, Defendants. F- 21 On May 27, 2020, a second securities class was filed in the United States District Court for the Southern District of New York against us and our CEO. The action is captioned Caitlin Leeburn, individually and on behalf of all others similarly situated, Plaintiff v. SCWorx Corp. and Marc S. Schessel, Defendants. On June 23, 2020, a third securities class was filed in the United States District Court for the Southern District of New York against us and our CEO. The action is captioned Jonathan Charles Leonard, individually and on behalf of all others similarly situated, Plaintiff v. SCWorx Corp. and Marc S. Schessel, Defendants. All three lawsuits allege that our company and our CEO mislead investors in connection with our April 13, 2020 press release with respect to the sale of COVID-19 rapid test kits. The plaintiffs in these actions are seeking unspecified monetary damages. These three class actions were consolidated on September 18, 2020 and Daniel Yannes was designated lead plaintiff. A consolidated Amended Complaint (“CAC”) was filed on October 19, 2020. The Defendants filed a motion to dismiss the CAC on November 18, 2020, and the briefing on that motion was complete on January 8, 2021. We are still awaiting a ruling on the motion, and we intend to continue vigorously defending against this lawsuit. On June 15, 2020, a shareholder derivative claim was filed in the United States District Court for the Southern District of New York against Marc S. Schessel, Steven Wallitt (current directors), and Robert Christie and Charles Miller (former directors) (“Director Defendants”). The action is captioned Javier Lozano, derivatively on behalf of SCWorx Corp., Plaintiff, v. Marc S. Schessel, Charles K. Miller, Steven Wallitt, Defendants, and SCWorx Corp., Nominal Defendant. This lawsuit alleges that the Director Defendants breached their fiduciary duties to the Company, including by misleading investors in connection with our April 13, 2020 press release with respect to the sale of COVID-19 rapid test kits, failing to correct false and misleading statements and failing to implement proper disclosure and internal controls. The Plaintiff, on our behalf, is seeking an award of monetary damages, improvements in our disclosure and internal controls, and legal fees. The Director Defendants intend to vigorously defend against these proceedings. This derivative action is also still pending, and the plaintiff in such action has agreed to voluntarily stay the case until a ruling on a motion to dismiss, which we intend to file in the securities class action case. On August 21, 2020, a shareholder derivative claim was filed in the United States District Court for the Southern District of New York against Marc S. Schessel, Steven Wallitt (current directors), and Robert Christie and Charles Miller (former directors) (“Director Defendants”). The action is captioned Josstyn Richter, derivatively on behalf of SCWorx Corp., Plaintiff, v. Marc S. Schessel, Charles K. Miller, Steven Wallitt, Defendants, and SCWorx Corp., Nominal Defendant. This lawsuit alleges that the Director Defendants breached their fiduciary duties to the Company, including by misleading investors in connection with our April 13, 2020 press release with respect to the sale of COVID-19 rapid test kits, failing to correct false and misleading statements and failing to implement proper disclosure and internal controls. The Plaintiff, on our behalf, is seeking an award of monetary damages, improvements in our disclosure and internal controls, and legal fees. The Director Defendants intend to vigorously defend against these proceedings. On August 27, 2020, the Lozano and Richter derivative actions were consolidated and jointly stayed until a ruling on a motion to dismiss which we filed in the securities class action case. On September 30, 2020, a shareholder derivative action was filed in the Supreme Court State of New York, New York County against Marc S. Schessel and Steven Wallitt (current directors) and Charles Miller (a former director). The action is captioned Hemrita Zarins, derivatively on behalf of SCWorx Corp. v. Marc S. Schessel, Charles Miller, Steven Wallitt and SCWorx, Nominal Defendant. This lawsuit alleges that the Director Defendants breached their fiduciary duties to the Company, including by misleading investors in connection with the Company’s April 13, 2020 press release with respect to the sale of COVID-19 rapid test kits, failing to correct false and misleading statements and failing to implement proper disclosure and internal controls. The Plaintiff, on our behalf, is seeking an award of monetary damages, improvements in our disclosure and internal controls, and legal fees. On October 28, 2020, Zarins withdrew this action and refiled an action in the Chancery Court in the State of Delaware on October 29, 2020. Zarins named as Defendants Marc S. Schessel, Robert Christie (a former director), Steven Wallitt and SCWorx, Nominal Defendant. The allegations, as well as the relief