What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-09-24 compared with 2023-04-17 · 176 added, 203 removed, 407 unchanged (48% of the section changed)

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perform separate functions as follows:

● virtualized

Item Master File repair, expansion and automation;

for proposal automation;

data analytics modeling;

integration and warehousing.

virtualized Item Master File repair, expansion and automation;

CDM management;

contract management;

request for proposal automation;

rebate management;

big data analytics modeling;

data integration and warehousing.

SCWorx continues to provide

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The accompanying consolidated

financial statements have been prepared in accordance to U.S.

financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and the rules and regulations of the U.S.

Securities and Exchange Commission

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.

Securities and Exchange Commission (“SEC”).

The accompanying consolidated

financial statements include the accounts of SCWorx and its wholly-owned subsidiaries.

All material intercompany balances and transactions

have been eliminated in consolidation.

Principles of Consolidation

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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

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:

at fair value in the consolidated financial statements.

Management defines fair value as the price that would be received from selling

an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When determining

the fair value measurements for assets and liabilities, which are required to be recorded at fair value, management considers the principal

or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants

would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk.

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.

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

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

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Accounts Receivable

Allowance for Doubtful Accounts

Our company continually monitors

customer payments and maintains a reserve for estimated losses resulting from our customers’ inability to make required payments.

In determining the reserve, we evaluate the collectability of our accounts receivable based upon a variety of factors.

In cases where

we become aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a specific

allowance against amounts due.

For all other customers, we recognize allowances for doubtful accounts based on our 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 our estimates.

The Company recorded an allowance

for doubtful accounts as of December 31, 2022 and 2021 of $0 and $421,736, respectively.

Allowance for Credit Losses

Accounts receivable are comprised

of amounts billed and currently due from customers.

Accounts receivable are amounts related to any unconditional right the Company has

for receiving consideration and are presented as accounts receivable in the consolidated balance sheets.

The Company maintains an allowance

for credit losses for estimated losses resulting from the inability of our customers to make required payments.

The Company employs an

expected credit loss model utilizing historical loss rates and historical trends in credit quality indicators (e.g., delinquency, risk

ratings), adjusted to reflect current economic conditions and knowledge or customer relationships.

Management considers the following factors when determining the collectability of specific customer accounts:

customer creditworthiness, past transaction history with the customer, current industry trends, changes in customer payment terms, and

specific customer situations.

The Company’s normal collection cycle ranges between thirty and 60 days.

Estimated uncollectible amounts

are charged to earnings and a credit to a valuation allowance.

Balances which remain outstanding after reasonable collection efforts are

written off through a charge to the valuation allowance and a credit to accounts receivable The Company has assessed all receivables are

collectable and did not record an allowance for credit losses as of December 31, 2023 and 2022.

We determine if an arrangement

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We have lease agreements with lease components only, none with non-lease components, which are generally accounted for separately.

Business Combinations

Our company includes the results

of operations of a business we acquire in our consolidated results as of the date of acquisition.

We allocate the fair value of the purchase

consideration of our acquisition to the tangible assets, liabilities and intangible assets acquired, based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as

The primary items that generate goodwill include the value of the synergies between the acquired businesses and our company.

Intangible assets are amortized over their estimated useful lives.

The fair value of contingent consideration (earn out) associated with

acquisitions is remeasured each reporting period and adjusted accordingly.

Acquisition and integration related costs are recognized separately

from the business combination and are expensed as incurred.

For additional information regarding our acquisitions, refer to Note 4, Business

Combinations.

Goodwill and Identified Intangible Assets

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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.

goodwill, refer to Note 5, Goodwill.

Revenue Recognition

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the following performance obligations in our contracts with customers:

Normalization:

which includes data preparation, product and vendor mapping, product categorization, data enrichment and other data related

Software-as-a-service

which is generated from clients’ access of and usage of our hosted software solutions on a subscription basis

for a specified contract term, which is usually annually.

In SaaS arrangements, the client cannot take possession of the software during

the term of the contract and generally has the right to access and use the software and receive any software upgrades published during

the subscription period,

Data Normalization:

which includes data preparation, product and vendor mapping, product categorization, data enrichment and other data related services,

Software-as-a-service (“SaaS”):

which is generated from clients’ access of and usage of our hosted software solutions on a subscription basis for a specified contract term, which is usually annually.

In SaaS arrangements, the client cannot take possession of the software during the term of the contract and generally has the right to access and use the software and receive any software upgrades published during the subscription period,

which includes ongoing data cleansing and normalization, content enrichment, and optimization, and

Professional Services:

mainly related to specific customer projects to manage and/or analyze data and review for cost reduction opportunities.

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is made available to customers.

Some contracts have payment terms that differ from the timing of revenue

recognition, which requires us to assess whether the transaction price for those contracts include a significant financing component.

We have elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if it

expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when

the customer pays for that good or service will be one year or less.

We do not maintain contracts in which the period between when the

entity transfers a promised good or service to a customer and when the customer pays for that good or service exceeds the one-year threshold.

