SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q are "forward-looking statements."
These statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance, or achievements to be
materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. We use the words
"anticipate", "believe", "could", "design," "estimate", "expect", "intend",
"forecast," "goal," "may", "plan", "potential", "predict", "project", "should",
"target," "will," "would" or the negatives or other tense of such terms and
other similar expressions intended to identify forward-looking statements.
Forward-looking statements relate to future events or future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance, or
achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements.
Our actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include but are not limited to those contained in the "Risk Factors"
section of our Form 10-12G/A (the "Form 10-12G/A") and in our subsequent filings
with the Securities and Exchange Commission.
The following is a discussion of the financial condition and results of
operation of InnovaQor as of the date of this Form 10-Q. This discussion and
analysis should be read in conjunction with InnovaQor's audited consolidated
financial statements contained in the Form 10-12G/A and with our unaudited
condensed consolidated financial statements, including the notes thereto, which
are included elsewhere in this report.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is a discussion of the financial condition and results of
operation of InnovaQor as of the date of this filing. This discussion and
analysis should be read in conjunction with InnovaQor's audited and unaudited
consolidated financial statements including the notes thereto.
Estimates
Management's discussion and analysis of InnovaQor's financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
the related disclosure of contingent liabilities. Significant areas of
estimation include estimating fair value of intangible assets acquired, the
impairment of assets, accrued and contingent liabilities, and future income tax
obligations (benefits), among other items. On an on-going basis, management
evaluates past estimates and judgments, including those related to bad debts,
accrued liabilities, derivative liabilities, and contingencies. Management bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. InnovaQor believes
the following critical accounting policies affect its more significant judgments
and estimates used in the preparation of its consolidated financial statements.
Critical Accounting Policies
Basis of Presentation and Principles of Consolidation
The acquisition of an operating company by a non-operating public shell
corporation typically results in the owners and management of the operating
company having actual or effective voting and operating control of the combined
company. The Securities and Exchange Commission staff considers a public shell
reverse acquisition to be a capital transaction in substance, rather than a
business combination. That is, the transaction is a reverse recapitalization,
equivalent to the issuance of stock by the operating company for the net
monetary assets of the shell corporation accompanied by a recapitalization. The
accounting is similar to that resulting from a reverse acquisition, except that
no goodwill or other intangible assets are recorded.
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The condensed consolidated financial statements include the accounts of only the
HTS Group (the accounting acquirer) prior to June 25, 2021 and InnovaQor and the
Group since the date of acquisition on June 25, 2021, with the transaction being
accounted for as a recapitalization of the Group on June 25, 2021. The condensed
consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America ("U.S. GAAP") and
require management to make certain judgments, estimates, and assumptions. These
may affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements. They
also may affect the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates upon
subsequent resolution of identified matters.
The accompanying condensed consolidated financial statements as of and for the
three and nine months ended September 30, 2022 and 2021, have been derived from
unaudited financial information. Intercompany accounts and transactions have
been eliminated. The accompanying unaudited interim condensed consolidated
financial statements have been prepared on the same basis as the annual audited
financial statements and in accordance with U.S. GAAP, for interim financial
information and the rules and regulations of the Securities and Exchange
Commission ("SEC") for interim financial statements. In the opinion of
management, such unaudited information includes all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of this interim
information.
Cash and Cash Equivalents
InnovaQor considers all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents.
Fair Value Measurements
In accordance with ASC 820, "Fair Value Measurements and Disclosures," the
Company applies fair value accounting for all financial assets and liabilities
and non-financial assets and liabilities that are recognized or disclosed at
fair value in the financial statements on a recurring basis. Fair value is
defined 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 that are required to be recorded at fair value, the Company
considers the principal or most advantageous market in which it 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 applies to assets or liabilities for which there are quoted prices in
active markets for identical assets or liabilities that the Company has the
ability to access at the measurement date.
? Level 2 applies to assets or liabilities for which there are inputs other than
quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly, such as quoted prices for similar
assets or liabilities in active markets; or quoted prices for identical assets
or liabilities in markets with insufficient volume or infrequent transactions
(less active markets).
? Level 3 applies to assets or liabilities for which fair value is derived from
valuation techniques in which one or more significant inputs are unobservable,
including the Company's own assumptions.