sought, in the Delaware Chancery Court proceeding are substantially the same as that filed in the New York State Action. This action has been stayed pending the ruling on the motion to dismiss in the aforementioned securities class action. The Director Defendants intend to vigorously defend against these proceedings. F- 22 In addition, following the April 13, 2020 press release and related disclosures (related to COVID-19 rapid test kits), the Securities and Exchange Commission made an inquiry regarding the disclosures we made in relation to the transaction involving COVID-19 test kits. On April 22, 2020, the Securities and Exchange Commission ordered that trading in the securities of our company be suspended because of “questions and concerns regarding the adequacy and accuracy of publicly available information in the marketplace” (the “SEC Trading Halt”). The SEC Trading Halt expired May 5, 2020, at 11:59 PM EDT. We are fully cooperating with the SEC’s investigation and are providing documents and other requested information. In April 2020, we received related inquiries from The Nasdaq Stock Market and the Financial Industry Regulatory Authority (FINRA). We have been fully cooperating with these agencies and providing information and documents, as requested. On May 5, 2020, the Nasdaq Stock Market informed us that it had initiated a “T12 trading halt,” which means the halt will remain in place until we have fully satisfied Nasdaq’s request for additional information. We fully cooperated with Nasdaq and responded to all of Nasdaq’s information requests as they were issued. The T12 trading halt was lifted on August 10, 2020. Also in April 2020, we were contacted by the U.S. Attorney’s Office for the District of New Jersey, which is seeking information and documents from our officers and directors relating primarily to the April 13, 2020 press release concerning COVID-19 rapid test kits. We are fully cooperating with the U.S. Attorney’s Office in its investigation. In connection with these actions and investigations, the Company is obligated to indemnify its officers and directors for costs incurred in defending against these claims and investigations. Because the Company currently does not have the resources to pay for these costs, its directors and officers liability insurance carrier has agreed to indemnify these persons even though the $750,000 retention under such policy has not yet been met. The Company estimates it is currently obligated to pay approximately $700,000 of the retention, which payments could have a material adverse effect on the Company. The $700,000 has been accrued in accounts payable and accrued liabilities in these financial statements. David Klarman v. SCWorx Corp. f/k/a Alliance MMA, Inc., Index No. 619536/2019 (N.Y. State Sup. Ct., Suffolk County) On October 3, 2019, David Klarman, a former employee of Alliance, served a complaint against SCWorx seeking $400,000.00 for a breach of his employment agreement with Alliance. Klarman claims that Alliance ceased paying him his salary in March 2018 as well as other alleged contractual benefits. SCWorx does not believe that it owes the amount demanded and intends to vigorously defend against these claims. On March 6, 2020, SCWorx filed an answer and counterclaims against Mr. Klarman. On September 18, 2020, the Court granted Klarman's counsel's motion to withdraw as counsel due to "irreconcilable differences." The Court stayed the case for 45 days after service of the Court's order. Mr. Klarman's wife, Marie Klarman, Esq., filed a Notice of Appearance on November 6, 2020 and filed a motion on November 9, 2020 seeking various forms of relief -- in violation of the Court's Individual Rules and the Commercial Division Rules. We opposed Klarman’s motion on December 31, 2020 and the case was marked fully submitted on January 21, 2021. By Decision and Order dated March 26, 2021, the Court granted Klarman’s motion to dismiss four (4) of fourteen (14) defenses, denied Klarman’s motion to dismiss SCWorx’s counterclaims against him; denied Klarman’s motion for summary judgment and denied Klarman’s motion to strike allegations contained in the Affirmative Defenses and Counterclaims based on his contention that such allegations were “scandalous” or prejudicial. On April 7, 2021, Klarman filed a Reply to the Counterclaims, denying the material allegations and interposed numerous affirmative defenses. The Court has issued a preliminary conference order, setting a discovery cut-off of October 2022. At this time, we are unable to predict the duration, scope, or possible outcome of these investigations and lawsuits. F- 23 Note 9. Stockholders’ Equity Common Stock Authorized Shares The Company has 45,000,000 common shares authorized with a par value of $0.001 per share. Issuance of Shares Pursuant to Conversion of Series A Preferred Stock On July 17, 2019, we issued 65,789 shares of our common stock to a holder of our shares of Series A Convertible Preferred Stock upon the conversion of 25,000 of such shares of Series