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, 2021, the end of the period covered by this Annual Report on Form 10-K, as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, based on the 2013 framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to deficiencies caused by a lack of segregation of duties, our Disclosure Controls were not effective as of December 31, 2022, 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. 38 Management Report on Internal Controls over Financial Reporting Our management has identified material weaknesses in our internal controls related to a lack of segregation of duties. Management continues to work with the Audit Committee to discuss remediation efforts. Our management is currently considering looking for additional accounting and finance personnel to assist in the remediation efforts. Notwithstanding the foregoing, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. We may in the future identify other material weaknesses or significant deficiencies in connection with our internal control over financial reporting. Material weaknesses and significant deficiencies that may be identified in the future will need to be addressed as part of our quarterly and annual evaluations of our internal controls over financial reporting under Sections 302 and 404 of the Sarbanes-Oxley Act. Any future disclosures of a material weakness, or errors as a result of a material weakness, could result in a negative reaction in the financial markets and a decrease in the price of our common stock. Changes in Internal Control over Financial Reporting. None Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 39 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 54 President & Chief Executive Officer, Director Chris Kohler 42 Chief Financial Officer Alton Irby 82 Director John Ferrara 71 Director Steven Horowitz 52 Director Background of Officers and Directors The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out. Timothy A. Hannibal Mr. Hannibal is a seasoned technology executive and entrepreneur, with nearly 30 years’ experience in SaaS and cloud technology, driving revenue, go-to-market strategies, business development and mergers and acquisitions. Mr. Hannibal joined the Company in January 2019 and currently serves as its Chief Executive Officer. Prior to joining the Company, Mr. Hannibal was an employee at Primrose Solutions (the predecessor to SCWorx) which he joined in September of 2016. At Primrose, Mr. Hannibal was responsible for overseeing marketing, sales and operations, including executing the Company’s business plan. Mr. Hannibal has a successful track record of growth and management at both startup and national companies. Prior to joining Primrose, Mr. Hannibal was the President and CEO of VaultLogix for thirteen years, a company he founded. VaultLogix was a private equity sponsored leading SaaS company in the cloud backup industry before being acquired by J2 Global, a publicly traded technology company ($3.2b market cap) focused on cloud services and digital media. Chris Kohler Mr. Kohler was appointed CFO on November 1, 2020, at which time Mr. Hannibal resigned as Interim CFO. Mr. Kohler has over 15 years of experience serving in a wide variety roles in the finance and accounting sectors. Mr. Kohler is the founder and CEO of Kohler Consulting, Inc., which he founded in 2012. The firm, through Mr. Kohler, provides outsourced CFO and advisory services to private and public companies, with a focus on small cap and start-up businesses. Alton Irby Mr. Irby was appointed to the Board of Directors on March 10, 2021. Alton Irby is a co-founder of London Bay Capital and has been Chairman of the firm since 2006. London Bay Capital makes investments in private companies, and also provides business advisory services. Mr. Irby is a seasoned executive with a highly successful track record in the financial services and investment banking industries in both the UK and the US from 1982 to the present. Mr. Irby has served on the boards of several public and private companies including 17 years as a director of The McKesson Corporation chairing both the Compensation and Finance Committees. 40 John Ferrara Mr Ferrara was appointed to the Board of Directors in August 2021. Mr. Ferrara has been the CFO of several public, private and private equity portfolio companies primarily in media, technology, financial and information services. John is also an experienced Corporate Director, having served on the Boards and Audit Committees of several publicly traded companies and a Not-For-Profit. Since 2017, John has been a partner at CFO Performance Partners, a professional services firm that provides CFO services. From 2019 to 2020, he was CFO of Wild Sky Media a PE owned digital media company. Prior to joining CFO Performance Partners, John was the CFO of Cartesian, Inc., a Nasdaq company, from 2015 to 2017. From 2013 to 2015, he was CFO of the Street, Inc., a Nasdaq Company. John has an MBA in Finance from Columbia University and a BS in Accounting from the University of Maryland. John is a member of Financial Executives Institute (FEI) and Executive Forum. Steven Horowitz Mr. Horowitz was appointed to the Board of Directors in August 2021. Mr. Horowitz is currently the Chief Executive Officer of CareCentrix, a multi-billion dollar health care services company, after previously serving as its Chief Financial Officer since 2012. Prior to joining CareCentrix, Steve was the Vice President of business planning for Medco Health Solutions, a Fortune 50 pharmacy benefit manager. In this role, Steve was the CFO for three key U.S.-based divisions as well as all international markets, which together generated over $2 billion in annual revenue. Previously, Steve held the position of controller at National Medical Health Card Systems, a pharmacy benefit manager, and at The Fantastic Corporation, a global broadband multimedia corporation. Earlier, Steve was CFO at the Mount Vernon Neighborhood Health Center. Steve received his MBA from Adelphi University and earned his BS in business management from Cornell University. He is a licensed CPA and Chartered Global Management Accountant (CGMA). Steve is a member of the American Institute of Certified Public Accountants (AICPA) and the Wall Street Journal CFO Network. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and also to other employees. Our Code of Business Conduct can be found on our website at www.SCWorx.com. Family Relationships There are no family relationships between any of our directors, executive officers or significant employees. Involvement in Certain Legal Proceedings During the past ten years, none of our current officers, directors, significant employees or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K. Litigation involving our former CEO, Marc S. Schessel, is described in Item 3, “Legal Proceedings.” Board Composition The Board of Directors currently consists of four directors. Each director will serve in office until the next annual meeting of stockholders or until their successors have been duly elected and qualified, or until the earlier of their death, resignation or removal. Our certificate of incorporation provides that that the number of authorized directors will be determined in accordance with our bylaws. Our bylaws provide that the number of authorized directors shall be determined from time to time by a resolution of the Board of Directors, and any vacancies in our board and newly created directorships may be filled only by our Board of Directors. 