The estimated fair value of financial instruments is determined by the Company
using available market information and valuation methodologies considered to be
appropriate. At September 30, 2022 and December 31, 2021, the carrying value of
the Company's accounts receivable, accounts payable, accrued expenses and notes
payable, approximate their fair values due to their short-term nature. For the
three and nine months ended September 30, 2022 and 2021, there were no realized
and unrealized gains on instruments valued using fair value evaluation methods.
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Impairment of Long-lived Assets
The Company accounts for the impairment or disposal of long-lived assets
according to the Financial Accounting Standards Board's ("FASB") ASC 360,
"Property, Plant and Equipment." Long-lived assets are reviewed when facts and
circumstances indicate that the carrying value of the asset may not be
recoverable. When necessary, impaired assets are written down to estimated fair
value based on the best information available. Estimated fair value is generally
based on either appraised value or measured by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates. As of September 30, 2022 and December 31, 2021, all of the
Company's fixed assets were fully depreciated and, therefore, the carrying value
of fixed assets represented fair value. Fixed assets are depreciated over lives
ranging from three to seven years
Income Taxes
The entities within the Group were included in the consolidated income tax
returns of its Parent for the years ended December 31, 2020 and prior. A
determination has been made by Parent's management not to allocate any of the
deferred tax assets or liabilities to the Group as of December 31, 2020 and
prior. Accordingly, the Group had not provided for income taxes in the combined
financial statements. The Company since June 25, 2021 uses the liability method
of accounting for income taxes. Under the liability method, future tax
liabilities and assets are recognized for the estimated future tax consequences
attributable to differences between the amounts reported in the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Future tax assets and liabilities are measured using enacted or
substantially enacted income tax rates expected to apply when the asset is
realized or the liability settled. The effect of a change in income tax rates on
future income tax liabilities and assets is recognized in income in the period
that the change occurs. Future income tax assets are recognized to the extent
that they are considered more likely than not to be realized. When projected
future taxable income is insufficient to provide for the realization of deferred
tax assets, the Company will recognize a valuation allowance.
In accordance with U.S. GAAP, the Company has determined whether a tax position
of the Company is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The tax
benefit to be recognized is measured as the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate settlement.
Derecognition of a tax benefit previously recognized could result in the Company
recording a tax liability that would reduce net assets. The Company has
determined that it has not incurred any liability for tax benefits as of
September 30, 2022 and 2021. State income taxes will also be due on any income
generated in the future.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Update ("ASU")
2014-09, "Revenue from Contracts with Customers (Topic 606)," including
subsequently issued updates. This series of comprehensive guidance has replaced
all existing revenue recognition guidance. There is a five-step approach
outlined in the standard. In determining revenue, we first identify the contract
according to the scope of ASU Topic 606 with the following criteria:
? Identify the contract(s) with a customer.
? Identify the performance obligations in the contract.
? Determine the transaction price.
? Allocate the transaction price to the performance obligations in the contract.
? Recognize revenue when or as you satisfy a performance obligation.
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Revenue is recognized when control of the promised services is transferred to
the Company's customers in an amount that reflects the consideration the Company
is expected to be entitled to in exchange for those services. As the Company
completes its performance obligations which are identified in Note 10 to the
unaudited Condensed Consolidated Financial Statements included herein, it has an
unconditional right to consideration as outlined in the Company's contracts.
Generally, the Company's accounts receivable are expected to be collected in 30
days in accordance with the underlying payment terms. For many of the Company's
services, the Company typically has one performance obligation; however, it also
provides the customer with an option to acquire additional services. The Company
typically provides a menu of offerings from which the customer may choose to
purchase. The price of each service is generally based upon an agreed hourly
rate.
Convertible Preferred Stock
The Company classifies its Series B-1 and Series C-1 Convertible Preferred Stock
as liabilities in accordance with ASC 480 Distinguishing Liabilities from Equity
since the preferred stock is convertible, at the option of the holder, into a
variable number of shares based solely on a fixed dollar amount (stated value)
known at issuance of the preferred stock.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with ASC Topic
260, "Earnings per Share" which requires presentation of both basic and diluted
earnings per share (EPS) on the face of the income statement. Basic EPS is
computed by dividing net income (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 including stock options, using the treasury
stock method, and convertible preferred stock, using the if-converted method. As
of September 30, 2022 and 2021, there were approximately 1,673,647,000 and
1,279,369,000 common stock equivalents, respectively, which were antidilutive
due to the Company's losses.
Recent Accounting Pronouncements
All recent accounting standards issued by the FASB, including its Emerging
Issues Task Force, the American Institute of Certified Public Accountants, and
the SEC did not or are not believed by management to have a material impact on
the Company's consolidated financial statements.