A Convertible Preferred Stock. On September 9, 2019, we issued 200,000 shares of our common stock to a holder of our shares of Series A Convertible Preferred Stock upon the conversion of 76,000 of such shares of Series A Convertible Preferred Stock. On September 16, 2019, we issued 43,081 shares of our common stock to a holder of our shares of Series A Convertible Preferred Stock upon the conversion of 16,371 of such shares of Series A Convertible Preferred Stock. On September 16, 2019, we issued 108,422 shares of our common stock to a holder of our shares of Series A Convertible Preferred Stock upon the conversion of 41,200 of such shares of Series A Convertible Preferred Stock. On September 25, 2019, we issued 73,156 shares of our common stock to the holders of Series A Convertible Preferred Stock in settlement of fees owed to such holders pursuant to the terms of such of the Series A Convertible Preferred Stock. The shares had a fair value of $250,000. On September 30, 2019, we issued 24,843 shares of our common stock to a former employee in settlement of litigation. The shares of common stock had a fair value of $75,000. On November 11, 2019 we issued 200,000 shares of our common stock to the holders of Series A Convertible Preferred Stock in settlement of fees owed to such holders pursuant to the terms of such of the Series A Convertible Preferred Stock. The shares had a fair value of $584,000. On November 20, 2019, we issued 25,000 shares of our common stock to a former employee in per the terms of a settlement agreement. The shares of common stock had a fair value of $73,250. On December 5, 2019, we issued 50,000 shares of our common stock to a director as compensation. The shares of common stock had a fair value of $135,000. On December 11, 2019 we issued 6,579 shares of our common stock to the holders of Series A Convertible Preferred Stock in settlement of fees owed to such holders pursuant to the terms of such of the Series A Convertible Preferred Stock. The shares had a fair value of $21,053. On December 23, 2019 we issued 9,211 shares of our common stock to the holders of Series A Convertible Preferred Stock in settlement of fees owed to such holders pursuant to the terms of such of the Series A Convertible Preferred Stock. The shares had a fair value of $26,343. F- 24 During January 2020, the Company issued 5,264 shares of common stock to a holder of its Series A Convertible Preferred Stock upon the conversion of 2,000 of such shares of Series A Convertible Preferred Stock. During February 2020, the Company issued an aggregate of 172,369 shares of common stock to holders of its Series A Convertible Preferred Stock upon the conversion of an aggregate of 65,500 of such shares of Series A Convertible Preferred Stock. During April 2020, the Company issued an aggregate of 1,043,935 shares of common stock to holders of its Series A Convertible Preferred Stock upon the conversion of an aggregate of 396,695 of such shares of Series A Convertible Preferred Stock. During May 2020, the Company issued an aggregate of 51,316 shares of common stock to holders of its Series A Convertible Preferred Stock upon the conversion of an aggregate of 19,500 of such shares of Series A Convertible Preferred Stock. During August 2020, the Company issued 13,158 shares of common stock to a holder of its Series A Convertible Preferred Stock upon the conversion of 5,000 of such shares of Series A Convertible Preferred Stock. During October 2020, the Company issued 13,158 shares of common stock to a holder of its Series A Convertible Preferred Stock upon the conversion of 5,000 of such shares of Series A Convertible Preferred Stock. Issuance of Shares to Current and Former Employees and Directors On January 8, 2020, the Company issued 50,000 shares of common stock to a former employee per the terms of a settlement agreement. On March 12, 2020, the Company issued 16,667 shares of common stock to an employee pursuant to a vesting schedule. On April 15, 2020, the Company issued 3,913 shares of common stock to an employee pursuant to a vesting schedule. On April 16, 2020, the Company issued 5,264 shares of common stock valued at $36,584.80 or $6.95 per share to a director pursuant to a vesting schedule. On April 21, 2020, the Company issued 30,303 shares of common stock to a former employee pursuant to a vesting schedule. On June 24, 2020, the Company issued 25,000 shares of common stock to an employee pursuant to a vesting schedule. On August 25, 2020, the Company issued 87,255 shares of common stock valued at $142,226 to a former employee per the terms of a settlement agreement, settling $125,000 of accrued expenses and recorded a loss on settlement of $17,226. Transfer of Common Stock to Consultants On or about February 1, 2019, the Company’s founder and CEO as well as another shareholder transferred an aggregate of approximately 1,379,000 and 144,000 shares of common stock, respectively to certain consultants of the Company, of which approximately 983,000 and 144,000 shares of