What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-03-31 · 165 added, 169 removed, 375 unchanged (47% of the section changed)

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partnerships.

We currently host our

solutions, serve our customers, and support our operations in the United States through an agreement with a third party hosting and infrastructure

We currently host our solutions,

serve our customers, and support our operations in the United States through an agreement with a third party hosting and infrastructure

provider, RackSpace.

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Critical Accounting Policies and Estimates

Management’s discussion

and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements.

consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”)

in the United States which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues

and expenses, and related disclosure of contingent assets and liabilities.

By their nature, these estimates and judgments are subject

to an inherent degree of uncertainty.

We evaluate our estimates based on our historical experience and various other assumptions that

are believed to be reasonable under the circumstances.

These estimates relate to revenue recognition, the assessment of recoverability

of goodwill and intangible assets, the assessment of useful lives and the recoverability of property, plant and equipment, the allowances

for credit losses, the valuation and recognition of stock-based compensation expense, recognition and measurement of deferred income tax

assets and liabilities, the assessment of unrecognized tax benefits, equity of convertible debt, and others.

Actual results could differ

from those estimates, and material effects on our consolidated operating results and consolidated financial position may result.

to Note 3, Summary of Significant Accounting Policies, in the accompanying consolidated financial statements, for a full description of

our accounting policies.

Basis of Presentation

The accompanying consolidated

financial statements have been prepared in accordance with GAAP and the rules and regulations of the U.S.

Securities and Exchange Commission

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

All material intercompany balances and transactions have been eliminated in consolidation.

Principles of Consolidation

The accompanying consolidated

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

All material intercompany balances and transactions

have been eliminated in consolidation.

Management’s discussion and analysis of our consolidated financial

condition and results of operations are based upon our consolidated financial statements.

These consolidated financial statements have

been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States which requires us

to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure

of contingent assets and liabilities.

By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.

We evaluate our estimates based on our historical experience and various other assumptions that are believed to be reasonable under the

circumstances.

These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, the

assessment of useful lives and the recoverability of property, plant and equipment, the allowances for credit losses, the valuation and

recognition of stock-based compensation expense, recognition and measurement of deferred income tax assets and liabilities, the assessment

of unrecognized tax benefits, equity of convertible debt, and others.

Actual results could differ from those estimates, and material effects

on our consolidated operating results and consolidated financial position may result.

Refer to Note 2, Summary of Significant Accounting

Policies, in the accompanying consolidated financial statements, for a full description of our accounting policies.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared

in accordance with GAAP and the rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

The accompanying

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

All material intercompany balances

and transactions have been eliminated in consolidation.

Cash is maintained with various

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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.

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

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.

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

Management defines fair value as the price that would be received from selling an asset or paid to transfer a liability in

an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets and

liabilities, which are required to be recorded at fair value, management considers the principal or most advantageous market in which

we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability,

such as risks inherent in valuation techniques, transfer restrictions and credit risk.

Fair value is estimated by applying the following

hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy

upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - Quoted prices in active markets

for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities,

quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated

by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable

and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Concentration of Credit and Other Risks

Financial instruments that

potentially subject our company to significant concentrations of credit risk consist principally of cash, accounts receivable and warrants.

We believe that any concentration of credit risk in its accounts receivable is substantially mitigated by our evaluation process, relatively

short collection terms and the high level of credit worthiness of its customers.

We perform ongoing internal credit evaluations of its

customers’ financial condition, obtain deposits and limit the amount of credit extended when deemed necessary but generally require

no collateral.

Significant customers are those

which represent more than 10% of the Company’s revenue for each period presented, or the Company’s accounts receivable balance

as of each respective balance sheet date.

For each significant customer, revenue as a percentage of total revenue and accounts receivable

as a percentage of total net accounts receivable are as follows:

Financial instruments that potentially subject our company to significant

concentrations of credit risk consist principally of cash and accounts receivable.

We believe that any concentration of credit risk in

its accounts receivable is substantially mitigated by our evaluation process, relatively short collection terms and the high level of

credit worthiness of its customers.

We perform ongoing internal credit evaluations of its customers’ financial condition, obtain

deposits and limit the amount of credit extended when deemed necessary but generally require no collateral.

Significant customers are

those which represent more than 10% of the Company’s revenue for each period presented, or the Company’s accounts receivable

balance as of each respective balance sheet date.

For each significant customer, revenue as a percentage of total revenue and accounts

receivable as a percentage of total net accounts receivable are as follows:

For the years ended

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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.

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

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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 recorded an allowance for credit losses of $20,000 as of December 31, 2024.

The Company has

assessed all receivables are collectable and did not record an allowance for credit losses as of December 31, 2023.

We determine if an arrangement

is a lease at inception.

The current portion of lease obligations are included in accounts payable and accrued liabilities on the consolidated

balance sheets.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities

represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement

date based on the present value of lease payments over the lease term.

As most of our leases do not provide an implicit rate, we use our

incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Our lease terms may include options to extend or terminate the lease, which are included in the lease ROU asset when it is reasonably

certain that we will exercise that option.

a credit to accounts receivable The Company recorded allowances for credit losses of $55,200 and $20,000 as of December 31, 2025 and 2024,

respectively.

We determine if an arrangement is a lease at inception.

portion of lease obligations are included in accounts payable and accrued liabilities on the consolidated balance sheets.

(“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation

to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on

the present value of lease payments over the lease term.

As most of our leases do not provide an implicit rate, we use our incremental

borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Our lease terms

may include options to extend or terminate the lease, which are included in the lease ROU asset when it is reasonably certain that we

will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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

We have lease

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

Management has elected a short-term lease exception policy on all classes

of underlying assets, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e.

with terms of 12 months or less).

Goodwill and Identified Intangible Assets

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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.

For further discussion of

goodwill, refer to Note 5, Goodwill.

Revenue Recognition

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are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer.

Management has identified the

following performance obligations in our contracts with customers:

Management has identified

the following performance obligations in our contracts with customers:

Data Normalization:

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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.

A contract will typically

include Data Normalization, SaaS and Maintenance, which are distinct performance obligations and are accounted for separately.

The transaction

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or service exceeds the one-year threshold.

As of December 31, 2024, we

had $354,083 of remaining performance obligations recorded as deferred revenue.

We expect to recognize sales relating to these existing

performance obligations of during 2025.

Costs to Fulfill a Contract

As of December 31, 2025, we had $158,750 of remaining performance obligations

recorded as deferred revenue.

We expect to recognize sales relating to these existing performance obligations throughout 2026.

Costs to Fulfill a Contract

typically include costs related to satisfying performance obligations as well as general and administrative costs that are not explicitly

chargeable to customer contracts.

These expenses are recognized and expensed when incurred in accordance with Accounting Standard Codification

(“ASC”) 340-40.

Costs to fulfill a contract typically include costs related to satisfying

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

These expenses

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

Costs & Considerations” .

Cost of Revenue

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We have no material uncertain tax positions for any of the reporting periods presented.

On December 22, 2017, the Tax

Cuts and Jobs Act of 2017, (the “Tax Act”) was enacted.

On December 22, 2017, the

Tax Cuts and Jobs Act of 2017, (the “Tax Act”) was enacted.

The Tax Act significantly revised the U.S.

corporate income tax regime

by, including but not limited to, lowering the U.S.

corporate income tax

regime by, including but not limited to, lowering the U.S.

corporate income tax rate from 34% to 21% effective January 1, 2018, implementing

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Contingencies

From time to time, we may be

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

From time to time, we may

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

We record a liability in our consolidated financial statements

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The following summary of our

results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2024 and

results of operations should be read in conjunction with our consolidated financial statements for the years ended December

31, 2025 and 2024.

Our operating results for

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$ (1,136,225 )

$ (3,307,884 )

Revenue for the year ended

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This decrease was primarily

due to the expiration and non-renewal of certain customer contracts.

due to the expiration and non-renewal of certain customer contracts partially offset by new customer contracts.

Cost of Revenues

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The $285,691 decrease is primarily

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

Overall gross profit for the year ended December 31, 2024 decreased by approximately

41% from the prior year due to non-renewals of contracts outpacing cost reductions.

related to a decrease in labor costs as well as decreases in our cloud hosting costs.

Overall gross profit for the year ended December

31, 2025 increased by approximately 23% from the prior year due to reductions in our costs of revenues.

Operating Expenses

expenses decreased $714,329 to $2,005,411 for the year ended December 31, 2024, as compared to $2,719,740 in the same period of 2023.

This decrease was primarily due to decreases in non-cash stock compensation expense of approximately $361,000, salaries and wages of $43,000,

and bad debt expense of approximately $23,000, partially offset by an increase in Accounting fees of approximately $89,000 and legal and

professional fees of approximately $53,000.

Accounting fees increased

in the current year due to the Company’s change of independent registered accounting firm.

Legal fees increased during the current

year as the company strived to settle the remaining pending litigation matters.

The Company expects neither of these increases will continue

Other income of $123,201 during

the year ended December 31, 2024 consisted of a gain on forgiveness of payables of $227,402, partially offset by interest expense of $104,201.

We had other losses of $2,530,482 during the year ended December 31, 2023 consisting of write-down of goodwill of $2,524,034 and interest

expense of $6,448.

Operating expenses decreased $126,986 to $1,878,425 for the year ended

December 31, 2025, as compared to $2,005,411 in the same period of 2024.

This decrease was primarily due to decreases in legal and professional

fees of $432,000 and accounting fees of $41,000, partially offset by increases in non-cash stock compensation expense of approximately

$61,000 and salaries and wages of $245,000.

The increase in Salaries during the current year was due to the Company’s hiring of

a Chief Technology Officer to manage its IT infrastructure.

Legal fees decreased significantly during the current year due to the final

settlement of all pending litigation matters.

The remaining difference is due to other small account fluctuations.

Other expense of $3,485,390 during the year ended December 31, 2025

consisted of a non-cash interest expense and amortization of debt discounts of approximately $2,985,000, non-cash warrant modification

expense of $565,000 and loss on stock issued for legal settlement of $78,000, partially offset by a gain on forgiveness of payables of

Other income of $123,201 during the year ended December 31, 2024 consisted of a gain on forgiveness of payables of approximately

$227,000, partially offset by interest expense of $104,000 related to debt agreements and the amortization of debt discounts.

Liquidity and Capital Resources

Going Concern

As of December 31, 2024, we

had only limited cash on hand, a working capital deficit of $1,333,171 and accumulated deficit of $30,976,066.

During the year ended December

31, 2024, we had a net loss of $1,136,225 and used $1,084,292 of cash in operations.

We have historically incurred operating losses and

may continue to incur operating losses for the foreseeable future.

We believe that these conditions raise substantial doubt about our

ability to continue as a going concern.

This may hinder our ability to obtain financing or may force us to obtain financing on less favorable

terms than would otherwise be available.

If we are unable to develop sufficient revenues and additional customers for our products and

services, we may not generate enough revenue to sustain our business, and we may fail, in which case our stockholders would suffer a total

loss of their investment.

There can be no assurance that we will be able to continue as a going concern.

As of year-end, we experienced

a working capital deficiency, had limited cash on hand, and we are experiencing negative cash flows from operations.

Consequently, we

had an immediate need for additional capital to fund our operations and the implementation of our business plan.

Based on our current business

plan, if we had sufficient capital resources, we anticipate that our operating activities would use a net of approximately $70,000 in

cash per month over the next twelve months, or approximately $800,000.

In order to remedy this liquidity

deficiency and fund the future growth of our business, we entered into a securities purchase agreement on January 17, 2025 for gross proceeds

of $1,500,000.

As of year-end, we are experiencing

negative cash flows from operations.

However, we believe cash on hand to be sufficient to fund our operations and the implementation of

our business plan.

We intend to utilize these funds to pursue growth through the expansion of our sales force, product offering and project

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However, there can be no guarantee of success, and any shortfall may impact our ability to raise additional funds if needed.

Based on our current business

plan, if we had sufficient capital resources, we anticipate that our operating activities would use a net of approximately $50,000 in

cash per month over the next twelve months, or approximately $600,000.

Net cash used in operating activities

$ (1,543,610 )

Net cash provided by investing activities

$ (1,084,292 )

Net cash used in by investing activities

Net cash provided by financing activities

Change in cash

Our operations through December

31, 2024 have resulted in negative cash flows from operations of $1,084,292.

We intend to use the additional capital raised during January

2025 to generate additional revenue through the acquisition of new customers, and believe we may begin to generate positive operating

Our operations through December 31, 2025 have resulted in negative

cash flows from operations of $1,543,610.

However, during the year ended December 31, 2025, the Company’s net increase in cash resulted

in a net change of $1,537,785 and cash of $1,644,439 at December 31, 2025.

We believe this is sufficient reserves to maintain company

operations for at least the next twelve months while we work toward being cashflow positive.

Therefore, management believes there to be

no question as to whether or not we will be able to operate as a going concern as of the date of these financial statements.

We intend to use our current

cash reserves to generate additional revenue through the acquisition of new customers, and believe we may begin to generate positive operating

cash flows by the end of 2026.

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Operating Activities

Cash used in operating activities

was approximately $1,544,000 for the year ended December 31, 2025, mainly related to the net loss of approximately $4,444,000, a $144,000

gain on forgiveness of accounts payable, a $42,000 increase in prepaid expenses, a $84,000 decrease in accounts payable and accrued liabilities,

and a $195,000 decrease in deferred revenue, partially offset by amortization of discounts on debt agreements of $2,601,000, warrant modification

expense of $565,000, credit loss expense of $35,000, loss on shares issued for legal settlement of $78,000, stock based compensation expense

of $61,000, and a decrease in accounts receivable of $24,000.

Net cash used in operating

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decrease in accounts payable and accrued liabilities, and credit loss expense of $25,000.

Net cash used in operating

activities was approximately $806,000 for the year ended December 31, 2023, mainly related to the net loss of $3,981,000, a decrease in

deferred revenue obligations of $201,000 and an increase in net accounts receivable of $17,000, partially offset by non-cash stock-based

compensation of $361,000 related to various equity awards to employees and non-employees, $48,000 in bad debt expense, a $26,000 decrease

in prepaid expenses and an increase of $434,000 in accounts payable and accrued liabilities.

Investing Activities

The Company did not have

any investing activities during the year ended December 31, 2024.

The Company received $165,000

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

Under the terms of the agreement,

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

Net cash used in investment

activities was approximately $31,000 for the year ended December 31, 2025, due to the Company’s capitalization of internal

development costs related to new software assets of $20,000 and purchases of equipment of $11,000.

The Company did not have any

investing activities during the year ended December 31, 2024.

Financing Activities

Net cash provided by financing

activities was approximately $3,112,000 for the year ended December 31, 2025, consisting of proceeds from loans payable of $1,385,000

and warrant exercises of $1,822,000, partially offset by repayments of loans payable of approximately $27,000 and repayments of shareholder

advance of $68,000.

Net cash provided by financing

activities was approximately $1,100,000 for the year ended December 31, 2024, consisting of proceeds loans payable of $995,000, and the

sale of common stock of $168,000, partially offset by repayments of loans payable of $63,000.

Net cash provided by financing

activities was $483,000 for the year ended December 31, 2023.

This consisted of $573,000 in proceeds from a common stock placement and

$194,000 in proceeds from advances, partially offset by repayments of $194,000 in proceeds from advances, $57,000 in repayments on notes

payable and $32,000 in payments on shareholder advance.

Contractual Cash Obligations

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

Financial Statements and Supplementary

The consolidated

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

Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure

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

What changed 10-K

Item 7. Management’s Discussion and Analysis