41 Term of Office All of our directors are elected on an annual basis to serve until the next annual meeting of shareholders or until the earlier of their death, resignation or removal. Committees of the Board of Directors Our Board of Directors has established an audit committee, a compensation committee and a nominating and governance committee. Each of these committees operates under a charter that has been approved by our Board of Directors. Audit Committee We have a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee has authority to review our financial records, engage with our independent auditors, recommend policies with respect to financial reporting to the Board of Directors and investigate all aspects of our business. The members of the audit committee are Mr. Horowitz (chair), Mr. Irby and Mr. Ferrara. The audit committee consists exclusively of directors who are financially literate. In addition, each of Mr. Horowitz and Mr. Ferrara is considered an “audit committee financial expert” as defined by the SEC’s rules and regulations. All members of the Audit Committee currently satisfy the independence requirements and other established criteria of Nasdaq. Compensation Committee The Compensation Committee oversees our executive compensation and recommends various incentives for key employees to encourage and reward increased corporate financial performance, productivity and innovation. The members of the compensation committee are Mr. Irby (chair), Mr. Horowitz and Mr. Ferrara. 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. Ferrara (chair), Mr. Irby and Mr. Horowitz, and all currently satisfy the independence requirements and other established criteria of Nasdaq. The Nominating and Governance Committee will consider stockholder recommendations for candidates for the Board of Directors. Our bylaws provide that, in order for a stockholder’s nomination of a candidate for the board to be properly brought before an annual meeting of the stockholders, the stockholder’s nomination must be delivered to the Secretary of our company no later than 120 days prior to the one-year anniversary date of the prior year’s annual meeting. Charters for all three committees are available on our website at www.SCWorx.com. Changes in Nominating Procedures None. 42 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, 2022, our officers and directors, and all of the persons known to us to beneficially own more than 10% of our common stock filed all required reports on a timely basis. Item 11. Executive Compensation The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2022 and 2021 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 8, Stockholders’ Equity, to our consolidated year-end financial statements, the assumptions made in the valuation of these option awards and stock awards is set forth therein. Non-Equity Stock Option Incentive Plan All Other Fiscal Salary Bonus Awards Awards Compensation Compensation Total Name and Principal Position Year $ ($) ($) ($) ($) ($) ($) Timothy Hannibal (1) 2022 250,000 - - - - 44,996 294,996 President, Chief Executive Officer and Director 2021 225,000 - 319,350 - - 6,663 551,013 Chris Kohler (2) 2022 90,000 - - - - - 90,000 Chief Financial Officer 2021 90,000 - 185,828 - - - 275,828 (1) Mr. Hannibal was hired as Chief Revenue Officer on February 1, 2019 and was appointed Interim Chief Financial Officer on June 10, 2020. On August 10, 2020 Mr. Hannibal was appointed President and Chief Operating Officer. On May 28, 2021 Mr. Hannibal was appointed President and Chief Executive Officer. (2) Mr. Kohler was hired as Chief Financial Officer on November 1, 2020. 43 Directors’ Compensation The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2022 and 2021 awarded to, earned by or paid to our directors. The value attributable to any stock option awards reflects the grant date fair values of stock awards calculated in accordance with ASC Topic 718. Fees Non-Equity Earned or Incentive Paid in Stock Option Plan All Other Fiscal Cash Bonus Awards Awards Compensation Compensation Total Name and Principal Position Year ($) ($) ($) ($) ($) ($) ($) Alton Irby (1) 2022 - - 138,000 - - - 138,000 Chairman and Director 2021 - - 157,000 - - - 157,000 John Ferrara (2) 2022 - - 124,200 - - - 124,200 Director 2021 - - 124,584 - - - 124,584 Steven Horowitz (3) 2022 - - 124,200 - - - 124,200 Director 2021 - - 124,584 - - - 124,584 Steven Wallitt (4) 2022 - - 110,400 - - - 110,400 Former Director 2021 - - 157,000 - - - 157,000 (1) Alton Irby was appointed as a Director on March 16, 2021. (2) John Ferrara was appointed as a Director on August 11, 2021. (3) Steven Horowitz was appointed as a Director on August 11, 2021. (4) Steven Wallitt was appointed as a Director on October 4, 2019. Mr Wallitt’s service was not continued effective approval of the Company’s proxy statement nominations at our shareholder meeting held December 22, 2022. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth certain information regarding beneficial ownership of our common stock as of March 31, 2023: (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 March 31, 2023, there were 13,021,741 shares of our common stock outstanding. Amount and Nature of Beneficial Ownership as of March 31, 2023 (1) Common Preferred Options / Percentage Named Executive Officers and Directors Stock Stock Warrants Total Ownership Current Timothy Hannibal 821,807 - - 821,807 6.0 % Chris Kohler 92,250 - - 92,250 * Alton Irby 200,000 - - 200,000 1.5 John Ferrara 131,667 - - 131,667 1.0 Steven Horowitz 131,667 - - 131,667 1.0 % Directors and Executive Officers as a Group (6 persons) 1,377,391 - - 1,377,391 9.6 % Former Steven Wallitt 275,120 - - 275,120 2.0 % * Represents beneficial ownership of less than 1% of our outstanding stock. (1) In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock that may be acquired upon the exercise of stock options within 60 days of March 31, 2023. In determining the percent of common stock owned by a person or entity on March 31, 2023, (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 March 31, 2023 upon the exercise of stock options, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on March 31, 2023 and (ii) the total number of shares that the beneficial owner may acquire upon exercise of stock options within 60 days of March 31, 2023. 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. 44 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 March 25, 2021 approved the Amended and Restated 2016 Plan, which permits the issuance of up to 5,000,000 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, 2022. Outstanding Equity Awards at December 31, 2022 Stock Awards Name 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 Chris Kohler - $ - 12,500 $ 19,125 Item 13. Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Transactions At December 31, 2022 and 2021 Company had amounts due to officers in the amount of $153,838. During September 2021, the Company’s former CEO (also a significant shareholder) advanced $100,000 in cash to the Company for short term capital requirements. This amount is non-interest bearing and payable upon demand and included in Shareholder advance on the Company’s consolidated balance sheet as of December 31, 2022 Director Independence The rules of the Nasdaq Capital Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Under the Nasdaq Rules, a director will qualify as an independent director only if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act, as amended. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules require that our Board of Directors must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation we pay to the director and any affiliations with our company. Our Board of Directors undertook a review of the composition of our Board of Directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined that each of our directors other than Tim Hannibal, is independent based on the definition of independence in the Nasdaq listing standards. 45 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 ended December 31, 2022. 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 2022 and 2021, fees for services provided by BF Borgers CPA PC were as follows: For the year ended December 31, 2022 2021 Audit Fees $ 179,400 $ 164,800 Audit-Related Fees - - Tax Fees - - All Other Fees - - Total $ 179,400 $ 164,800 During 2022 and 2021, fees for services provided by Sadler Gibb were as follows: For the year ended December 31, 2022 2021 Audit Fees $ - $ 40,000 Audit-Related Fees - - Tax Fees - - All Other Fees - - Total $ - $ 40,000 During 2022 and 2021, fees for services provided by Withum were as follows: For the year ended December 31, 2022 2021 Audit Fees $ - $ - Audit-Related Fees - - Tax Fees - - All Other Fees - 7,650 Total $ - $ 7,650 Audit Fees Audit fees for 2022 and 2021 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 Other Fees include fees billed for consents to file prior period reports as part of our 2021 Form 10-K 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. 46 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. 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCWorx Corp. By: /s/ Timothy Hannibal Timothy Hannibal President, Chief Executive Officer April 17, 2023 By: /s/ Chris Kohler Chris Kohler Chief Financial Officer April 17, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. /s/ Timothy Hannibal Timothy Hannibal President, Chief Executive Officer, Director April 17, 2023 /s/ Chris Kohler Chris Kohler Chief Financial Officer April 17, 2023 /s/ Alton Irby Alton Irby, Chairman April 17, 2023 /s/ John Ferrara John Ferrara Director April 17, 2023 /s/ Steven Horowitz Steven Horowitz Director April 17, 2023 48 Index to Consolidated Financial Statements SCWorx Corp. Consolidated Financial Statements Page Number Report of Independent Registered Accounting Firm (PCAOB ID Number 5041 ) F-2 Consolidated balance sheets as of December 31, 2022 and 2021 F-3 Consolidated statements of operations for the years ended December 31, 2022 and 2021 F-4 Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2022 and 2021 F-5 Consolidated statements of cash flows for the years ended December 31, 2022 and 2021 F-6 Notes to consolidated financial statements F-7 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 sheets of SCWorx Corp. (the “Company”) as of December 31, 2022 and 2021, the related statement of operations, stockholders’ equity (deficit), and cash flows for the years 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, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. 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 April 17, 2023 F- 2 SCWorx Corp. Consolidated Balance Sheets December 31, December 31, 2022 2021 ASSETS Current assets: Cash $ 249,462 $ 71,075 Accounts receivable - net 336,033 464,851 Inventory - 156,600 Prepaid expenses and other assets 295,180 63,942 Total current assets 880,675 756,468 Fixed assets - net - - Goodwill 8,366,467 8,366,467 Total assets $ 9,247,142 $ 9,122,935 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,364,202 $ 1,432,710 Accounts payable and accrued liabilities - related party 153,838 153,838 Shareholder advance 100,000 100,000 Deferred revenue 579,833 472,750 Equity financing 125,000 125,000 Total current liabilities 2,322,873 2,284,298 Long-term liabilities: Loans payable 147,749 433,567 Total long-term liabilities 147,749 433,567 Total liabilities 2,470,622 2,717,865 Commitments and contingencies Stockholders' equity: Series A Convertible Preferred stock, $ 0.001 par value; 900,000 shares authorized; 39,810 shares issued and outstanding 40 40 Common stock, $ 0.001 par value; 45,000,000 shares authorized; 13,010,409 and 11,293,030 shares issued and outstanding, respectively 13,011 11,293 Additional paid-in capital 32,022,166 29,805,028 Subscriptions payable 600,000 600,000 Accumulated deficit ( 25,858,697 ) ( 24,011,291 ) Total stockholders' equity 6,776,520 6,405,070 Total liabilities and stockholders’ equity $ 9,247,142 $ 9,122,935 The accompanying notes are an integral part of these consolidated financial statements. F- 3 SCWorx Corp. Consolidated Statements of Operations For the years ended December 31, 2022 2021 Revenue $ 4,038,188 $ 4,632,529 Operating expenses: Cost of revenues 2,624,553 2,782,509 General and administrative 3,540,232 5,664,488 Total operating expenses 6,164,785 8,446,997 Loss from operations ( 2,126,597 ) ( 3,814,468 ) Other income (expense) Gain on forgiveness of PPP loan 279,191 - Total other income (expense) 279,191 - Net loss before income taxes ( 1,847,406 ) ( 3,814,468 ) Provision for (benefit from) income taxes - - Net loss $ ( 1,847,406 ) $ ( 3,814,468 ) Net loss per share, basic and diluted $ ( 0.15 ) $ ( 0.36 ) Weighted average common shares outstanding, basic and diluted 11,968,064 10,508,458 The accompanying notes are an integral part of these consolidated financial statements. F- 4 SCWorx Corp. Consolidated Statements of Changes in Stockholders’ Equity Preferred Stock Common stock Additional paid-in Subscriptions Accumulated Year ended December 31, 2022 Shares $ Shares $ capital payable deficit Total Balances, December 31, 2021 39,810 $ 40 11,293,030 $ 11,293 $ 29,805,028 $ 600,000 $ ( 24,011,291 ) $ 6,405,070 Shares issued as settlement of accounts payable - - 174,758 175 151,699 - - 151,874 Shares issued for common stock placement - - 1,153,845 1,154 723,896 - - 725,050 Shares issued for vested restricted stock units - - 110,998 111 ( 111 ) - - - Commitment shares issued in conjunction with capital raise - - 277,778 278 199,722 - - 200,000 Stock based compensation - - - - 1,141,932 - - 1,141,932 Net