common stock, respectively were sold to consultants in exchange for promissory notes. The Company accounted for these share transfers as stock-based compensation expense based upon the Black-Scholes model as if these were stock option grants made by the Company. The Company used the following inputs in the Black-Scholes option pricing model, expected life of 5 years, risk-free interest rate of 2.51%, volatility 92% and dividend yield of 0%. As a result, the Company recognized approximately $3.6 million of stock-based compensation expense during the first quarter of 2019 related to these share transfers. Additionally, approximately 396,000 shares of common stock were transferred by the founder and CEO to contractors for no consideration. The Company accounted for these share transfers as stock-based compensation based upon the underlying common stock price of $4.37 as of the date of transfer. The Company recognized approximately $1.7 million of stock-based compensation expense related to these transfers during the first quarter of 2019. Issuance of Shares Pursuant to Exercises of Common Stock Warrants On April 14, 2020, a holder of common stock warrants exercised 7,000 warrants for a cash payment of, $38,570. Issuance of Shares Pursuant to Cashless Exercises of Common Stock Warrants During April 2020, holders of common stock warrants exercised an aggregate of 520,925 warrants using a cashless exercise into 321,155 shares of common stock. During May 2020, holders of common stock warrants exercised an aggregate of 56,982 warrants using a cashless exercise into 26,034 shares of common stock. During August 2020, holders of common stock warrants exercised an aggregate of 116,448 warrants using a cashless exercise into 68,715 shares of common stock. F- 25 Issuance of Shares Pursuant to Cashless Exercises of Stock Options During April 2020, holders of common stock options exercised an aggregate of 105,028 options using a cashless exercise into 57,534 shares of common stock. During August 2020, holders of common stock options exercised an aggregate of 55,263 options using a cashless exercise into 28,890 shares of common stock. Issuance of Shares Pursuant to Settlement of Accounts Payable On April 16, 2020, the Company issued 100,000 shares of common stock in full settlement of $640,517 of accounts payable. The shares had a fair value of $6.95 per share. On May 12, 2020, the Company issued 104,567 shares of common stock in full settlement of $93,150 of accounts payable and recorded a loss on settlement of $509,160. The shares had a fair value of $5.76 per share. On June 24, 2020, the Company issued 80,000 shares of common stock and warrants to purchase 100,000 shares of common stock, of which 50,000 shall be exercisable at $3.80 per share and the remaining 50,000 shall be exercisable at $5.80 per share, in each case for a term of 5 years, in connection with the termination of a consulting arrangement and in full settlement of any and all claims again the Company. The Company had previously accrued $195,000 in connection with this consulting arrangement. The stock had a fair value of $2.37 per share. On August 27, 2020, the Company issued 17,000 shares of common stock valued at $40,800 in full settlement of $48,790 of accounts payable. The shares had a fair value of $2.20 per share. The Company recorded a gain on settlement of accounts payable of $7,990. On September 10, 2020, the Company issued 140,000 shares of common stock valued at $806,400 in full settlement of $88,950 of accounts payable and recorded a loss on settlement of $717,450. The shares had a fair value of $5.76 per share. Issuance of Shares for Equity Financing On December 31, 2020, The Company issued 36,842 shares of common stock and 46,053 five year warrants to purchase shares of common stock at $4.00 per share pursuant to the prior receipt of $140,000 in equity financing. Preferred Stock Issuance of Series A Preferred Stock On December 19, 2018, the Company authorized Series A Preferred Shares consisting of 900,000 authorized shares, with a par value of $0.001. Equity Financing During May 2020, the Company received $515,000 of a committed $565,000 from the sale of 135,527 shares of common stock (at a price of $3.80 per share) and warrants to purchase 169,409 shares of common stock, at an exercise price of $4.00 per share. As of December 31, 2020, the full amount has not been received and only $140,000 worth of the shares and warrants have been issued. The remaining $375,000 is included in equity financing within current liabilities on the consolidated balance sheet. Stock Incentive Plan In connection with Alliance’s acquisition of SCW FL Corp., the Company adopted Alliance’s Second Amended and Restated 2016 Equity Incentive Plan (“2016 Plan”). The 2016 Plan allows the Company to grant shares of the Company’s common stock to the Company’s directors, officers, employees and consultants. On January 30, 2019, the Alliance shareholders approved the amendment of the 2016 Plan to increase the number of shares of