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, 2023, the end of the period covered by this Annual Report on Form 10-K, as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, based on the 2013 framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to deficiencies caused by a lack of segregation of duties, our Disclosure Controls were not effective as of December 31, 2023, such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding disclosure. Management Report on Internal Controls over Financial Reporting Our management has identified material weaknesses in our internal controls related to a lack of segregation of duties. Management continues to work with the Audit Committee to discuss remediation efforts. Our management is currently considering looking for additional accounting and finance personnel to assist in the remediation efforts. Notwithstanding the foregoing, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. We may in the future identify other material weaknesses or significant deficiencies in connection with our internal control over financial reporting. Material weaknesses and significant deficiencies that may be identified in the future will need to be addressed as part of our quarterly and annual evaluations of our internal controls over financial reporting under Sections 302 and 404 of the Sarbanes-Oxley Act. Any future disclosures of a material weakness, or errors as a result of a material weakness, could result in a negative reaction in the financial markets and a decrease in the price of our common stock. Changes in Internal Control over Financial Reporting. None Item 9B. Other Information None . Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 34 PART III Item 10. Directors, Executive Officers and Corporate Governance The following table presents information with respect to our officers, directors and significant employees as of the date of filing of this Report: Name Age Position(s) Timothy A. Hannibal 55 President & Chief Executive Officer, Director Chris Kohler 43 Chief Financial Officer Alton Irby 83 Director Steven Horowitz 53 Director Vincent Matozzo 40 Director Background of Officers and Directors The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out. Timothy A. Hannibal Mr. Hannibal is a seasoned technology executive and entrepreneur, with nearly 30 years’ experience in SaaS and cloud technology, driving revenue, go-to-market strategies, business development and mergers and acquisitions. Mr. Hannibal joined the Company in January 2019 and currently serves as its Chief Executive Officer. Prior to joining the Company, Mr. Hannibal was an employee at Primrose Solutions (the predecessor to SCWorx) which he joined in September of 2016. At Primrose, Mr. Hannibal was responsible for overseeing marketing, sales and operations, including executing the Company’s business plan. Mr. Hannibal has a successful track record of growth and management at both startup and national companies. Prior to joining Primrose, Mr. Hannibal was the President and CEO of VaultLogix for thirteen years, a company he founded. VaultLogix was a private equity sponsored leading SaaS company in the cloud backup industry before being acquired by J2 Global, a publicly traded technology company ($3.2b market cap) focused on cloud services and digital media. Chris Kohler Mr. Kohler was appointed CFO on November 1, 2020, at which time Mr. Hannibal resigned as Interim CFO. Mr. Kohler has over 15 years of experience serving in a wide variety roles in the finance and accounting sectors. Mr. Kohler is the founder and CEO of Kohler Consulting, Inc., which he founded in 2012. The firm, through Mr. Kohler, provides outsourced CFO and advisory services to private and public companies, with a focus on small cap and start-up businesses. Alton Irby Mr. Irby was appointed to the Board of Directors on March 10, 2021. Alton Irby is a co-founder of London Bay Capital and has been Chairman of the firm since 2006. London Bay Capital makes investments in private companies, and also provides business advisory services. Mr. Irby is a seasoned executive with a highly successful track record in the financial services and investment banking industries in both the UK and the US from 1982 to the present. Mr. Irby has served on the boards of several public and private companies including 17 years as a director of The McKesson Corporation chairing both the Compensation and Finance Committees. 35 Steven Horowitz Mr. Horowitz was appointed to the Board of Directors in August 2021. Mr. Horowitz is currently the Chief Executive Officer of CareCentrix, a multi-billion dollar health care services company, after previously serving as its Chief Financial Officer since 2012. Prior to joining CareCentrix, Steve was the Vice President of business planning for Medco Health Solutions, a Fortune 50 pharmacy benefit manager. In this role, Steve was the CFO for three key U.S.-based divisions as well as all international markets, which together generated over $2 billion in annual revenue. Previously, Steve held the position of controller at National Medical Health Card Systems, a pharmacy benefit manager, and at The Fantastic Corporation, a global broadband multimedia corporation. Earlier, Steve was CFO at the Mount Vernon Neighborhood Health Center. Steve received his MBA from Adelphi University and earned his BS in business management from Cornell University. He is a licensed CPA and Chartered Global Management Accountant (CGMA). Steve is a member of the American Institute of Certified Public Accountants (AICPA). Vincent Matozzo Mr. Matozzo is an innovative strategist and leader recognized for driving results through effective supply chain strategies and product innovation. He is a dynamic leader who drives change and delivers results for clients, corporations, and consortiums. He is passionate about automating processes and delivering a superior customer experience while enabling teams. Mr. Matozzo is a subject matter expert in Lean and Agile process modeling, with experience in all aspects of pre-award modeling to post-award monitoring, requisitioning to reimbursement- including data visualization and procurement. He has expertise in technical execution and supply chain innovation and enjoys deploying initiatives in technology development to continuously improve interoperability and operations. Mr. Matozzo is a featured speaker and expert in supply chain organizational development and business continuity. He is skilled in designing and implementing innovative business models that produce dramatic results. Mr. Matozzo has served in various supply chain capacities across manufacturing, aerospace, and healthcare at organizations including Yale New Haven Health, Vizient, and NYU Langone Health. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and also to other employees. Our Code of Business Conduct can be found on our website at www.SCWorx.com. Family Relationships There are no family relationships between any of our directors, executive officers or significant employees. Involvement in Certain Legal Proceedings During the past ten years, none of our current officers, directors, significant employees or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K. Litigation involving our former CEO, Marc S. Schessel, is described in Item 3, “Legal Proceedings.” Board Composition The Board of Directors currently consists of four directors. Each director will serve in office until the next annual meeting of stockholders or until their successors have been duly elected and qualified, or until the earlier of their death, resignation or removal. Our certificate of incorporation provides that that the number of authorized directors will be determined in accordance with our bylaws. Our bylaws provide that the number of authorized directors shall be determined from time to time by a resolution of the Board of Directors, and any vacancies in our board and newly created directorships may be filled only by our Board of Directors. 36 Term of Office All of our directors are elected on an annual basis to serve until the next annual meeting of shareholders or until the earlier of their death, resignation or removal. Committees of the Board of Directors Our Board of Directors has established an audit committee, a compensation committee and a nominating and governance committee. Each of these committees operates under a charter that has been approved by our Board of Directors. Audit Committee We have a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee has authority to review our financial records, engage with our independent auditors, recommend policies with respect to financial reporting to the Board of Directors and investigate all aspects of our business. The members of the audit committee are Mr. Horowitz (chair), Mr. Irby and Mr. Matozzo. The audit committee consists exclusively of directors who are financially literate. In addition, Mr. Horowitz is considered an “audit committee financial expert” as defined by the SEC’s rules and regulations. All members of the Audit Committee currently satisfy the independence requirements and other established criteria of Nasdaq. Compensation Committee The Compensation Committee oversees our executive compensation and recommends various incentives for key employees to encourage and reward increased corporate financial performance, productivity and innovation. The members of the compensation committee are Mr. Irby (chair), Mr. Horowitz and Mr. Matozzo. Nominating and Governance Committee The Nominating and Corporate Governance Committee identifies and nominates candidates for membership on the Board of Directors, oversees Board of Directors’ committees, advises the Board of Directors on corporate governance matters and any related matters required by the federal securities laws. The members of the Nominating Committee are Mr. Matozzo (chair), Mr. Irby and Mr. Horowitz, and all currently satisfy the independence requirements and other established criteria of Nasdaq. The Nominating and Governance Committee will consider stockholder recommendations for candidates for the Board of Directors. Our bylaws provide that, in order for a stockholder’s nomination of a candidate for the board to be properly brought before an annual meeting of the stockholders, the stockholder’s nomination must be delivered to the Secretary of our company no later than 120 days prior to the one-year anniversary date of the prior year’s annual meeting. Charters for all three committees are available on our website at www.SCWorx.com. Changes in Nominating Procedures None. 37 Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, statements of changes in beneficial ownership and annual statements of changes in beneficial ownership with respect to their ownership of our securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, and without conducting an independent investigation of our own, we believe that with respect to the fiscal year ended December 31, 2023, our officers and directors, and all of the persons known to us to beneficially own more than 10% of our common stock filed all required reports on a timely basis. Item 11. Executive Compensation The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2023 and 2022 awarded to, earned by or paid to our executive officers. The value attributable to any option awards and stock awards reflects the grant date fair values of stock awards calculated in accordance with FASB Accounting Standards Codification Topic 718. As described further in Note 9, Stockholders’ Equity, to our consolidated year-end financial statements, the assumptions made in the valuation of these option awards and stock awards is set forth therein. Non-Equity Stock Option Incentive Plan All Other Fiscal Salary Bonus Awards Awards Compensation Compensation Total Name and Principal Position Year $ ($) ($) ($) ($) ($) ($) Timothy Hannibal (1) 2023 250,000 - - - - 27,445 277,445 President, Chief Executive Officer and Director 2022 250,000 - - - - 44,996 294,996 Chris Kohler (2) 2023 108,000 - - - - 4,000 112,000 Chief Financial Officer 2022 90,000 - - - - - 90,000 (1) Mr. Hannibal was hired as Chief Revenue Officer on February 1, 2019 and was appointed Interim Chief Financial Officer on June 10, 2020. On August 10, 2020 Mr. Hannibal was appointed President and Chief Operating Officer. On May 28, 2021 Mr. Hannibal was appointed President and Chief Executive Officer. (2) Mr. Kohler has served as Chief Financial Officer since November 1, 2020. 38 Directors’ Compensation The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during 2023 and 2022 awarded to, earned by or paid to our directors. The value attributable to any stock option awards reflects the grant date fair values of stock awards calculated in accordance with ASC Topic 718. Fees Non-Equity Earned or Incentive Paid in Stock Option Plan All Other Fiscal Cash Bonus Awards Awards Compensation Compensation Total Name and Principal Position Year ($) ($) ($) ($) ($) ($) ($) Alton Irby (1) 2023 - - - - - - - Chairman and Director 2022 - - - - - - - Vincent Matozzo (2) 2023 - - - - - - - Director 2022 - - - - - - - Steven Horowitz (3) 2023 - - - - - - - Director 2022 - - - - - - - John Ferrara (4) 2023 - - 27,977 - - - 27,977 Former Director 2022 - - 124,200 - - - 124,200 Steven Wallitt (5) 2023 - - - - - - - Former Director 2022 - - 110,400 - - - 110,400 (1) Alton Irby was appointed as a Director on March 16, 2021. Effective May 15, 2024, Mr Irby returned all previously received stock grants to the Company. (2) Vincent Matozzo was appointed as a Director on August 17, 2023. Effective May 15, 2024, Mr Matozzo returned all previously received stock grants to the Company. (3) Steven Horowitz was appointed as a Director on August 11, 2021. Effective May 15, 2024, Mr Horowitz returned all previously received stock grants to the Company. (4) John Ferrara was appointed as a Director on August 11, 2021. Mr Ferrera resigned as a director effective August 18, 2023 (5) Steven Wallitt was appointed as a Director on October 4, 2019. Mr Wallitt’s service was not continued effective approval of the Company’s proxy statement nominations at our shareholder meeting held December 22, 2022. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth certain information regarding beneficial ownership of our common stock as of September 23, 2024: (i) by each of our directors, (ii) by each of the named executive officers, (iii) by all of our executive officers and directors as a group, and (iv) by each person or entity known by us to beneficially own more than five percent (5%) of any class of our outstanding shares. As of September 23, 2024, there were 1,599,367 shares of our common stock outstanding. Amount and Nature of Beneficial Ownership as of September 23, 2024 (1) Common Preferred Options/ Percentage Named Executive Officers and Directors Stock Stock Warrants Total Ownership Current Timothy Hannibal 54,788 - - 54.788 3.3 % Chris Kohler 6,983 - - 6.983 * % Alton Irby - - - - * % Vincent Matozzo - - - - * % Steven Horowitz - - - - * % Directors and Executive Officers as a Group (5 persons) 61,771 - - 61,771 3.6 % Former Steven Wallitt - 5000 - 5000 * % John Ferrera 13,055 - - - 1.0 % * Represents beneficial ownership of less than 1% of our outstanding stock. (1) In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock that may be acquired upon the exercise of stock options within 60 days of September 23, 2024. In determining the percent of common stock owned by a person or entity on September 23, 2024, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days of September 23, 2024 upon the exercise of stock options, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on September 23, 2024 and (ii) the total number of shares that the beneficial owner may acquire upon exercise of stock options within 60 days of September 23, 2024. Unless otherwise indicated, the address of each of the individuals and entities named below is c/o SCWorx Corp., 100 S Ashley Dr, Suite 100 Tampa, FL 33602. 39 Item 13. Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Transactions At December 31, 2023 and 2022 Company had amounts due to officers in the amount of $149,838 and $153,838, respectively. During September 2021, the Company’s former CEO (also a significant shareholder) advanced $100,000 in cash to the Company for short term capital requirements. This amount is non-interest bearing and payable upon demand. The Company had balances of $67,622 and $100,000 included in shareholder advance on the Company’s consolidated balance sheets as of December 31, 2023 and 2022, respectively. Between May 24, 2023 and November 29, 2023, the Company’s CFO advanced an aggregate $193,558 in cash to the Company for short term capital requirements. As of December 31, 2023, all advanced amounts have been repaid. Director Independence The rules of the Nasdaq Capital Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Under the Nasdaq Rules, a director will qualify as an independent director only if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act, as amended. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules require that our Board of Directors must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation we pay to the director and any affiliations with our company. Our Board of Directors undertook a review of the composition of our Board of Directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined that each of our directors other than Tim Hannibal, is independent based on the definition of independence in the Nasdaq listing standards. Item 14. Principal Accountant Fees and Services The Audit Committee of the Board of Directors has selected Astra Audit and Advisory, LLC (“Astra”), an independent registered public accounting firm, to audit our financial statements for the years ended December 31, 2023 and 2022. BF Borgers CPA PC served as our independent registered public accounting firm from April 2021 through May 2024 at which time the US Securities and Exchange Commission (“Commission”) entered an Order denying BF Borgers CPA PC (“BF Borgers”) the privilege of appearing or practicing before the Commission as an accountant. The Company subsequently terminated BF Borgers as its independent registered public accounting firm. 40 Principal Accountant Fees and Services During 2023 and 2022, fees for services provided by Astra Audit and Advisory, LLC were as follows: For the year ended December 31, 2023 2022 Audit Fees $ - $ - Audit-Related Fees - - Tax Fees - - All Other Fees - - Total $ - $ - During 2023 and 2022, fees for services provided by BF Borgers CPA PC were as follows: For the year ended December 31, 2023 2022 Audit Fees $ 192,500 $ 179,400 Audit-Related Fees - - Tax Fees - - All Other Fees - - Total $ 192,500 $ 179,400 Audit Fees Audit fees for 2023 and 2022 include amounts related to the audit of our annual consolidated financial statements and quarterly review of the consolidated financial statements included in our Quarterly Reports on Form 10-Q. Audit Related Fees Audit Related Fees include amounts related to accounting consultations and services. Tax Fees Tax Fees include fees billed for tax compliance, tax advice and tax planning services. All Other Fees The Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. 41 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as a part of this report: (1) Financial Statements . See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item. (2) Financial Statement Schedules . Schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is given in the consolidated financial statements or the notes thereto. (3) Exhibits . The information required by this Item 15 is incorporated by reference to the Index to Exhibits accompanying this Annual Report on Form 10-K. 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCWorx Corp. By: /s/ Timothy Hannibal Timothy Hannibal President, Chief Executive Officer September 23, 2024 By: /s/ Chris Kohler Chris Kohler Chief Financial Officer September 23, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. /s/ Timothy Hannibal Timothy Hannibal President, Chief Executive Officer, Director September 23, 2024 /s/ Chris Kohler Chris Kohler Chief Financial Officer September 23, 2024 /s/ Alton Irby Alton Irby, Chairman September 23, 2024 /s/ Vincent Matazzo Vincent Matazzo Director September 23, 2024 /s/ Steven Horowitz Steven Horowitz Director September 23, 2024 43 Index to Consolidated Financial Statements SCWorx Corp. Consolidated Financial Statements Page Number Report of Independent Registered Accounting Firm (PCAOB ID Number 5041 ) F-2 Consolidated balance sheets as of December 31, 2023 and 2022 F-3 Consolidated statements of operations for the years ended December 31, 2023 and 2022 F-4 Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2023 and 2022 F-5 Consolidated statements of cash flows for the years ended December 31, 2023 and 2022 F-6 Notes to consolidated financial statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of SCWorx Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SCWorx Corp. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has incurred net losses and working capital deficits. These factors, and the need for additional financing in order for the Company to meet its business plans raises substantial doubt about the Company’s ability to continue as a going concern. Our opinion is not modified with respect to that matter. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Astra Audit & Advisory, LLC We have served as the Company’s auditor since 2024. Tampa, Florida September 23, 2024 3702 West Spruce Street #1430 i Tampa, Florida 33607 i +1.813.441.9707 F- 2 SCWorx Corp. Consolidated Balance Sheets December 31, December 31, 2023 2022 ASSETS Current assets: Cash $ 91,436 $ 249,462 Accounts receivable 304,813 336,033 Prepaid expenses and other assets 39,533 295,180 Total current assets 435,782 880,675 Goodwill 5,842,433 8,366,467 Total assets $ 6,278,215 $ 9,247,142 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,613,364 $ 1,364,202 Accounts payable and accrued liabilities - related party 149,838 153,838 Stockholder advance 67,622 100,000 Deferred revenue 378,583 579,833 Equity financing 125,000 125,000 Total current liabilities 2,334,407 2,322,873 Long-term liabilities: Loans payable 90,359 147,749 Total long-term liabilities 90,359 147,749 Total liabilities 2,424,766 2,470,622 Commitments and contingencies (Note 8) - - Stockholders’ equity: Series A Convertible Preferred stock, $ 0.001 par value; 900,000 shares authorized; 39,810 shares issued and outstanding 40 40 Common stock, $ 0.001 par value; 45,000,000 shares authorized; 1,232,333 and 867,574 shares issued and outstanding, respectively 1,232 868 Additional paid-in capital 33,692,018 32,034,309 Subscriptions payable - 600,000 Accumulated deficit ( 29,839,841 ) ( 25,858,697 ) Total stockholders’ equity 3,853,449 6,776,520 Total liabilities and stockholders’ equity $ 6,278,215 $ 9,247,142 The accompanying notes are an integral part of these consolidated financial statements. F- 3 SCWorx Corp. Consolidated Statements of Operations For the years ended December 31, 2023 2022 Revenue $ 3,804,943 $ 4,038,188 Cost of revenues 2,535,865 2,624,553 Gross profit 1,269,078 1,413,635 Operating expenses: Legal and Professional 839,183 927,183 Salaries and wages 310,988 329,641 Stock compensation 361,363 1,141,932 General and administrative 1,208,206 1,138,321 Total operating expenses 2,719,740 3,537,077 Loss from operations ( 1,450,662 ) ( 2,123,442 ) Other income (expense) Interest expense ( 6,448 ) ( 3,155 ) Impairment of goodwill ( 2,524,034 ) - Gain on forgiveness of PPP loan - 279,191 Total other (expense) income ( 2,530,482 ) 276,036 Net loss before income taxes ( 3,981,144 ) ( 1,847,406 ) Provision for (benefit from) income taxes - - Net loss $ ( 3,981,144 ) $ ( 1,847,406 ) Net loss per share, basic and diluted $ ( 3.86 ) $ ( 2.32 ) Weighted average common shares outstanding, basic and diluted 1,032,666 797,871 The accompanying notes are an integral part of these consolidated financial statements. F- 4 SCWorx Corp. Consolidated Statements of Changes in Stockholders’ Equity Additional Year ended Preferred Stock Common stock paid-in Subscriptions Accumulated December 31, 2023 Shares $ Shares $ capital payable deficit Total Balances, December 31, 2022 39,810 $ 40 867,574 $ 868 $ 32,034,309 $ 600,000 $ ( 25,858,697 ) $ 6,776,520 Shares issued as settlement of accounts payable - - 69,072 69 188,735 - - 188,804 Shares issued under equity line of credit, net of financing costs - - 134,056 134 342,772 - - 342,906 Shares issued for vested restricted stock units - - 16,935 17 ( 17 ) - - - Shares issued for settlement of class action - - 129,458 129 599,871 ( 600,000 ) - - Shares issued for cashless exercise of warrants - - 15,238 15 ( 15 ) - - - Proceeds received from potential acquisition - - - - 165,000 - - 165,000 Stock based compensation - - - - 361,363 - - 361,363 Net loss - - - - - - ( 3,981,144 ) ( 3,981,144 ) Ending balance, December 31, 2023 39,810 $ 40 1,232,333 $ 1,232 $ 33,692,018 $ - $ ( 29,839,841 ) $ 3,853,449 Additional Year ended Preferred Stock Common stock paid-in Subscriptions Subscriptions December 31, 2022 Shares $ Shares $ capital payable deficit Total Balances, December 31, 2021 39,810 $ 40 753,081 $ 753 $ 29,815,568 $ 600,000 $ ( 24,011,291 ) $ 6,405,070 Shares issued as settlement of accounts payable - - 11,651 12 151,862 - - 151,874 Shares issued for common stock placement - - 76,923 77 724,973 - - 725,050 Shares issued for vested restricted stock units - - 7,400 7 ( 7 ) - - - Commitment shares issued in conjunction with capital raise - - 18,519 19 199,981 - - 200,000 Stock based compensation - - - - 1,141,932 - - 1,141,932 Net loss - - - - - - ( 1,847,406 ) ( 1,847,406 ) Ending balance, December 31, 2022 39,810 $ 40 867,574 $ 868 $ 32,034,309 $ 600,000 $ ( 25,858,697 ) $ 6,776,520 The accompanying notes are an integral part of these consolidated financial statements. F- 5 SCWorx Corp. Consolidated Statements of Cash Flows For the years ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 3,981,144 ) $ ( 1,847,406 ) Adjustments to reconcile net loss to net cash used in operating activities: Impairment of goodwill 2,524,034 - Gain on forgiveness of PPP loan - ( 279,191 ) Impairment of inventory - 156,600 Stock-based compensation 361,363 1,141,932 Bad debt expense 48,000 78,125 Changes in operating assets and liabilities: Accounts receivable ( 16,780 ) 50,693 Prepaid expenses and other assets 25,647 ( 31,238 ) Accounts payable and accrued liabilities 433,966 83,366 Deferred revenue ( 201,250 ) 107,083 Net cash provided by (used in) operating activities ( 806,164 ) ( 540,036 ) Cash flows from investing activities: Proceeds from potential acquisition 165,000 - Net cash provided by investing activities 165,000 - Cash flows from financing activities: Proceeds from the sale of common stock 572,906 725,050 Payments of loans payable ( 57,390 ) ( 6,627 ) Payments of stockholder advance ( 32,378 ) - Proceeds from advances - related party 193,558 - Payments of advances - related party ( 193,558 ) - Net cash provided by financing activities 483,138 718,423 Net (decrease) increase in cash ( 158,026 ) 178,387 Cash, beginning of period 249,462 71,075 Cash, end of period $ 91,436 $ 249,462 Supplemental disclosures of cash flow information: Cash paid for interest $ 6,448 $ 131 Cash paid for income taxes $ - $ - Non-cash investing and financing activities: Commitment shares issued in conjunction with capital raise $ - $ 200,000 Shares issued for vested restricted stock units $ 17 $ 7 Shares issued for settlement of class action $ 600,000 $ - Shares issued for cashless exercise of warrants $ 15 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 6 SCWorx Corp. Notes to Consolidated Financial Statements Note 1. Description of Business Nature of Business SCWorx, LLC (n/k/a SCW FL Corp.) (“SCW LLC”) was a privately held limited liability company which was organized in Florida on November 17, 2016. On December 31, 2017, SCW LLC acquired Primrose Solutions, LLC (“Primrose”), a Delaware limited liability company, which became its wholly-owned subsidiary and focused on developing functionality for the software now used and sold by SCWorx Corp. (the “Company” or “SCWorx”). The majority interest holders of Primrose were interest holders of SCW LLC and based upon Staff Accounting Bulletin Topic 5G, the technology acquired has been accounted for at predecessor cost of $ 0 . To facilitate the planned acquisition by Alliance MMA, Inc., a Delaware corporation (“Alliance”), on June 27, 2018, SCW LLC merged with and into a newly-formed entity, SCWorx Acquisition Corp., a Delaware corporation (“SCW Acquisition”), with SCW Acquisition being the surviving entity. Subsequently, on August 17, 2018, SCW Acquisition changed its name to SCWorx Corp. On November 30, 2018, the Company and certain of its stockholders agreed to cancel 6,510 shares of common stock. In June 2018, the Company began to collect subscriptions for common stock. From June to November 2018, the Company collected $ 1,250,000 in subscriptions and issued 3,125 shares of common stock to new third-party investors. In addition, on February 1, 2019, (i) SCWorx Corp. (f/k/a SCWorx Acquisition Corp.) changed its name to SCW FL Corp. (to allow Alliance to change its name to SCWorx Corp.) and (ii) Alliance acquired SCWorx Corp. (n/k/a SCW FL Corp.) in a stock-for-stock exchange transaction and changed Alliance’s name to SCWorx Corp., which is the Company’s current name, with SCW FL Corp. becoming the Company’s subsidiary. On March 16, 2020, in response to the COVID-19 pandemic, SCWorx established a wholly-owned subsidiary, Direct-Worx, LLC to endeavor to source and provide critical, difficult-to-find items for the healthcare industry which it has since ceased. On October 6, 2023, following stockholder approval at the Company’s annual meeting, the Company amended its certificate of incorporation to implement a 1 for 15 reverse split of its common stock. The effect of the reverse stock split was to combine every 15 shares of outstanding common stock into one share of common stock. The reverse stock split was effective at the opening of the trading day on October 11, 2023. The effects of the reverse stock split have been reflected in this Annual Report on Form 10-K for all periods presented. On October 16, 2023, the Company entered into a letter of intent to merge with American Energy Partners, Inc. (“American Environmental”) and subsequently entered into a definitive agreement and plan of merger (the “Merger Agreement”) on December 22, 2023. The Merger Agreement was mutually terminate on March 26, 2024. During the year ended December 31, 2023, American Environmental contributed an aggregate $ 165,000 to the Company to assist in covering its operating expenses. Operations of the Business SCWorx is a provider of data content and services related to the repair, normalization and interoperability of information for healthcare providers and big data analytics for the healthcare industry. SCWorx has developed and markets health information technology solutions and associated services that improve healthcare processes and information flow within hospitals. SCWorx’s software platform enables healthcare providers to simplify, repair, and organize its data (“data normalization”), allows the data to be utilized across multiple internal software applications (“interoperability”) and provides the basis for sophisticated data analytics (“big data”). SCWorx’s solutions are designed to improve the flow of information quickly and accurately between the existing supply chain, electronic medical records, clinical systems, and patient billing functions. The software is designed to achieve multiple operational benefits such as supply chain cost reductions, decreased accounts receivables aging, accelerated and more accurate billing, contract optimization, increased supply chain management and cost visibility, synchronous Charge Description Master (“CDM”) and control of vendor rebates and contract administration fees. SCWorx empowers healthcare providers to maintain comprehensive access and visibility to an advanced business intelligence that enables better decision-making and reductions in product costs and utilization, ultimately leading to accelerated and accurate patient billing. SCWorx’s software modules perform separate functions as follows: ● virtualized Item Master File repair, expansion and automation; ● CDM management; ● contract management; ● request for proposal automation; ● rebate management; ● big data analytics modeling; and ● data integration and warehousing. F- 7 SCWorx continues to provide transformational data-driven solutions to some of the finest, most well-respected healthcare providers in the United States. Clients are geographically dispersed throughout the country. The Company’s focus is to assist healthcare providers with issues they have pertaining to data interoperability. SCWorx provides these solutions through a combination of direct sales and relationships with strategic partners. SCWorx’s software solutions are delivered to clients within a fixed term period, typically a three-to-five-year contracted term, where such software is hosted in SCWorx data centers (Amazon Web Service’s “AWS” or RackSpace) and accessed by the client through a secure connection in a software as a service (“SaaS”) delivery method. SCWorx currently sells its solutions and services in the United States to hospitals and health systems through its direct sales force and its distribution and reseller partnerships. Impact of the COVID-19 Pandemic The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic which spread throughout the United States and the world. The outbreak adversely impacted new customer acquisition. The Company has followed the recommendations of local health authorities to minimize exposure risk for its team members since the outbreak. In addition, the Company’s customers (hospitals) also experienced extraordinary disruptions to their businesses and supply chains, while experiencing unprecedented demand for health care services related to COVID-19. As a result of these extraordinary disruptions to the Company’s customers’ business, the Company’s customers were focused on meeting the nation’s health care needs in response to the COVID-19 pandemic. As a result, the Company believes that its customers were not able to focus resources on expanding the utilization of the Company’s services, which has adversely impacted the Company’s growth prospects, at least until the adverse effects of the pandemic subside. In addition, the financial impact of COVID-19 on the Company’s hospital customers could cause the hospitals to delay payments due to the Company for services, which could negatively impact the Company’s cash flows. Note 2 – Liquidity and Going Concern The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustment that might become necessary should the Company be unable to continue as a going concern. The Company has suffered recurring losses from operations and incurred a net loss of $ 3,981,144 for the year ended December 31, 2023 and $ 1,847,406 for the year ended December 31, 2022. The accumulated deficit as of December 31, 2023 was $ 29,839,841 . The Company has not yet achieved profitability and expects to continue to incur cash outflows from operations. It is expected that its operating losses will continue and, as a result, the Company will eventually need to generate significant increases in product revenues to achieve profitability. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statement issuance date. As of the filing date of this Report, the Company has only limited cash on hand, and management believes that there may not be sufficient capital resources from operations and existing financing arrangements in order to meet operating expenses and working capital requirements for the next twelve months. Accordingly, we are evaluating various alternatives, including reducing operating expenses, securing additional financing through debt or equity securities to fund future business activities and other strategic alternatives. There can be no assurance that the Company will be able to generate the level of operating revenues in its business plan, or if additional sources of financing will be available on acceptable terms, if at all. If no additional sources of financing are available, our future operating prospects may be adversely affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Note 3. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts of SCWorx and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. F- 8 Cash Cash is maintained with various financial institutions. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 . The Company did not have any amounts in excess of the FDIC insured limit for as of December 31, 2023 and 2022. Fair Value of Financial Instruments Management applies fair value accounting for significant financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements. Management defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, management considers the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. Concentration of Credit and Other Risks Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing internal credit evaluations of its customers’ financial condition, obtains deposits and limits the amount of credit extended when deemed necessary but generally requires no collateral. Significant customers are those which represent more than 10% of the Company’s revenue for each period presented, or the Company’s accounts receivable balance as of each respective balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total net accounts receivable are as follows: Revenue For the years ended Accounts Receivable December 31, December 31, Customers 2023 2022 2023 2022 Customer A 12 % 12 % 7 % 12 % Customer B 11 % 10 % 22 % 10 % Customer C 15 % 14 % 12 % 15 % Customer D 12 % 12 % 7 % 6 % Customer E 1 % - % 15 % - % Customer F 5 % 5 % - % 30 % Allowance for Credit Losses Accounts receivable are comprised of amounts billed and currently due from customers. Accounts receivable are amounts related to any unconditional right the Company has for receiving consideration and are presented as accounts receivable in the consolidated balance sheets. The Company maintains an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. The Company employs an expected credit loss model utilizing historical loss rates and historical trends in credit quality indicators (e.g., delinquency, risk ratings), adjusted to reflect current economic conditions and knowledge or customer relationships. Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current industry trends, changes in customer payment terms, and specific customer situations. The Company’s normal collection cycle ranges between thirty and 60 days. Estimated uncollectible amounts are charged to earnings and a credit to a valuation allowance. Balances which remain outstanding after reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable The Company has assessed all receivables are collectable and did not record an allowance for credit losses as of December 31, 2023 and 2022. F- 9 Inventory The inventory balance at December 31, 2022 is related to the Company’s Direct-Worx, LLC subsidiary and consisted of approximately 87,000 gowns. These items are tracked based on average cost and carried on the consolidated balance sheet at the lower of cost or market. During the year ended December 31, 2022, the Company wrote off all remaining $ 156,000 in the value of this inventory as unsellable. During the year ended December 31, 2023, the Company disposed of all remaining inventory previously written off. Leases The Company determines if an arrangement is a lease at inception. The current portion of lease obligations are included in accounts payable and accrued liabilities on the consolidated balance sheets. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease, which are included in the lease ROU asset when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease components only, none with non-lease components, which are generally accounted for separately (refer to Note 7, Leases, for additional detail). Goodwill and Purchased Identified Intangible Assets Goodwill Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets acquired under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. The Company reviews impairment of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. For further discussion of goodwill, refer to Note 5, Goodwill. F- 10 Revenue Recognition The Company recognizes revenue in accordance with Topic 606 to depict the transfer of promised goods or services in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of Topic 606 the Company performs the following steps: ● Step 1: Identify the contract(s) with a customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation The Company follows the accounting revenue guidance under Topic 606 to determine whether contracts contain more than one performance obligation. Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. The Company has identified the following performance obligations in its SaaS contracts with customers: 1) Data Normalization: which includes data preparation, product and vendor mapping, product categorization, data enrichment and other data related services, 2) Software-as-a-service (“SaaS”): which is generated from clients’ access of and usage of the Company’s hosted software solutions on a subscription basis for a specified contract term, which is usually annually. In SaaS arrangements, the client cannot take possession of the software during the term of the contract and generally has the right to access and use the software and receive any software upgrades published during the subscription period, 3) Maintenance: which includes ongoing data cleansing and normalization, content enrichment, and optimization, and 4) Professional Services: mainly related to specific customer projects to manage and/or analyze data and review for cost reduction opportunities. A contract will typically include Data Normalization, SaaS and Maintenance, which are distinct performance obligations and are accounted for separately. The transaction price is allocated to each separate performance obligation on a relative stand-alone selling price basis. Significant judgement is required to determine the stand-alone selling price for each distinct performance obligation and is typically estimated based on observable transactions when these services are sold on a stand-alone basis. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when the performance obligation has been met. The Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the Company has transferred use of the good or service, and the customer is able to direct the use of, and obtain substantially all the remaining benefits from, the good or service. The Company’s SaaS and Maintenance contracts typically have termination for convenience without penalty clauses and accordingly, are generally accounted for as month-to-month agreements. If it is determined that the Company has not satisfied a performance obligation, revenue recognition will be deferred until the performance obligation is deemed to be satisfied. F- 11 Revenue recognition for the Company’s performance obligations are as follows: Data Normalization and Professional Services The Company’s Data Normalization and Professional Services are typically fixed fee. When these services are not combined with SaaS or Maintenance revenues as a single unit of accounting, these revenues are recognized as the services are rendered and when contractual milestones are achieved and accepted by the customer. When these services are combined with SaaS or Maintenance revenues, revenues recognized ratably over the period of the contract. SaaS and Maintenance SaaS and Maintenance revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date on which the Company’s service is made available to customers. The Company does have some contracts that have payment terms that differ from the timing of revenue recognition, which requires the Company to assess whether the transaction price for those contracts include a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if it expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. The Company does not maintain contracts in which the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service exceeds the one-year threshold. The Company has one revenue stream, from the SaaS business, and believes it has presented all varying factors that affect the nature, timing and uncertainty of revenues and cash flows. Remaining Performance Obligations As of December 31, 2023, the Company had $ 378,583 of remaining performance obligations recorded as deferred revenue. The Company expects to recognize sales relating to these existing performance obligations of during 2024. As of December 31, 2022, the Company had $ 579,833 of remaining performance obligations recorded as deferred revenue. The Company recognized sales relating to those existing performance obligations of during 2023. Costs to Fulfill a Contract Costs to fulfill a contract typically include costs related to satisfying performance obligations as well as general and administrative costs that are not explicitly chargeable to customer contracts. These expenses are recognized and expensed when incurred in accordance with ASC 340-40. Cost of Revenue Cost of revenues primarily represent data center hosting costs, consulting services and maintenance of the Company’s large data array that were incurred in delivering professional services and maintenance of the Company’s large data array during the periods presented. Contract Balances Contract assets arise when the revenue associated prior to the Company’s unconditional right to receive a payment under a contract with a customer ( i.e ., unbilled revenue) and are derecognized when either it becomes a receivable or the cash is received. There were no contract assets as of December 31, 2023 and 2022. Contract liabilities arise when customers remit contractual cash payments in advance of our company satisfying our performance obligations under the contract and are derecognized when the revenue associated with the contract is recognized when the performance obligation is satisfied. Contract liabilities were $ 378,583 and $ 579,833 as of December 31, 2023 and 2022, respectively. F- 12 Income Taxes The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “ Income Taxes .” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2023 and 2022, the Company has evaluated available evidence and concluded that the Company may not realize all the benefits of its deferred tax assets; therefore, a valuation allowance has been established for its deferred tax assets. ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented. Stock-Based Compensation The Company accounts for stock-based compensation expense in accordance with the authoritative guidance on share-based payments. Under the provisions of the guidance, stock-based compensation expense is measured at the grant date based on the fair value of the option or warrant using a Black-Scholes option pricing model and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The authoritative guidance also requires that the Company measures and recognizes stock-based compensation expense upon modification of the term of stock award. The stock-based compensation expense for such modification is accounted for as a repurchase of the original award and the issuance of a new award. Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. The Company estimates the expected life of options granted based on historical exercise patterns, which are believed to be representative of future behavior. The Company estimates the volatility of the Company’s common stock on the date of grant based on historical volatility. The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from the estimate, stock-based compensation expense could be significantly different from what was recorded in the current period. The Company also grants performance based restricted stock awards to employees and consultants. These awards will vest if certain employee\consultant-specific or company-designated performance targets are achieved. If minimum performance thresholds are achieved, each award will convert into a designated number of the Company’s common stock. If minimum performance thresholds are not achieved, then no shares will be issued. Based upon the expected levels of achievement, stock-based compensation is recognized on a straight-line basis over the requisite service period. The expected levels of achievement are reassessed over the requisite service periods and, to the extent that the expected levels of achievement change, stock-based compensation is adjusted in the period of change and recorded on the consolidated statements of operations and the remaining unrecognized stock-based compensation is recorded over the remaining requisite service period. Refer to Note 9, Stockholders’ Equity, for additional detail. F- 13 Loss Per Share The Company computes earnings (loss) per share in accordance with ASC 260, “ Earnings per Share ” which requires presentation of both basic and diluted earnings (loss) per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants and the exercise of fully vested restricted stock units. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2023 and 2022, the Company had 180,390 and 273,059 , respectively, common stock equivalents outstanding. Indemnification The Company provides indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from the use of the Company’s software. In accordance with authoritative guidance for accounting for guarantees, the Company evaluates estimated losses for such indemnification. The Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, no such claims have been filed against the Company and no liability has been recorded in its consolidated financial statements. As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable it to recover any payments above the applicable policy retention. In connection with the Class Action and derivative claims and investigations described in Note 8, Commitments and Contingencies, the Company is obligated to indemnify its officers and directors for costs incurred in defending against these claims and investigations. Contingencies The Company records a liability when the Company believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible, and the loss or range of loss can be estimated, the Company discloses the possible loss in the notes to the consolidated financial statements. The Company reviews the developments in its contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related possible losses disclosed. The Company adjusts provisions and changes to its disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount. Legal costs associated with loss contingencies are accrued based upon legal expenses incurred by the end of the reporting period. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to the allowance for credit losses, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Actual results could differ materially from those estimates. F- 14 Recently Issued Accounting Pronouncements From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption. Note 4. Related Party Transactions At December 31, 2023 and 2022, the Company had amounts due to officers in the amount of $ 149,838 and $ 153,838 , respectively. During September 2021, the Company’s former CEO (also a significant shareholder) advanced $ 100,000 in cash to the Company for short term capital requirements. This amount is non-interest bearing and payable upon demand. The Company had balances of $ 67,622 and $ 100,000 included in stockholder advance on the Company’s consolidated balance sheets as of December 31, 2023 and 2022, respectively. Between May 24, 2023 and November 29, 2023, the Company’s CFO advanced an aggregate $ 193,558 in cash to the Company for short term capital requirements. As of December 31, 2023, all advanced amounts have been repaid. The above amounts and terms are not necessarily what third parties would agree to. Note 5. Goodwill During the year ended December 31, 2023, the Company determined that the fair value of its goodwill was less than its carrying value. The Company determined the carrying value to be $ 5,842,433 as of December 31, 2023 and recognized impairment expense $ 2,524,034 . There were no changes to the carrying value of goodwill for the year ended December 31, 2022. F- 15 Note 6. Loans Payable Receipt of CARES funding On May 5, 2020, the Company obtained a $ 293,972 unsecured loan payable through the Paycheck Protection Program (“PPP”), which was enacted as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES ACT”). The funds were received from Bank of America through a loan agreement pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act and used for payroll costs, rent, mortgage interest, and utility costs during the 24 week period after the date of loan disbursement is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. While the full loan amount may be forgiven, the amount of loan forgiveness will be reduced if, among other reasons, the Company does not maintain staffing or payroll levels or less than 60 % of the loan proceeds are used for payroll costs. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred to the date the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period for six months and will accrue interest at a fixed annual rate of 1.0 % and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan. In May 2022, the Company was granted an extension on the maturity date of this note until March 5, 2025 . The loan was partially forgiven in the amount of $ 139,596 in September 2022 with the balance remaining due. On March 17, 2021, the Company received $ 139,595 in financing from the U.S. government’s Payroll Protection Program (“PPP”). We entered into a loan agreement with Bank of America. This loan agreement was pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the Company does not maintain staffing or payroll levels. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred for six months and will accrue interest at a fixed annual rate of 1.0 % and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan. This note was fully forgiven on March 12, 2022. Note 7. Leases Operating Leases The Company’s principal executive office in Tampa Florida is under a month-to-month arrangement with a base rent of $ 250 per month. The Company has operating leases for corporate, business and technician offices. Leases with a probable term of 12 months or less, including month-to-month agreements, are not recorded on the consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or an option to renew the arrangement, that the Company is reasonably certain to exercise (short-term leases). The Company recognizes lease expense for these leases on a straight-line bases over the lease term. The Company’s only remaining lease is month-to-month. As a practical expedient, the Company elected, for all office and facility leases, not to separate non-lease components (common-area maintenance costs) from lease components (fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component. For the years ended December 31, 2023 and 2022, the components of lease expense were as follows: For the years ended December 31, 2023 2022 Operating lease cost $ 3,523 $ 1,043 Total lease cost $ 3,523 $ 1,043 As of December 31, 2023 and 2022, the Company has no additional operating leases, and no financing leases. F- 16 Note 8. Commitments and Contingencies In conducting our business, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred. CorProminence d/b/a Core IR v. SCWorx AAA Arbitration Case 01-22-0001-5709 As previously disclosed in the Company’s periodic reports filed with the SEC, on April 25, 2022, the Company received a Demand for Arbitration along with a Statement of Claim filed by Core IR with the American Arbitration Association seeking damages in the amount of approximately $ 190,000 . arising out of a marketing and consulting agreement. The Company filed its answer, affirmative defenses and counterclaims on May 16, 2022. By order of the arbitrator dated November 1, 2022, Core IR received permission to amend its Statement of Claim to increase its request for damages to $ 257,546 . The Company received the final decision of the Arbitrator on October 16, 2023, awarding Core IR $ 461,856 including unpaid compensation, indemnification for legal fees and costs, prevailing party legal fees and interest (the “Award”). Core IR has since obtained a judgement in the amount of approximately $ 502,000 (including interest) (“Judgement”) which is included in accounts payable and accrued liabilities on the Company’s consolidated balance sheet at December 31, 2023. The Company and Core IR entered into a settlement agreement dated July 12, 2024 under which the Company agreed to issue Core IR shares of its common stock with a value of $ 502,000 (determined based on sales proceeds realized by Core IR), in full and complete satisfaction of the Judgement. The settlement agreement is filed as exhibit 10.5 to this annual report on Form 10-K Hadrian Equities Partners, LLC et ano. v. SCWorx Corp, Case No. 22-cv-07096 (JLR) (S.D.N.Y) On August 19, 2022, Hadrian Equities Partners, LLC and the Phillip W. Caprio, Jr. 2007 Irrevocable Trust filed a complaint in the United States District Court for the Southern District of New York alleging that SCWorx was dilatory and did not comply with its alleged contractual duties to remove the restrictions from Plaintiffs’ converted AMMA stock to SCWorx stock until August 10 and August 11, 2020. Plaintiffs allege that as a result, they were unable to sell their SCWorx stock when SCWorx was trading at its highest price on April 13, 2020. The Complaint sought $ 500,000 in damages. Plaintiffs filed an Amended Complaint on November 28, 2022. On February 6, 2023, SCWorx filed its answer to the Amended Complaint interposing numerous defenses. Plaintiff have since entered into a settlement agreement dated December 1, 2023 (effective as of October 23, 2023) (as amended April 29, 2024), under which the Company agreed to pay Plaintiffs $ 20,000 and issue them 37,500 shares of common stock, all in full settlement of the claims made in the lawsuit. The Company has accrued for this liability which is included in accounts payable and accrued liabilities on the Company’s consolidated balance sheet at December 31, 2023. The cash payment was made in July 2024, and the shares were issued in May 2024. Carole R. Bernstein, Esq. v. SCWorx Corp. As previously disclosed in the Company’s Form 10-Q for the quarter ended June 30, 2023, on June 7, 2023, Carole R. Bernstein, Esq. filed a complaint in the United States District Court for the Southern District of New York against the Company. The complaint alleged that the Company breached its engagement agreement with Ms. Bernstein by failing to pay legal fees when due. Ms. Bernstein sought to recover $ 69,164 fees owing for services, plus interest, costs, including her attorney’s fees. The Company has accrued for this liability which is included in accounts payable and accrued liabilities on the Company’s consolidated balance sheet at December 31, 2023. The Company and the Plaintiff have since entered into a settlement agreement dated July 12, 2024, under which the Company agreed to pay Plaintiffs $ 80,000 in two equal installments of $ 40,000 , the first of which was paid August 9, 2024, and the second of which is payable on or about October 9, 2024. F- 17 Note 9. Stockholders’ Equity Authorized Shares The Company has 45,000,000 Common shares and 900,000 Series A convertible preferred shares authorized with a par value of $ 0.001 per share. On October 6, 2023, following stockholder approval at the Company’s annual meeting, the Company amended its certificate of incorporation to implement a 1 for 15 reverse split of its common stock. The effect of the reverse stock split was to combine every 15 shares of outstanding common stock into one share of common stock. The reverse stock split was effective at the opening of the trading day on October 11, 2023. The effects of the reverse stock split have been reflected in this Annual report on form 10/K for all periods presented. Common Stock Issuance of Shares for Vested Restricted Stock Units Between January 10, 2023 and January 26, 2023, the Company issued a total of 756 shares of common stock to holders of fully vested restricted stock units. Between June 5, 2023 and June 16, 2023, the Company issued a total of 14,445 shares of common stock to holders of fully vested restricted stock units. Between July 5, 2023 and July 19, 2023, the Company issued a total of 956 shares of common stock to holders of fully vested restricted stock units. On November 23, 2023, the Company issued a total of 778 shares of common stock to holders of fully vested restricted stock units. Issuance of Shares as Settlement of Accounts Payable On May 24, 2023, the Company issued 6,807 shares of common stock in full settlement of $ 26,545 of accounts payable. The shares had a fair value of $ 3.90 per share. On June 22, 2023, the Company issued 3,264 shares of common stock in full settlement of $ 17,621 of accounts payable. The shares had a fair value of $ 5.40 per share. On July 26, 2023, the Company issued 4,837 shares of common stock in full settlement of $ 16,686 of accounts payable. The shares had a fair value of $ 3.45 per share. On August 18, 2023, the Company issued 8,734 shares of common stock in full settlement of $ 32,750 of accounts payable. The shares had a fair value of $ 3.75 per share. On September 27, 2023, the Company issued 7,910 shares of common stock in full settlement of $ 22,542 of accounts payable. The shares had a fair value of $ 2.85 per share. On October 23, 2023, the Company issued 17,000 shares of common stock in full settlement of $ 37,571 of accounts payable. The shares had a fair value of $ 2.21 per share. On December 22, 2023, the Company issued 20,520 shares of common stock in full settlement of $ 35,088 of accounts payable. The shares had a fair value of $ 1.71 per share F- 18 Issuance of Shares under Common Stock Purchase Agreement On June 1, 2023, the Company issued 200,000 shares of common stock for net proceeds of $ 127,053 under its common stock purchase agreement dated June 28, 2022. On June 22, 2023, the Company issued 200,000 shares of common stock for net proceeds of $ 134,634 under its common stock purchase agreement dated June 28, 2022. On Between July 7, 2023 and September 28, 2023, the Company issued a total of 94,056 shares of common stock for aggregate net proceeds of $ 311,220 under its common stock purchase agreement dated June 28, 2022. Issuance of Shares for the Exercise of Warrants On June 15, 2023, the Company issued 15,238 shares of common stock in a cashless exchange for 54,872 warrants to purchase shares of common stock at $ 9.75 per share. Issuance of Shares for Class Action Settlement On June 5, 2023, the Company issued an aggregate 129,458 shares of common stock in full settlement of the previously accrued subscription payable valued at $ 600,000 . Stock Incentive Plan The number of shares of the Company’s common stock that are issuable pursuant to warrant and stock option grants with time-based vesting as of and for the year ended December 31, 2023 are: Warrant Grants Stock Option Grants Restricted Stock Units Number of shares subject to warrants Weighted- average exercise price per share Number of shares subject to options Weighted- average exercise price per share Number of shares subject to restricted stock units Balance at December 31, 2022 104,515 $ 20.25 7,891 $ 48.75 160,653 Granted - - - - 95,624 Exercised ( 54,872 ) 9.75 - - ( 86,003 ) Cancelled/Expired ( 38,249 ) 23.73 ( 4,558 ) 55.43 ( 4,611 ) Balance at December 31, 2023 11,394 $ 58.72 3,333 $ 39.60 165,663 Exercisable at December 31, 2023 11,394 $ 58.72 3,333 $ 39.60 165,663 F- 19 The number of shares of the Company’s common stock that are issuable pursuant to warrant and stock option grants with time-based vesting as of and for the year ended December 31, 2022 are: Warrant Grants Stock Option Grants Restricted Stock Units Number of shares subject to warrants Weighted- average exercise price per share Number of shares subject to options Weighted- average exercise price per share Number of shares subject to restricted stock units Balance at December 31, 2021 69,568 $ 38.55 7,891 $ 48.75 144,053 Granted 34,947 9.75 - - 31,021 Exercised - - - - ( 14,421 ) Cancelled/Expired - - - - - Balance at December 31, 2022 104,515 $ 20.25 7,891 $ 48.75 160,653 Exercisable at December 31, 2022 104,515 $ 20.25 7,891 $ 48.75 151,145 The Company has classified the warrant as having Level 2 inputs, and has used the Black-Scholes option-pricing model to value the warrant. The Company’s outstanding warrants and options at December 31, 2023 are as follows: Warrants Outstanding Warrants Exercisable Exercise Price Range Number Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price Intrinsic Value $51.30 – $60.00 11,394 1.62 $ 58.72 11,394 $ 58.72 - Options Outstanding Options Exercisable Exercise Price Range Number Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price Intrinsic Value $39.60 3,333 0.91 $ 39.60 3,333 $ 39.60 - F- 20 As of December 31, 2023 and 2022, the total unrecognized expense for unvested stock options and restricted stock awards was none and approximately $ 220,000 , respectively, to be recognized over a one to three-year period for restricted stock awards and one year for option grants from the date of grant. Stock-based compensation expense for the years ended December 31, 2023 and 2022 was as follows: For the years ended December 31, 2023 2022 Stock-based compensation expense $ 361,363 $ 1,141,932 Stock-based compensation expense categorized by the equity components for the years ended December 31, 2023 and 2022 is as follows: For the years ended December 31, 2023 2022 Common stock $ 361,363 $ 1,141,932 Total $ 361,363 $ 1,141,932 Stock compensation is included in general and administrative expenses on the consolidated statements of operations. Note 10. Net Loss Per Share Basic net loss per share is computed by dividing net loss for the period by the weighted average shares of common stock outstanding during each period. Diluted net loss per share is computed by dividing net loss for the period by the weighted average shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company uses the treasury stock method to determine whether there is a dilutive effect of outstanding option grants. The following securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive: For the years ended December 31, 2023 2022 Stock options 3,333 7,891 Warrants 11,394 104,515 Restricted stock units 165,663 160,653 Total common stock equivalents 180,390 273,059 Note 11. Income Taxes By virtue of a merger of the limited liability company into a corporation, the Company became a corporation during 2018. The significant items comprising the Company’s net deferred taxes as of December 31, 2023 and 2022 are as follows: As of December 31, 2023 2022 Net operating loss $ 8,790,076 $ 8,541,890 Stock options and compensation 2,440,539 2,358,690 Deferred revenue 324,159 238,410 Other 571,694 - Valuation allowance ( 12,126,468 ) ( 11,138,990 ) Total deferred tax asset - - Basis difference fixed assets - - Total deferred tax liability - - Net deferred tax asset (liability) $ - $ - F- 21 The components of the provision for (benefit from) income taxes consist of the following: As of December 31, 2023 2022 Current tax: Federal $ - $ - State - - Total $ - $ - Deferred tax: Federal $ ( 915,543 ) $ ( 509,721 ) State ( 71,935 ) ( 40,049 ) Less: change in valuation allowance 987,478 549,770 - - Total $ - $ - The provision for (benefit from) income taxes varies from the amount computed by applying the statutory rate for reasons summarized below: As of December 31, 2023 As of December 31, 2022 Net loss before tax per financial statements $ ( 3,981,144 ) $ (1,847,406 ) Statutory rate ( 836,040 ) 21.00 % (387,955 ) 21.00 % State tax rate ( 65,689 ) 1.65 % (30,482 ) 1.65 % Permanent items ( 85,749 ) 2.15 % (131,330 ) 7.11 % Rate change 0.00 % - 0.00 % Change in valuation allowance 987,478 ( 24.80 )% 549,770 ( 29.73 )% $ - 0.00 % $ - 0.00 % As of December 31, 2023 and 2022, the Company had federal net operating loss carryforwards of approximately $ 38.8 million and $ 37.7 million, respectively, available to offset future taxable income. As of December 31, 2023 and 2022, the Company had state loss carry-forwards of approximately $ 18.2 million and $ 17.1 , respectively. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The federal net operating loss carryforwards can be carried forward indefinitely and state loss carryforwards begin to expire in 2039. The valuation allowance as of December 31, 2023 and 2022 was $ 12,126,468 and $ 11,138,990 , respectively. The net change in valuation allowance for the years ended December 31, 2023 and 2022 was an increase of $ 987,478 and $ 549,770 , respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2023 and 2022. The Company had no unrecognized tax benefits during 2023 or 2022. By statute, all tax years are open to examination by the major taxing jurisdictions to which the Company is subject. F- 22 Note 12. Subsequent Events The Company has evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported. Management has determined that except as disclosed below, there were no additional reportable subsequent events to be disclosed. Financing Transaction On April 12, 2024, the Company issued a secured promissory note in the face amount of $ 330,000 , in exchange for which it received cash in the amount of $ 300,000 . In addition to the original issue discount of $ 30,000 , the note bears interest at the rate of 5 % per annum, was originally due May 10, 2024 and was secured by all the Company assets. On July 16, 2024, the Company closed a Securities Purchase Agreement (the “SPA”) with certain accredited investors. Under the SPA, the Company sold a series of senior secured convertible notes with an aggregate principal amount of $ 1,155,000 , including the exchange of the April 12, 2024 secured promissory note, that had an initial conversion price of $ 1.43 per share, subject to certain adjustments and maturity date of December 31, 2024. The Company also issued five year warrants to acquire up to an aggregate 4,846,158 additional shares of the Company’s common stock with exercise prices ranging from $ 1.43 to $ 1.573 per share. Issuance of Shares for Vested Restricted Stock Units On March 27, 2024, the Company issued 1,667 shares of common stock to a holder of fully vested restricted stock units. Issuance of Shares as Settlement of Accounts Payable Between February 6, 2024 and July 11, 2024, the Company issued an aggregate 130,039 shares of common stock in full settlement of $ 239,809 of accounts payable. The shares had a fair value ranging from $ 1.50 to $ 2.65 per share. Issuance of Shares as settlement of other obligations On May 30, 2024, the Company issued 37,500 shares owed as part a prior legal settlement. On July 15, 2024, the Company issued 38,052 shares of common stock in full settlement of threatened litigation. The shares were valued at $ 1.41 per share. On July 18, 2024, the Company issued 159,776 shares of common stock as part of a stock settlement agreement for payment of its obligation under its judgement from Core IR. F- 23 EXHIBIT INDEX Pursuant to the rules and regulations of the SEC, the Company has filed certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in the Company’s public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the Company’s actual state of affairs at the date hereof and should not be relied upon. Exhibit Exhibit Description 3.1 Certificate of Incorporation, as amended February 1, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s 10-K filed with the SEC on April 1, 2019) 3.3 Amended and Restated By-laws (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No. 333-213166) filed with the SEC on August 16, 2016) 4.1 Form of Series A, Series B and Series C Warrant (incorporated by reference to Exhibit 4.1 to the Company’s 8-K filed with the SEC on July 15, 2024) 10.1 Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s 8-K filed with the SEC on July 15, 2024) 10.2 Form of Senior Secured Convertible Note (incorporated by reference to Exhibit 10.2 to the Company’s 8-K filed with the SEC on July 15, 2024) 10.3 Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to the Company’s 8-K filed with the SEC on July 15, 2024) 10.4 Form of Guaranty and Security Agreement (incorporated by reference to Exhibit 10.4 to the Company’s 8-K filed with the SEC on July 15, 2024) 10.5 Settlement Agreement with CorProminence LLC, d/b/a Core IR (incorporated by reference to Exhibit 10.8 to the Company’s 8-K filed with the SEC on July 15, 2024) 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 32.1 Section 1350 Certification of the Chief Executive Officer* 32.2 Section 1350 Certification of the Chief Financial Officer* 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith 44