Loss - - - - - - ( 1,847,406 ) ( 1,847,406 ) Ending balance, December 31, 2022 39,810 $ 40 13,010,409 $ 13,011 $ 32,022,166 $ 600,000 $ ( 25,858,697 ) $ 6,776,520 Preferred Stock Common stock Additional paid-in Subscriptions Accumulated Year ended December 31, 2021 Shares $ Shares $ capital payable deficit Total Balances, December 31, 2020 84,872 $ 85 9,895,600 $ 9,896 $ 25,920,858 $ - $ ( 20,196,823 ) $ 5,734,016 Conversion of Series A Convertible Preferred Stock into common stock ( 45,062 ) ( 45 ) 138,322 119 ( 74 ) - - - Shares issued as settlement of accounts payable - - 238,467 238 422,383 - - 422,621 Shares issued for common stock placement - - 298,883 299 524,701 - - 525,000 Shares issued for vested restricted stock units - - 662,547 662 ( 662 ) - - - Shares issued for cashless exercise of options - - 6,579 7 ( 7 ) - - - Shares issued for equity financing - - 52,632 72 249,928 - - 250,000 Shares ussuable for settlement of legal obligations - - - - - 600,000 - 600,000 Stock based compensation - - - - 2,687,901 - - 2,687,901 Net loss - - - - - - ( 3,814,468 ) ( 3,814,468 ) Ending balance, December 31, 2021 39,810 $ 40 11,293,030 $ 11,293 $ 29,805,028 $ 600,000 $ ( 24,011,291 ) $ 6,405,070 The accompanying notes are an integral part of these consolidated financial statements. F- 5 SCWorx Corp. Consolidated Statements of Cash Flows For the years ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 1,847,406 ) $ ( 3,814,468 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation - 76,156 Change in inventory value 156,600 366,840 Gain on forgiveness of PPP loan ( 285,818 ) - Stock-based compensation 1,141,932 2,687,901 Bad debt expense 78,125 163,917 Changes in operating assets and liabilities: Accounts receivable 50,693 93,388 Prepaid expenses and other assets ( 31,238 ) 23,688 Inventory - 475,000 Accounts payable and accrued liabilities 83,366 ( 452,284 ) Deferred revenue 107,083 ( 690,083 ) Net cash used in operating activities ( 546,663 ) ( 1,069,945 ) Net cash used in investing activities - - Cash flows from financing activities: Proceeds from common stock placement 725,050 525,000 Proceeds from notes payable - 139,595 Proceeds from shareholder advance - 100,000 Net cash provided by financing activities 725,050 764,595 Net (decrease) increase in cash 178,387 ( 305,350 ) Cash, beginning of period 71,075 376,425 Cash, end of period $ 249,462 $ 71,075 Supplemental disclosures of cash flow information: Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Non-cash investing and financing activities: Shares issued for equity financing $ - $ 250,000 Commitment shares issued in conjunction with capital raise $ 200,000 $ - Shares issued for vested restricted stock units $ 111 $ 662 The accompanying notes are an integral part of these consolidated financial statements. F- 6 SCWorx Corp. Notes to Consolidated Financial Statements Note 1. Description of Business Nature of Business SCWorx, LLC (n/k/a SCW FL Corp.) (“SCW LLC”) was a privately held limited liability company which was organized in Florida on November 17, 2016. On December 31, 2017, SCW LLC acquired Primrose Solutions, LLC (“Primrose”), a Delaware limited liability company, which became its wholly-owned subsidiary and focused on developing functionality for the software now used and sold by SCWorx Corp. (the “Company” or “SCWorx”). The majority interest holders of Primrose were interest holders of SCW LLC and based upon Staff Accounting Bulletin Topic 5G, the technology acquired has been accounted for at predecessor cost of $ 0 . To facilitate the planned acquisition by Alliance MMA, Inc., a Delaware corporation (“Alliance”), on June 27, 2018, SCW LLC merged with and into a newly-formed entity, SCWorx Acquisition Corp., a Delaware corporation (“SCW Acquisition”), with SCW Acquisition being the surviving entity. Subsequently, on August 17, 2018, SCW Acquisition changed its name to SCWorx Corp. On November 30, 2018, the Company and certain of its stockholders agreed to cancel 6,510 shares of common stock. In June 2018, the Company began to collect subscriptions for common stock. From June to November 2018, the Company collected $ 1,250,000 in subscriptions and issued 3,125 shares of common stock to new third-party investors. In addition, on February 1, 2019, (i) SCWorx Corp. (f/k/a SCWorx Acquisition Corp.) changed its name to SCW FL Corp. (to allow Alliance to change its name to SCWorx Corp.) and (ii) Alliance acquired SCWorx Corp. (n/k/a SCW FL Corp.) in a stock-for-stock exchange transaction and changed Alliance’s name to SCWorx Corp., which is the Company’s current name, with SCW FL Corp. becoming the Company’s subsidiary. On March 16, 2020, in response to the COVID-19 pandemic, SCWorx established a wholly-owned subsidiary, Direct-Worx, LLC. Operations of the Business SCWorx is a provider of data content and services related to the repair, normalization and interoperability of information for healthcare providers and big data analytics for the healthcare industry. SCWorx has developed and markets health information technology solutions and associated services that improve healthcare processes and information flow within hospitals. SCWorx’s software platform enables healthcare providers to simplify, repair, and organize its data (“data normalization”), allows the data to be utilized across multiple internal software applications (“interoperability”) and provides the basis for sophisticated data analytics (“big data”). SCWorx’s solutions are designed to improve the flow of information quickly and accurately between the existing supply chain, electronic medical records, clinical systems, and patient billing functions. The software is designed to achieve multiple operational benefits such as supply chain cost reductions, decreased accounts receivables aging, accelerated and more accurate billing, contract optimization, increased supply chain management and cost visibility, synchronous Charge Description Master (“CDM”) and control of vendor rebates and contract administration fees. SCWorx empowers healthcare providers to maintain comprehensive access and visibility to an advanced business intelligence that enables better decision-making and reductions in product costs and utilization, ultimately leading to accelerated and accurate patient billing. SCWorx’s software modules perform separate functions as follows: ● virtualized Item Master File repair, expansion and automation; ● CDM management; ● contract management; ● request for proposal automation; ● rebate management; ● big data analytics modeling; and ● data integration and warehousing. F- 7 SCWorx continues to provide transformational data-driven solutions to some of the finest, most well-respected healthcare providers in the United States. Clients are geographically dispersed throughout the country. The Company’s focus is to assist healthcare providers with issues they have pertaining to data interoperability. SCWorx provides these solutions through a combination of direct sales and relationships with strategic partners. SCWorx’s software solutions are delivered