common stock available for issuance thereunder to 3,000,000 shares of common stock. On February 13, 2019, the Board of Directors of the Company granted an aggregate of 425,000 restricted stock units (“RSUs”) under the 2016 Plan, of which an aggregate of 325,000 shares were granted to management and vest quarterly over the next three years, and of which 100,000 were issued to a consultant and vest quarterly over one year. U pon the effectiveness under the Securities Act of a registration statement on Form S-8 with respect to the shares covered by the 2016 Plan, t hese RSUs vest in twelve equal quarterly instalments, commencing on the grant date of February 13, 2019 and had a grant date fair value of approximately $2.7 million. The Company also granted an additional 525,000 RSUs which are subject to performance vesting, of which an aggregate of 225,000 shares were issued to management and 300,000 were issued to a consultant. The 225,000 shares issued to management were cancelled in April 2020, when the person’s employment with the Company terminated. Additionally, the board of directors awarded stock options under the 2016 Plan to each of the four independent board members to acquire an aggregate of 53,572 shares of the Company’s common stock and to an employee to acquire 25,000 shares. The stock options have a term of five years, an exercise price of $6.49 per share, vest quarterly over four quarters beginning on the grant date of February 13, 2019 and had a grant date fair value of $431,000. The Company determined the fair value of the stock options using the Black-Scholes model with the following inputs: expected life 10 years, risk-free interest rate 0.25%, dividend yield 0% and expected volatility 90%. F- 26 On December 5, 2019, the Company issued 50,000 RSU’s to a member of the board of directors. The RSU’s vested immediately and had a fair value of $135,000. Additionally, on December 10, 2019, the board of directors awarded stock options under the 2016 Plan to each of the three remaining independent directors to 50,000 shares of the Company’s common stock. The stock options have a term of five years, an exercise price of $2.64 per share, vest immediately on the grant date of December 10, 2019 and had a grant date fair value of $388,746. The Company determined the fair value of the stock options using the Black-Scholes model with the following inputs: expected life 10 years, risk-free interest rate 1.0%, dividend yield 0% and expected volatility 100%. On June 28, 2019, the Company terminated the aforementioned consultant and reversed the stock-based compensation expense recognized during the first quarter 2019 totaling $162,250 as the consultant had not vested in any of the RSU’s. On October 26, 2019, the employment of the Employee who received the 250,000 RSU’s on February 13, 2019, terminated and the remaining stock based compensation for the employee was cancelled as the employee had not vested in the shares. 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, 2019 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 Weighted- average exercise price per share Balance at December 31, 2018 236,825 $ 26.00 135,023 $ 7.70 - $ - Granted 1,112,220 5.67 203,572 3.65 730,303 - Exercised (11,075 ) 5.51 - - - - Cancelled/Forfeited (26,054 ) 5.51 - - (100,000 ) - Balance at December 31, 2019 1,311,916 $ 9.35 338,595 $ 5.96 630,303 $ - Exercisable at December 31, 2019 1,311,916 $ 9.35 226,095 $ 6.57 630,303 $ - 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, 2020 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 Weighted- average exercise price per share Balance at December 31, 2019 1,311,916 $ 9.35 338,595 $ 5.26 630,303 $ - Granted 146,053 4.51 - - 2,222,984 - Exercised (681,619 ) 5.57 (160,291 ) 4.78 (77,234 ) - Expired (103,891 ) 35.54 (59,916 ) 10.55 Cancelled/Forfeited - - - - (475,000 ) - Balance at December 31, 2020 672,459 $ 8.09 118,388 $ 3.25 2,301,053 $ - Exercisable at December 31, 2020 672,459 $ 8.09 118,388 $ 3.25 2,301,053 $ - 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 fair value at the issuance dates for the above warrant was based upon the following management assumptions: Issuance dates Risk-free interest rate 1.00 – 1.69 % Expected dividend yield 0 % Expected volatility 100 % Term 5 years Fair value of common stock $ 1.51 - 2.37 The Company’s outstanding warrants and options at December 31, 2020 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 $3.80 - $141.17 672,459 3.01 $ 8.09 672,459 $ 8.09 - F- 27 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 $2.64 - $6.84 118,388 3.69 $ 3.25 118,388 $ 3.25 - As of December 31, 2020 and 2019, the total unrecognized expense for unvested stock options and restricted stock awards was approximately $2.5 million and $3.2, respectively, to be recognized over a 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, 2020 and 2019 was as follows: For the years ended December 31, 2020 2019 Stock-based compensation expense $ 3,284,570 $ 7,482,254 Stock-based compensation expense