Some contracts have payment

terms that differ from the timing of revenue recognition, which requires us to assess whether the transaction price for those contracts

include a significant financing component.

We have elected the practical expedient that permits an entity to not adjust for the effects

of a significant financing component if it expects that at the contract inception, the period between when the entity transfers a promised

good or service to a customer and when the customer pays for that good or service will be one year or less.

We do not maintain contracts

in which the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good

or service exceeds the one-year threshold.

As of December 31, 2023, we

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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.

Costs to fulfill a contract typically include costs related to satisfying

performance obligations as well as general and administrative costs that are not explicitly chargeable to customer contracts.

These expenses

are recognized and expensed when incurred in accordance with Accounting Standard Codification (“ASC”) 340-40.

Cost of Revenue

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corporation from a limited liability company during 2018.

We use 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.

We use the asset and liability method of accounting for income taxes

in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of:

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

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

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stock-based compensation expense for such modification is accounted for as a repurchase of the original award and the issuance of a new

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.

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

The Company estimates the forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and

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.

Based upon the expected levels of achievement, stock-based

compensation is recognized on a straight-line basis over the requisite service period.

The expected levels of achievement are reassessed

over the requisite service periods and, to the extent that the expected levels of achievement change, stock-based compensation is adjusted

in the period of change and recorded on the statements of operations and the remaining unrecognized stock-based compensation is recorded

over the remaining requisite service period.

Refer to Note 9, Stockholders’ Equity, for additional detail.

Loss Per Share

We compute earnings

(loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted

earnings (loss) per share (“EPS”) on the face of the income statement.

Basic EPS is computed by dividing the loss

available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.

Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and

convertible preferred stock using the if-converted method.

In computing diluted EPS, the average stock price for the period is used

in determining the number of shares assumed to be purchased from the exercise of stock options and warrants and the exercise of

fully vested restricted stock units.

Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

December 31, 2022 and 2021, we had 4,095,867 and 3,322,670, respectively, common stock equivalents outstanding.

We compute earnings (loss)

per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings

(loss) per share (“EPS”) on the face of the income statement.

Basic EPS is computed by dividing the loss available to common

shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.

Diluted EPS gives effect

to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock

using the if-converted method.

In computing diluted EPS, the average stock price for the period is used in determining the number of shares

assumed to be purchased from the exercise of stock options and warrants and the exercise of fully vested restricted stock units.

EPS excludes all dilutive potential shares if their effect is anti-dilutive.

As of December 31, 2023 and 2022, we had 273,059 and 180,390,

respectively, common stock equivalents outstanding.

Indemnification

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Contingencies

From time to time, we may

be involved in legal and administrative proceedings and claims of various types.

We record a liability in our consolidated financial statements

for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

Management reviews these estimates

in each accounting period as additional information becomes known and adjusts the loss provision when appropriate.

If the loss is not

probable or cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements.

If a loss is probable

but the amount of loss cannot be reasonably estimated, we disclose the loss contingency and an estimate of possible loss or range of loss

(unless such an estimate cannot be made).

From time to time, we may be involved in legal and administrative proceedings

and claims of various types.

We record a liability in our consolidated financial statements for these matters when a loss is known or

considered probable and the amount can be reasonably estimated.

Management reviews these estimates in each accounting period as additional

information becomes known and adjusts the loss provision when appropriate.

If the loss is not probable or cannot be reasonably estimated,

a liability is not recorded in the consolidated financial statements.

If a loss is probable but the amount of loss cannot be reasonably

estimated, we disclose the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made).

We do not recognize gain contingencies until they are realized.

Legal costs incurred in connection

with loss contingencies are expensed as incurred.

Legal costs incurred in connection with loss contingencies are expensed

Refer to Note 8, Commitments and Contingencies, for further information.

Use of Estimates

The preparation of consolidated

financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and

disclosed in the consolidated financial statements and accompanying notes.

The Company regularly evaluates estimates and assumptions related

to allowance for 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.

The preparation of consolidated financial statements in conformity

with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial

statements and accompanying notes.

The Company regularly evaluates estimates and assumptions related to allowance for credit losses, the

estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred

income tax asset valuation allowances.

The Company bases its estimates and assumptions on current facts, historical experience and various

other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about

the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.

To the extent there

are material differences between the estimates and the actual results, future results of operations will be affected.

Recently Issued Accounting Pronouncements

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to the Company for services, which could negatively impact the Company’s cash flows.

The Company had 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.

The Company is no longer actively

seeking to procure and sell Test Kits or PPE.

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.

Year Ended December 31, 2023 Compared to

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$ (1,847,406 )

$ (2,133,738 )

Revenue for the year ended

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The decline in revenue is primarily

related to a slight decrease in revenues from SaaS customer sales during the period.

related to a slight decrease in overall revenues from SaaS customer sales during the period due to fluctuations in our customer base.

Cost of Revenues

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related to a decrease in labor costs during the current year.

General and administrative

expenses decreased $2,124,256 to $3,540,232 for the year ended December 31, 2022, as compared to $5,664,488 in the same period of 2021.