to clients within a fixed term period, typically a three-to-five-year contracted term, where such software is hosted in SCWorx data centers (Amazon Web Service’s “AWS” or RackSpace) and accessed by the client through a secure connection in a software as a service (“SaaS”) delivery method. SCWorx currently sells its solutions and services in the United States to hospitals and health systems through its direct sales force and its distribution and reseller partnerships. Impact of the COVID-19 Pandemic The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic which spread throughout the United States and the world. The outbreak adversely impacted new customer acquisition. The Company has followed the recommendations of local health authorities to minimize exposure risk for its team members since the outbreak. In addition, the Company’s customers (hospitals) also experienced extraordinary disruptions to their businesses and supply chains, while experiencing unprecedented demand for health care services related to COVID-19. As a result of these extraordinary disruptions to the Company’s customers’ business, the Company’s customers were focused on meeting the nation’s health care needs in response to the COVID-19 pandemic. As a result, the Company believes that its customers were not able to focus resources on expanding the utilization of the Company’s services, which has adversely impacted the Company’s growth prospects, at least until the adverse effects of the pandemic subside. In addition, the financial impact of COVID-19 on the Company’s hospital customers could cause the hospitals to delay payments due to the Company for services, which could negatively impact the Company’s cash flows. The Company sought to mitigate these impacts to revenue through the sale of personal protective equipment (“PPE”) and COVID-19 rapid test kits to the health care industry, including many of the Company’s hospital customers. On March 16, 2020, in response to the COVID-19 pandemic, SCWorx established a wholly-owned subsidiary, Direct-Worx, LLC to endeavor to source and provide critical, difficult-to-find items for the healthcare industry. Regarding PPE and Test Kits, the Company’s Board of Directors determined in during the second quarter of 2020 to limit the Company’s role to acting as an intermediary between buyers and sellers with commission based compensation. 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. Note 2. 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. Cash Cash is maintained with various financial institutions. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 . The Company did not have any amounts in excess of the FDIC insured limit for the years ended December 31, 2022 and 2021. F- 8 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. Significant customers are those which represent more than 10 % of the Company’s revenue for each period presented, or the Company’s accounts receivable balance as of each respective balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total net accounts receivable are as follows: Revenue For the years ended Accounts Receivable December 31, December 31, Customers 2022 2021 2022 2021 Customer A 12 % 7 % 12 % 4 % Customer B 10 % 9 % 10 % 7 % Customer C 14 % 5 % 15 % 16 % Customer D 5 % 4 % 30 % - % Customer E 2 % 4 % - % 17 % Customer F 3 % 3 % 3 % 14 % 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, 2022 and 2021 of $ 0 and $ 421,736 , respectively. Inventory The inventory balance at December 31, 2021 is related to the Company’s Direct-Worx, LLC subsidiary and consisted of approximately 87,000 gowns. These items are tracked based on average cost and carried on the consolidated balance sheet at the lower of cost or market. F- 9 During the year ended December 31, 2021, the Company recorded a write down on the fair value of its inventory of $ 366,840 . During the year ended December 31, 2022, the Company wrote off the remaining value of this inventory as unsellable and is in the process of disposal. Inventory assets as of December 31, 2022 and 2021 consisted of the following: December 31, 2022 2021 Inventory $ 523,440 $ 523,440 Allowance for obsolescence ( 523,440 ) ( 366,840 ) Net inventory value $ - $ 156,600 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 6, Leases, for additional detail). Goodwill and Purchased Identified Intangible Assets Goodwill Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets acquired under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. The Company reviews impairment of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. For further discussion of goodwill, refer to Note 4, 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, 2022 and 2021 was $ 0 and $ 76,156 , respectively. F- 10 Revenue Recognition The Company recognizes revenue in accordance with Topic 606 to depict the transfer of promised goods or services in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of Topic 606 the Company performs the following steps: ● Step 1: Identify the contract(s) with a customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation The Company follows the accounting revenue guidance under Topic 606 to determine whether contracts contain more than one performance obligation. Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. The Company has identified the following performance obligations in its SaaS contracts with customers: 1) Data Normalization: which includes data preparation, product and vendor mapping, product categorization, data enrichment and other data related services, 2) Software-as-a-service (“SaaS”): which is generated from clients’ access of and usage of the Company’s hosted software solutions on a subscription basis for a specified contract term, which is usually annually. In SaaS arrangements, the client cannot take possession of the software during the term of the contract and generally has the right to access and use the software and receive any software upgrades published during the subscription period, 3) Maintenance: which includes ongoing data cleansing and normalization, content enrichment, and optimization, and 4) Professional Services: mainly related to specific customer projects to manage and/or analyze data and review for cost reduction opportunities. A contract will typically include Data Normalization, SaaS and Maintenance, which are distinct performance obligations and are accounted for separately. The transaction price is allocated to each separate performance obligation on a relative stand-alone selling price basis. Significant judgement is required to determine the stand-alone selling price for each distinct performance obligation and is typically estimated based on observable transactions when these services are sold on a stand-alone basis. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when the performance obligation has been met. The Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the Company has transferred use of the good or service, and the customer is able to direct the use of, and obtain substantially all the remaining benefits from, the good or service. F- 11 The Company’s SaaS and Maintenance contracts typically have termination for convenience without penalty clauses and accordingly, are generally accounted for as month-to-month agreements. If it is determined that the Company has not satisfied a performance obligation, revenue recognition will be deferred until the performance obligation is deemed to be satisfied. Revenue recognition for the Company’s performance obligations are as follows: Data Normalization and Professional Services The Company’s Data Normalization and Professional Services are typically fixed fee. When these services are not combined with SaaS or Maintenance revenues as a single unit of accounting, these revenues are recognized as the services are rendered and when contractual milestones are achieved and accepted by the customer. SaaS and Maintenance SaaS and Maintenance revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date on which the Company’s service is made available to customers. The Company does have some contracts that have payment terms that differ from the timing of revenue recognition, which requires the Company to assess whether the transaction price for those contracts include a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if it expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. The Company does not maintain contracts in which the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service exceeds the one-year threshold. In periods prior to the adoption of ASC 606, the Company recognized revenues when persuasive evidence of an arrangement existed, delivery had occurred, the sales price was fixed or determinable, and the collectability of the resulting receivable was reasonably assured. The adoption of Topic 606 did not result in a cumulative effect adjustment to the Company’s opening retained earnings since there was no significant impact upon adoption of Topic 606. There was also no material impact to revenues, or any other financial statement line items for the year ended December 31, 2018 as a result of applying ASC 606. The Company has one revenue stream, from the SaaS business, and believes it has presented all varying factors that affect the nature, timing and uncertainty of revenues and cash flows. 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, 2022, we had $ 579,833 of remaining performance obligations recorded as deferred revenue. We expect to recognize sales relating to these existing performance obligations of during 2023. Costs to Fulfill a Contract Costs to fulfill a contract typically include costs related to satisfying performance obligations as well as general and administrative costs that are not explicitly chargeable to customer contracts. These expenses are recognized and expensed when incurred in accordance with ASC 340-40. F- 12 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, 2022 and 2021. 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 $ 579,833 and $ 472,750 as of December 31, 2022 and 2021, respectively. Income Taxes 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, 2022 and 2021, 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. 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, 2022 and 2021. F- 13 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 8, Stockholders’ Equity, for additional detail. F- 14 Loss Per Share The Company computes earnings (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings (loss) per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants and the exercise of fully vested restricted stock units. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2021 and 2020, the Company had 4,095,867 and 3,322,670 , 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. As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable it to recover any payments above the applicable policy retention. In connection with the Class Action and derivative claims and investigations described in Note 7, 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. F- 15 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 From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption. Note 3. Related Party Transactions At December 31, 2022 and 2021 Company had amounts due to officers in the amount of $ 153,838 . During September 2021, the Company’s former CEO (also a significant shareholder) advanced $ 100,000 in cash to the Company for short term capital requirements. This amount is non-interest bearing and payable upon demand and included in Shareholder advance on the Company’s consolidated balance sheet as of December 31, 2022 Note 4. 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, are 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 F- 16 Goodwill There were no changes to the carrying value of goodwill for the years ended December 31, 2022 and 2021. Note 5. 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. In May 2022, the Company was granted an extension on the maturity date of this note until March 5, 2025 . The loan was partially forgiven in the amount of $ 139,569 in September 2022 with the balance remaining due. 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. This note was fully forgiven on March 12, 2022. Note 6. Leases Operating Leases The Company’s principal executive office in New York City is under a month-to-month arrangement. 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 condensed 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 remaining lease is month-to-month. As a practical expedient, the Company elected, for all office and facility leases, not to separate non-lease components (common-area maintenance costs) from lease components (fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component. The Company uses its incremental borrowing rate for purposes of discounting lease payments. As of December 31, 2022 and 2021, there were no assets recorded under operating leases. 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. F- 17 For the year ended December 31, 2022 and 2021, the components of lease expense were as follows: For the years ended December 31, 2022 2021 Operating lease cost $ 1,043 $ 14,196 Total lease cost $ 1,043 $ 14,196 As of December 31, 2022 and 2021, the Company has no additional operating leases, and no financing leases. Note 7. 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. Settlement of Consolidated Securities Class Action As previously disclosed, 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 former CEO. The action is captioned Daniel Yannes, individually and on behalf of all others similarly situated vs. SCWorx Corp. and Marc S. Schessel,. Subsequently, two additional class actions were filed in the same court (Leeburn v. SCWorx, et ano. and Leonard v. SCWorx et ano.) and thereafter, the three class actions were consolidated (the “Consolidated Class Action”). The Consolidated Class Action alleged that our company and our former CEO misled investors in connection with our April 13, 2020 press release with respect to the sale of COVID-19 rapid test kits. As previously disclosed, on February 11, 2022, the parties entered into a Stipulation of Settlement (subject to Court approval) to settle the Consolidated Class Action. The settlement resolves all claims asserted against SCWorx and the other named defendant without any admission, concession or finding of any fault, liability or wrongdoing by the Company or any defendant. Under the terms of this agreement, (i) the insurers for the Company and Marc Schessel (former CEO) will make a cash payment to the class plaintiffs (ii) the former CEO will transfer 100,000 shares of company common stock to the class plaintiffs, and (iii) the Company will issue $600,000 worth of common stock to the class plaintiffs, in exchange for which all parties will be released from all claims related to the securities class action litigation. After giving effect to the share issuance by the Company, the Company believes that it will have satisfied the accrued retention liability of $700,000. By order dated March 22, 2022, the Court granted preliminary approval of the class action. After a fairness hearing held on June 29, 2022, the Court approved the Stipulation of Settlement. CorProminence d/b/a Core IR v. SCWorx AAA Arbitration Case 01-22-0001-5709 As previously disclosed, on April 25, 2022, the Company received a Demand for Arbitration along with a Statement of Claim filed by Core IR with the American Arbitration Association seeking damages in the amount of approximately $ 190,000.00 arising out of a marketing and consulting agreement. The Company filed its answer, affirmative defenses and counterclaims on May 16, 2022. By order of the arbitrator dated November 1, 2022, Core IR received permission to amend its Statement of Claim to increase its request for damages to $ 257,545.63 . The arbitration hearing commences on March 20, 2023 and will continue through March 24, 2023. F- 18 Hadrian Equities Partners, LLC et ano. v. SCWorx Corp, Case No. 22-cv-07096 (JLR) (S.D.N.Y) On August 19, 2022, Hadrian Equities Partners, LLC and the Phillip W. Caprio, Jr. 2007 Irrevocable Trust filed a complaint in the United States District Court for the Southern District of New York alleging that SCWorx was dilatory and did not comply with its alleged contractual duties to remove the restrictions from Plaintiffs’ converted AMMA stock to SCWorx stock until August 10 and August 11, 2020. Plaintiffs allege that as a result, they were unable to sell their SCWorx stock when SCWorx was trading at its highest price on April 13, 2020. The Complaint seeks $ 500,000 in damages. To date, the Complaint has not been served. Upon review of the Complaint, SCWorx counsel provided Plaintiffs’ counsel with a “safe harbor” Notice of Motion for sanctions pursuant to Fed. R. Civ. Pro. 11 and letter explaining that the material allegations in the Complaint are false inasmuch as the restrictions on Plaintiffs’ SCWorx shares were removed on April 21, 2020– after months of waiting for Plaintiffs to supply the correct documents with accurate information so that outside counsel could provide an opinion and clear the stocks for trading. The “safe harbor” letter and Notice of Motion gave Plaintiffs 21 days to withdraw the Complaint. After asking for and receiving several extensions in addition to the 21 days, Plaintiffs have not withdrawn the Complaint and thus, a Motion for Sanctions was filed by SCWorx on November 4, 2022. After the motion for sanctions was filed, Plaintiffs filed an Amended Complaint on November 28, 2022. On February 6, 2023, SCWorx filed its answer to the Amended Complaint interposing numerous defenses. SCWorx is awaiting a decision from the Court on its Motion for Sanctions. Other Investigations As previously disclosed, on or about April 6, 2022, the Company reached a settlement in principle with the SEC Staff which, subject to a few changes, was subsequently approved by the Commission in which the Company agreed to resolve the SEC’s investigation regarding the April 13, 2020 press release and related disclosures (related to Covid-19 rapid test kits) through the Company’s payment of (a) a civil monetary penalty of $125,000, payable in 4 equal installments over 12 months and (b) disgorgement of $471,000 and prejudgment interest in the amount of $32,761.56 which payment is to be deemed satisfied by the transfer by the Company, no later than 30 days after the entry of the Class Distribution Order in the class action entitled Yannes v. SCWorx Corp. of shares of SCWorx’s common stock, valued at $600,000 at the time of issuance to authorized claimants in the Yannes settlement, provided that the Class Distribution Order is entered within 365 days from the entry of the Final Judgment in the SEC action. In the event that the Company does not transfer shares of its common stock, valued at $600,000 at the time of issuance to authorized claimants in the class action settlement within 365 days from the entry of a Final Judgment, the Company will be required to remit to the SEC the full amount of disgorgement within 395 days from entry of a Final Judgment. On May 31, 2022, the Commission filed a complaint against Marc Schessel and the Company in the United States District Court for the District of New Jersey alleging violations of Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933 (the “Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rules 10b-5(a), 10b-5(b), and 10b-5(c) thereunder relating to the April 13, 2020 press release and related disclosures we made in relation to the transaction involving COVID-19 test kits. At the same time, on May 31, 2022, the Commission filed a motion for approval of the Consent Judgment which contained the aforementioned fine, disgorgement requirement as well as an agreement by the Company to an injunction permanently restraining and enjoining the Company from violating Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rules 10b-5(a), (b), and (c) thereunder [17 C.F.R § 240.10b .. 5(a), (b), (c)]; and Section 17(a) of the Securities Act of 1933 (“Securities Act’’) [15 U.S.C. § 77q(a)]. On June 2, 2022, the Court granted the motion, approved the settlement and entered a final judgment. SCWorx has thus far paid 3 of 4 installments on the monetary penalty of $125,000. 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. Upon consummation of the settlement of the Consolidated Class Action, the Company believes it will have satisfied its accrued retention obligations with respect to the insurance coverage. F- 19 Note 8. Stockholders’ Equity Common Stock Authorized Shares The Company has 45,000,000 Common shares and 900,000 Series A convertible preferred shares authorized with a par value of $ 0.001 per share. Common Stock Issuance of Shares for Vested Restricted Stock Units Between January 20, 2022 and August 9, 2022, the Company issued a total of 107,998 shares of common stock to holders of fully vested restricted stock units. Issuance of Shares Pursuant to Settlement of Accounts Payable On March 31, 2022, the Company issued 12,196 shares of common stock in full settlement of $ 10,000 of accounts payable. The shares had a fair value of $ 0.82 per share. On August 11, 2022, the Company issued 69,444 shares of common stock in full settlement of $ 50,000 of accounts payable. The shares had a fair value of $ 0.72 per share. On September 27, 2022, the Company issued 21,360 shares of common stock in full settlement of $ 16,875 of accounts payable. The shares had a fair value of $ 0.79 per share. Issuance of Shares Pursuant to Legal Settlement Between January 18, 2022 and March 18, 2022, the Company issued an aggregate 71,758 shares of common stock in settlement of $ 75,000 pursuant to a legal settlement. Issuance of Shares in conjunction with capital raise On June 28, 2022, the Company issued 277,778 shares of common stock as commitment shares pursuant to a capital funding agreement. The shares had a fair value of $ 200,000 or $ 0.72 per share. Between September 7, 2022 and September 12, 2022, the Company issued an aggregate 1,153,845 shares of common stock as commitment shares pursuant to a private placement agreement. The shares had a fair value of $ 750,000 or $ 0.65 per share. Company received aggregate net proceeds related to this placement of $ 725,050 . 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 September 30, 2022, $415,000 worth of the shares and warrants have been issued. The remaining $ 125,000 received by the Company is included in equity financing within current liabilities on the consolidated balance sheet. F- 20 Stock Incentive Plan The number of shares of the Company’s common stock that are issuable pursuant to warrant and stock option grants with time-based vesting as of and for the year ended December 31, 2022 are: Warrant Grants Stock Option Grants Restricted Stock Units Number of shares subject to warrants Weighted- average exercise price per share Number of shares subject to options Weighted- average exercise price per share Number of shares subject to restricted stock units Balance at December 31, 2021 1,043,525 $ 2.57 118,388 $ 3.25 2,160,757 Granted 524,195 0.65 - - 465,314 Exercised - - - - ( 216,312 ) Cancelled/Expired - - - - - Balance at December 31, 2022 1,567,720 $ 1.35 118,388 $ 3.25 2,409,759 Exercisable at December 31, 2022 1,567,720 $ 1.35 118,388 $ 3.25 2,267,175 The Company has classified the warrant as having Level 2 inputs, and has used the Black-Scholes option-pricing model to value the warrant. The Company’s outstanding warrants and options at December 31, 2021 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 $ 0.65 - $ 20.90 1,567,720 2.56 $ 1.35 1,567,720 $ 1.35 - 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 1.69 $ 3.25 118,388 $ 3.25 - As of December 31, 2022 and 2021, the total unrecognized expense for unvested stock options and restricted stock awards was approximately $ 220,000 and $ 1.0 million, respectively, to be recognized over a one to three-year period for restricted stock awards and one year for option grants from the date of grant. Stock-based compensation expense for the years ended December 31, 2022 and 2021 was as follows: For the years ended December 31, 2022 2021 Stock-based compensation expense $ 1,141,932 $ 2,687,901 Stock-based compensation expense categorized by the equity components for the years ended December 31, 2022 and 2021 is as follows: For the years ended December 31, 2022 2021 Common stock $ 1,141,932 $ 2,687,901 Total $ 1,141,932 $ 2,687,901 Stock compensation is included in general and administrative expenses on the consolidated statements of operations F- 21 Note 9. 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, 2022 2021 Stock options 118,388 118,388 Warrants 1,567,720 1,043,525 Restricted stock units 2,409,759 2,160,757 Total common stock equivalents 4,095,867 3,322,670 Note 10. 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, 2021 and 2020 are as follows: As of December 31, 2022 2021 Net operating loss $ 8,541,890 $ 8,286,577 Stock options and compensation 2,358,690 2,100,042 Deferred revenue 238,410 107,078 Allowance for doubtful accounts - 95,523 Valuation allowance ( 11,138,990 ) ( 10,589,220 ) Total deferred tax asset - - Basis difference fixed assets - - Total deferred tax liability - Net deferred tax asset (liability) $ - $ - F- 22 The components of the provision for (benefit from) income taxes consist of the following: As of December 31, 2022 2021 Current tax: Federal - - State - - Total - - Deferred tax: Federal $ ( 509,721 ) $ ( 1,572,231 ) State ( 40,049 ) ( 123,532 ) Less: change in valuation allowance 549,770 1,695,763 - - 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, 2022 As of December 31, 2021 Net loss before tax per financial statements $ ( 1,847,406 ) $ ( 3,814,468 ) Statutory rate ( 387,955 ) 21.00 % ( 801,038 ) 21.00 % State tax rate ( 30,482 ) 1.65 % ( 62,939 ) 1.65 % Permanent items ( 131,330 ) 7.11 % ( 831,786 ) 21.81 % Rate change - 0.00 % - 0.00 % Change in valuation allowance 549,770 ( 29.73 ) 1,695,763 ( 44.46 )% $ - 0.00 % $ - 0.00 % As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of approximately $ 37.7 million and $ 36.6 million, respectively, available to offset future taxable income. As of December 31, 2022 and 2021, the Company had state loss carry-forwards of approximately $ 17.1 million and $ 16 , respectively. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The federal net operating loss carryforwards can be carried forward indefinitely and state loss carryforwards begin to expire in 2039. The valuation allowance as of December 31, 2022 and 2021 was $ 11,138,990 and $ 10,589,220 , respectively. The net change in valuation allowance for the years ended December 31, 2022 and 2021 was an increase of $ 549,770 and $ 1,695,763 , 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, 2022 and 2021. The Company had no unrecognized tax benefits during 2022 or 2021. By statute, all tax years are open to examination by the major taxing jurisdictions to which the Company is subject. Note 11. Subsequent Events We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported. Management has determined that there were no additional reportable subsequent events to be disclosed. F- 23 EXHIBIT INDEX Pursuant to the rules and regulations of the SEC, the Company has filed certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in the Company’s public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the Company’s actual state of affairs at the date hereof and should not be relied upon. Exhibit Exhibit Description 3.1 Certificate of Incorporation, as amended February 1, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s 10-K filed with the SEC on April 1, 2019) 3.3 Amended and Restated By-laws (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No. 333-213166) filed with the SEC on August 16, 2016) 4.1 Description of Registrant’s Securities* 10.1 Form of Securities Purchase Agreement dated September 9, 2022 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 32.1 Section 1350 Certification of the Chief Executive Officer* 32.2 Section 1350 Certification of the Chief Financial Officer* 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith 49