categorized by the equity components for the years ended December 31, 2020 and 2019 is as follows: For the years ended December 31, 2020 2019 Common stock $ 3,169,470 $ 1,575,044 Stock option awards - 584,280 Transfer of common stock by founders to contractors 115,100 5,322,930 Total $ 3,284,570 $ 7,482,254 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, 2020 2019 Stock options 118,388 338,595 Warrants 672,459 1,311,916 Total common stock equivalents 790,847 1,650,511 F- 28 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, 2020 and 2019 are as follows: As of December 31, 2020 2019 Net operating loss $ 7,377,962 $ 6,408,788 Stock options and compensation 1,491,232 747,277 Other - 18,716 Deferred revenue - 4,247 Allowance for doubtful accounts 41,512 78,009 Valuation allowance (8,893,457 ) (7,088,189 ) Total deferred tax asset 17,249 168,848 Basis difference fixed assets (17,249 ) (25,587 ) Basis difference intangible assets - (46,482 ) Other liabilities - (96,779 ) Total deferred tax liability (17,249 ) (168,848 ) Net deferred tax asset (liability) $ - $ - The components of the provision for (benefit from) income taxes consist of the following: As of December 31, 2020 2019 Current tax: Federal - - State - - Total - - Deferred tax: Federal $ (1,673,758 ) $ (1,575,843 ) State (131,510 ) (123,778 ) Less: change in valuation allowance 1,805,268 1,699,621 - - 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, 2020 As of December 31, 2019 Net loss before tax per financial statements $ (7,402,350 ) $ (11,312,500 ) Statutory rate (1,554,494 ) 21.00 % (2,375,625 ) 21.00 % State tax rate (122,139 ) 1.65 % (186,642 ) 1.65 % Permanent items (128,636 ) 1.74 % 862,623 -7.63 % Rate change - 0.00 % 23 0.00 % Change in valuation allowance 1,805,268 -24,39 % 1,699,621 -15.02 % $ - 0.00 % $ - 0.00 % As of December 31, 2020 and 2019, the Company had federal net operating loss carryforwards of approximately $32.6 million and $28.3 million, respectively, available to offset future taxable income. As of December 31, 2020 and 2019, the Company had state loss carry-forwards of approximately $15.1 million and $10.8, 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. F- 29 The valuation allowance as of December 31, 2020 and 2019 was $8,893,457 and $7,088,189, respectively. The net change in valuation allowance for the years ended December 31, 2020 and 2019 was an increase of $1,805,268 and $7,014,399, 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, 2020 and 2019. The Company had no unrecognized tax benefits during 2020 or 2019. By statute, all tax years are open to examination by the major taxing jurisdictions to which the Company is subject. Note 12. Subsequent Events Receipt of CARES funding On March 17, 2021, we 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. Changes in Management On January 19, 2021, Marc. S. Schessel’s employment as CEO of SCWorx, Corp. ceased by mutual agreement, and the Company and Mr. Schessel concurrently entered into a consulting agreement (“Consulting Agreement”) under which Mr. Schessel will provide consulting services to the Company. The Consulting Agreement provides for annual consulting fees of $295,000. In addition, such agreement provides for cash and equity bonuses based on revenue generation. The Consulting Agreement is for a term of two years, but may be terminated by the Company for “cause” (as defined) or by either party for any reason or no reason upon sixty days prior notice. The Consulting Agreement also contains non-competition and non-solicitation provisions which are applicable during the term of the Consulting Agreement and for a period of two years thereafter. Equity Issuances On January 6, 2021, The Company issued 72,369 shares of common stock and 90,461 5 year warrants to purchase shares of common stock at $4.00 per share pursuant to the prior receipt of $275,000 in equity financing. On February 8, 2021, the Company issued 52,632 shares of common stock to a holder of its Series A Convertible Preferred Stock upon the conversion of 20,000 of such shares of Series A Convertible Preferred Stock. Between January 25, 2021 and February 8, 2021, the Company issued a total of 8,832 shares of common stock to holders of fully vested restricted stock units. F- 30 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) 10.1 Consulting Agreement dated January 19, 2020 with Marc Schessel* 10.2 Equity Financing and warrant agreement dated December 31, 2020* 10.3 Equity Financing and warrant agreement dated January 6, 2021* 10.4 USA Procurement Purchase agreement dated May 26, 2020* 10.5 USA Procurement Settlement Agreement dated March 12, 2021* 23.1 Consent of independent registered public accounting firm* 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 SCH XBRL Taxonomy Extension Schema Document 101 CAL XBRL Taxonomy Calculation Linkbase Document 101 LAB XBRL Taxonomy Labels Linkbase Document 101 PRE XBRL Taxonomy Presentation Linkbase Document 101 DEF XBRL Taxonomy Extension Definition Linkbase Document * Filed herewith 54