This decrease was primarily due to a decrease in salary expense of approximately $64,000, a decrease in stock-based compensation (non-cash)

of approximately $1,546,000, a decrease in accounting fees of $144,000, a decrease in inventory write down expense of $170,000, a decrease

in bad debt expense of $204,000, and a decrease in commission expense of $210,000.

We expect general and administrative expenses (excluding

non-cash compensation expenses) to remain relatively flat during 2023 with the exception of increases in our sales force.

General and administrative expenses decreased $817,337 to $2,719,740

for the year ended December 31, 2023, as compared to $3,537,077 in the same period of 2022.

This decrease was primarily due decreases

in non-cash stock compensation expense of approximately $780,000, legal and professional fees of approximately $87,000, inventory write-downs

of approximately $157,000 and bad debt expense of approximately $30,000, partially offset by to an increase in accruals for legal settlement

of approximately $462,000.

We expect general and administrative expenses (excluding non-cash compensation expenses) to remain relatively

flat during 2024 with the exception of increases in our sales force.

We had other losses of $2,530,482

During the year ended December 31, 2023 consisting of write-down of goodwill of $2,524,034 and interest expense of $6,448.

We had other income of $276,036

during the year ended December 31, 2022 related to the forgiveness of PPP loans.

during the year ended December 31, 2022 related primarily to the forgiveness of PPP loans.

Liquidity and Capital Resources

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Recent Fundraising

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

The shares had a fair value of $750,000 or $0.65 per share.

Company received aggregate net proceeds related to this placement

During the year ended December

31, 2023, the Company issued an aggregate 134,056 shares of common stock for aggregate gross proceeds of $572,906 as under its existing

equity line of credit.

We are currently experiencing

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and financial condition.

In the event we do not generate

sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we will be unable to fully implement

our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business

prospects, financial condition, and results of operations.

The accompanying financial statements do not include any adjustments that might

be required should the Company be unable to recover the value of its assets or satisfy its liabilities.

In the event we do not generate sufficient funds from revenues or financing

through the issuance of common stock or from debt financing, we will be unable to fully implement our business plan and pay our obligations

as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and

results of operations.

The accompanying financial statements do not include any adjustments that might be required should the Company

be unable to recover the value of its assets or satisfy its liabilities (see Note 2 to the Financial Statements – Liquidity and

Going Concern).

Based on our current limited

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business and results of operations.

Years ended December 31,

Net cash used in operating activities

$ (1,069,945 )

Net cash used in investing activities

Net cash provided by investing activities

Net cash provided by financing activities

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Net cash used in operating

activities was $806,164 for the year ended December 31, 2023, mainly related to the net loss of $3,981,144, a decrease in deferred revenue

obligations of $201,250 and an increase in net accounts receivable of $16,780, partially offset by non-cash stock-based compensation

of $361,363 related to various equity awards to employees and non-employees, $48,000 in bad debt expense, a $25,647 decrease in prepaid

expenses and an increase of $433,966 in accounts payable and accrued liabilities.

Net cash used in operating

activities was $540,036 for the year ended December 31, 2022, mainly related to the net loss of $1,847,406 and a gain on forgiveness of

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and non-employees, $78,125 in bad debt expense, and a $156,600 decrease in inventory valuation.

Net cash used in operating

activities was $1,069,945 for the year ended December 31, 2021, mainly related to the net loss of $3,814,46 and decreases of $452,284

in accounts payable and accrued liabilities and $690,083 in deferred revenue, partially offset by non-cash stock-based compensation of

$2,687,901 related to various equity awards to employees and non-employees, $163,917 in bad debt expense, and a $475,000 decrease in inventory

Investing Activities

The Company received $165,000

in investing activities during the year ended December 31, 2023 related to a potential reverse acquisition.

Under the terms of the agreement,

all funds received by the Company were contributed upon the termination of the acquisition agreement.

The Company did not have any

investing activities during the years ended December 31, 2022 and 2021.

investing activities during the year ended December 31, 2022.

Financing Activities

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activities was $483,138 for the year ended December 31, 2023.

This consisted proceeds from a common stock placement.

This consisted of $572,906 in proceeds from a common stock placement and

$193,558 in proceeds from advances, partially offset by repayments of $193,558 in proceeds from advances, $57,390 in repayments on notes

payable and $32,378 in payments on shareholder advance.

Net cash provided by financing

activities was $718,423 for the year ended December 31, 2022.

This consisted of $139,595 in proceeds from a loan payable, $100,000 advanced

by the Company’s former CEO (also a significant shareholder), and $525,000 from a common stock placement.

This consisted of proceeds of $725,050 from a common stock placement partially

offset by loan repayments of $6,627.

Contractual Cash Obligations

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Off-Balance Sheet Arrangements

As of December 31, 2022, we

did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of December 31, 2023 and

2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Quantitative and Qualitative Disclosures

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company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Financial Statements and Supplementary

The consolidated financial

statements are included in Part IV, Item 15 (a) (1) of this Report.

Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis