SCWorx Corp. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of our company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our services, fluctuations in pricing for materials, and competition. 21 Our 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. SCWorx continues to provide transformational data-driven solutions to many healthcare providers in the United States. The Company’s clients are geographically dispersed throughout the country. The Company’s focus is to assist healthcare providers with issues that 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 its 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 such clients 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. 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. We incorporate standard IT security measures, including but not limited to; firewalls, disaster recovery, backup, etc. Our operations are dependent upon the integrity, security and consistent operation of various information technology systems and data centers that process transactions, communication systems and various other software applications used throughout our operations. Disruptions in these systems could have an adverse impact on our operations. We could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to losses due to disruption in our business operations. 22 In addition, our information technology systems are subject to the risk of infiltration or data theft. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage information technology systems change frequently and may be difficult to detect or prevent over long periods of time. Moreover, the hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud or deception aimed at our employees, contractors or temporary staff. In the event that the security of our information systems is compromised, confidential information could be misappropriated, and system disruptions could occur. Any such misappropriation or disruption could cause significant harm to our reputation, lead to a loss of sales or profits or cause us to incur significant costs to reimburse third parties for damages. 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. 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 Cash is maintained with various financial institutions. Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. 23 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 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: Revenue For the years ended Accounts Receivable December 31, December 31, Customers 2025 2024 2025 2024 Customer A 15 % 15 % 32 % 11 % Customer B 14 % 13 % - % 18 % Customer C 19 % 20 % 8 % 20 % Customer D 7 % 7 % 11 % 27 % 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 recorded allowances for credit losses of $55,200 and $20,000 as of December 31, 2025 and 2024, respectively. 24 Leases 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. 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. 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. leases with terms of 12 months or less). Goodwill and Identified Intangible Assets Goodwill Goodwill is recorded as the difference 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. Management reviews impairment of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. We first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, we determine 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. Revenue Recognition We recognize 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 we perform 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 We follow 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. Management has identified the following performance obligations in our 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 our hosted software solutions on a subscription basis for a specified contract term, which is usually annually. In SaaS arrangements, the client cannot take possession of the software during the term of the contract and generally has the right to access and use the software and receive any software upgrades published during the subscription period, 25 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, management 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. We consider control to have transferred upon delivery because we have a present right to payment at that time, we have 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. Our 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 we have not satisfied a performance obligation, revenue recognition will be deferred until the performance obligation is deemed to be satisfied. Revenue recognition for our performance obligations are as follows: Data Normalization and Professional Services Our Data Normalization and Professional Services are typically fixed fee. When these services are not combined with SaaS or Maintenance revenues as a single unit of accounting, these revenues are recognized as the services are rendered and when contractual milestones are achieved and accepted by the customer. SaaS and Maintenance SaaS and Maintenance revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date on which our service is made available to customers. Some contracts have payment terms that differ from the timing of revenue recognition, which requires us to assess whether the transaction price for those contracts include a significant financing component. We have elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if it expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. We do not maintain contracts in which the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service exceeds the one-year threshold. 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 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” . 26 Cost of Revenue Cost of revenues primarily represent data center hosting costs, consulting services and maintenance of our large data array that were incurred in delivering professional services and maintenance of our large data array during the periods presented. Contract Balances Contract assets arise when the revenue associated prior to our 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, 2025 and 2024. 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. Deferred revenue for contract liabilities were $158,750 and $354,083 as of December 31, 2025 and 2024, respectively. Income Taxes Our company converted to a corporation from a limited liability company during 2018. We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (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. During the year ended December 31, 2025, we evaluated available evidence and concluded that we may not realize all the benefits of our deferred tax assets; therefore, a valuation allowance was established for our 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. 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. The Tax Act significantly revised the U.S. corporate income tax regime by, including but not limited to, lowering the U.S. corporate income tax rate from 34% to 21% effective January 1, 2018, implementing a territorial tax system, imposing a one-time transition tax on previously untaxed accumulated earnings and profits of foreign subsidiaries, and creating new taxes on foreign sourced earnings. During the years ended December 31, 2025 and 2024, we completed the accounting for tax effects of the Tax Act under ASC 740. There were no impacts to the years ended December 31, 2025 and 2024. Stock-based Compensation Expense 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. 27 The authoritative guidance also requires that the Company measure and recognize stock-based compensation expense upon modification of the term of stock award. The stock-based compensation expense for such modification is accounted for as a repurchase of the original award and the issuance of a new award. Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. The Company estimates the expected life of options granted based on historical exercise patterns, which are believed to be representative of future behavior. The Company estimates the volatility of the Company’s common stock on the date of grant based on historical volatility. The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from the estimate, stock-based compensation expense could be significantly different from what was recorded in the current period. The Company also grants performance based restricted stock awards to employees and consultants. These awards will vest if certain employee\consultant-specific or company-designated performance targets are achieved. If minimum performance thresholds are achieved, each award will convert into a designated number of the Company’s common stock. If minimum performance thresholds are not achieved, then no shares will be issued. Based upon the expected levels of achievement, stock-based compensation is recognized on a straight-line basis over the requisite service period. The expected levels of achievement are reassessed over the requisite service periods and, to the extent that the expected levels of achievement change, stock-based compensation is adjusted in the period of change and recorded on the statements of operations and the remaining unrecognized stock-based compensation is recorded over the remaining requisite service period. Refer to Note 9, Stockholders’ Equity, for additional detail. Loss Per Share We compute earnings (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings (loss) per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants and the exercise of fully vested restricted stock units. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2025 and 2024, we had 54,177,461 and 9,038,072, respectively, common stock equivalents outstanding. Indemnification We provide indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from the use of our software. In accordance with authoritative guidance for accounting for guarantees, we evaluate estimated losses for such indemnification. We consider 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 our company and no liability has been recorded in our financial statements. As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our company’s request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. In addition, we have directors’ and officers’ liability insurance coverage that is intended to reduce our financial exposure and may enable us to recover any payments above the applicable policy retention. 28 Contingencies From time to time, we may be involved in legal and administrative proceedings and claims of various types. We record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Management reviews these estimates in each accounting period as additional information becomes known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements. If a loss is probable but the amount of loss cannot be reasonably estimated, we disclose the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made). We do not recognize gain contingencies until they are realized. Legal costs incurred in connection with loss contingencies are expensed as incurred. Refer to Note 8, Commitments and Contingencies, for further information. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to allowance for credit losses, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Recently Issued Accounting Pronouncements 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. Results of Operations Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 The following summary of our 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 the years ended December 31, 2025 and 2024 are summarized as follows: Years Ended December 31, 2025 December 31, 2024 Difference Revenue $ 2,877,629 $ 2,989,599 $ (111,970 ) Cost of revenues 1,957,923 2,243,614 (285,691 ) Operating expenses 1,878,425 2,005,411 (126,986 ) Other income (expense) (3,485,390 ) 123,201 (3,608,591 ) Provision for income taxes - - - Net loss $ (4,444,109 ) $ (1,136,225 ) $ (3,307,884 ) 29 Revenues Revenue for the year ended December 31, 2025 was $2,877,629, compared to $2,989,599 in revenue for the year ended December 31, 2024. This decrease was primarily due to the expiration and non-renewal of certain customer contracts partially offset by new customer contracts. Cost of Revenues Cost of revenues for the year ended December 31, 2025 was $1,957,923, compared to $2,243,614 for the year ended December 31, 2024. The $285,691 decrease is primarily 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 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 $144,000. 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 Liquidity 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 capabilities. 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. Cash Flows Years ended December 31, 2025 2024 Net cash used in operating activities $ (1,543,610 ) $ (1,084,292 ) Net cash used in by investing activities (30,643 ) - Net cash provided by financing activities 3,112,038 1,099,510 Change in cash $ 1,537,785 $ 15,218 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. However, there is no assurance we will be able to increase our revenue sufficiently so as to generate positive operating cash flows within this time frame. 30 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 activities was approximately $1,084,000 for the year ended December 31, 2024, mainly related to the net loss of approximately $1,136,000, a gain on forgiveness of accounts payable of $227,000, and a $93,000 increase in accounts receivable, partially offset by amortization of discounts on debt agreements of $50,000, common stock issued for settlement of payables and legal settlements of $346,000, and a $39,000 decrease in accounts payable and accrued liabilities, and credit loss expense of $25,000. Investing Activities 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. Contractual Cash Obligations Refer to Note 8, Commitments and Contingencies, in the accompanying consolidated financial statements for additional detail. Off-Balance Sheet Arrangements As of December 31, 2025 and 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. Item 8. Financial Statements and Supplementary Data The consolidated financial statements are included in Part IV, Item 15 (a) (1) of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None 31