Results of Operations
Financial Presentation
The following sets forth a discussion and analysis of InnovaQor's consolidated
financial condition and results of operations as of and for the three and nine
months ended September 30, 2022 and 2021.This discussion and analysis should be
read in conjunction with our consolidated financial statements appearing
elsewhere in this filing. The following discussion contains forward-looking
statements. Our actual results may differ significantly from the results
discussed in such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" of our Form 10-12G/A.
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following summary of our condensed consolidated results of operations should
be read in conjunction with our interim consolidated financial statements as of
and for the nine months ended September 30, 2022 and 2021, which are included
herein.
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The following table summarizes the results of our consolidated operations for
the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30,
2022 2021 Change
Net revenues $ 268,430 $ 352,593 $ (84,163 )
Operating expenses:
Direct costs of revenue 288,102 104,222 183,880
General and administrative expenses 853,515 919,761 (66,246 )
Depreciation - 711 (711 )
Loss from operations (873,187 ) (672,101 ) (201,086 )
Other (expense) income (66,351 ) 88,525 (154,876 )
Loss before income taxes (939,538 ) (583,576 ) (355,962 )
Provision for income taxes - - -
Net loss $ (939,538 ) $ (583,576 ) $ (355,962 )
Net Revenues
Net revenues were $268,4310 and $352,593 for the nine months ended September 30,
2022 and 2021, respectively. The reduced revenues were a result of losing
customers that were acquired or went out of business and new customers not being
secured because of our inability to invest in sales, marketing and delivery or
in further development of our products.
Direct Costs of Revenue
Direct costs of revenue increased by $183,880 compared to the nine months ended
September 30, 2021 principally due to increases in payroll and related expenses.
General and Administrative Expenses
General and administrative expenses decreased by $66,246 compared to the nine
months ended September 30, 2021 principally due to decreased in payroll and
related expenses.
Other Income and Expense
During the nine months ended September 30, 2021, we recognized $103,900 of other
income for forgiveness of various PPP loans. We had no such transaction during
the nine months ended September 30, 2022.
Loss from Operations
Our operating loss increased by $201,086 for the nine months ended September 30,
2022, when compared to a loss of $672,101 for the same period a year ago. The
increase was due to the increases in our direct costs of revenue.
Net Loss
Our net loss was $939,538 for the nine months ended September 30, 2022, as
compared to a net loss of $583,576 for the nine months ended September 30, 2021.
The $355,962 increase in net loss was principally due to the direct costs of
revenue and increased loss from operations.
Liquidity, Capital Resources and Acquisition
At September 30, 2022, we had $3,160 in cash on hand, a working capital deficit
of $3,784,488 and an accumulated deficit of approximately $18.9 million. In
addition, we incurred a net loss of $939,538 and $583,576 for the nine months
ended September 30, 2022 and 2021, respectively. For the nine months ended
September 30, 2022 and 2021, we financed our operations with interest bearing
loans principally from our former parent company.
InnovaQor acquired all of the common stock of the HTS Group from Rennova on June
25, 2021. The transaction has been accounted for as a reverse capitalization in
the accompanying financial statements.
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The change in cash used in operations for the nine months ended September 30,
2022 and 2021 is presented in the following table:
Nine Months Ended September 30,
2022 2021 Change
Net loss $ (939,538 ) $ (583,576 ) $ (355,962 )
Non-cash adjustments to loss
Accounts receivable (23,699 ) 132,535 (156,234 )
Accounts payable and accrued expenses 375,619 309,412 66,207
Other (76,340 ) (101,472 ) 25,132
Net cash used in operating activities $ (663,958 ) $ (243,101 ) $ (420,857 )
No cash was provided by investing activities for the nine months ended September
30, 2022 or 2021.
Net cash provided by financing activities amounted to $667,072 and $211,853 for
the nine months ended September 30, 2022 and 2021, respectively. The principal
financing activities were loans from the former parent.
Going Concern and Liquidity
Under Accounting Standards Update ("ASU"), 2014-15, Presentation of Financial
Statements-Going Concern (Subtopic 205-40), management of InnovaQor has the
responsibility to evaluate whether conditions and/or events raise substantial
doubt about its ability to meet its future financial obligations as they become
due within one year after the date that the financial statements are issued. As
required by Accounting Standard Codification ("ASC") 205-40, this evaluation
shall initially not take into consideration the potential mitigating effects of
plans that have not been fully implemented as of the date the financial
statements are issued. Management has assessed InnovaQor's ability to continue
as a going concern in accordance with the requirement of ASC 205-40.
As reflected in the consolidated financial statements, InnovaQor had a working
capital deficit and an accumulated deficit of approximately $3.5 million and
$18.9 million, respectively, at September 30, 2022. In addition, InnovaQor had a
loss from operations of $939,538 and cash used in operating activities of
$663,958 for the nine months ended September 30, 2022. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
InnovaQor's consolidated financial statements are prepared assuming that
InnovaQor can continue as a going concern, which contemplates continuity of
operations through realization of assets, and the settling of liabilities in the
normal course of business. Management's plans with respect to alleviating the
adverse financial conditions that caused management to express substantial doubt
about InnovaQor's ability to continue as a going concern are as follows:
The Company is currently conducting an offering of shares of common stock
pursuant to Regulation A of the SEC. Use of proceeds are intended for improving
existing products, sales and marketing, and the beginning of the new telehealth
project.
During 2021, InnovaQor's Board of Directors approved plans to acquire the HTS
Group. Completion of the acquisition occurred on June 25, 2021. The intent of
the acquisition was to create a revenue generating business in the health
technology space focused on its strengths and operational plans. The acquisition
of the HTS Group from Rennova is intended, among other things, to: (1) result in
improved business and operational decision-making and greater strategic and
management focus for each respective business; (2) improve the Company's ability
to attract, retain and incentivize employees; (3) improve access to capital for
InnovaQor; and (4) create an equity structure for InnovaQor, resulting in an
improved understanding of InnovaQor in the capital and investor markets, and a
stronger, more focused investor base for InnovaQor. Management believes that the
acquisition will allow InnovaQor to more fully realize its value, and InnovaQor
to use its stock as consideration for further acquisitions and enhance the value
of its equity-based compensation programs.
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In addition, in connection with the acquisition, at the closing Rennova forgave
$14,000,000 of loans it had previously made to the subsidiaries. A further
$950,000 in debt was forgiven by Rennova in September 2021, meaning all of the
loans owed by the acquired subsidiaries have been forgiven. The Company issued
14,000 shares of its Series B-1 Preferred Stock to Rennova in June 2021 and a
further 950 shares in September 2021.
Notwithstanding the benefits that are expected to result from the acquisition,
InnovaQor has incurred substantial costs in connection with the acquisition and
the transition to being a fully reporting public company, which may include
accounting, tax, legal and other professional services costs, recruiting and
relocation costs associated with hiring key senior management personnel who are
new to InnovaQor, tax costs and costs to separate information systems. The cost
of performing such functions is anticipated to be more than the amounts
reflected in InnovaQor's historical financial statements, which could cause its
losses to increase. Accordingly, InnovaQor will continue to focus on increasing
revenues.
There can be no assurance that, through the acquisition of the HTS Group,
InnovaQor will be able to achieve its business plan, raise any additional
capital or secure the additional financing necessary from Rennova or third
parties to implement its current operating plan. The ability of InnovaQor to
continue as a going concern is dependent upon its ability to significantly
increase its revenues and eventually achieve profitable operations. The
accompanying consolidated financial statements do not include any adjustments
that might be necessary if InnovaQor is unable to continue as a going concern.
Other Matters
Inflation
We do not believe inflation has a significant effect on InnovaQor's operations.
Off-Balance Sheet Arrangements
Under SEC regulations, we are required to disclose InnovaQor's off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on InnovaQor's financial condition, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
Off-balance sheet arrangements consist of transactions, agreements, or
contractual arrangements to which any entity that is not consolidated with us is
a party, under which we have:
? Any obligation under certain guaranteed contracts.
? Any retained or contingent interest in assets transferred to an unconsolidated
entity or similar arrangement that serves as credit, liquidity, or market risk
support to that entity for such assets.
? Any obligation under a contract that would be accounted for as a derivative
instrument, except that it is both indexed to InnovaQor's stock and classified
in equity in InnovaQor's statement of financial position.
? Any obligation arising out of a material variable interest held by us in an
unconsolidated entity that provides financing, liquidity, market risk or
credit risk support to us, or engages in leasing, hedging or research and
development services with us.
As of September 30, 2022, InnovaQor had no off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future effect on
InnovaQor's financial condition, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Recently Issued Accounting Pronouncements
We do not expect the adoption of any recently issued accounting pronouncements
to have a significant impact on our net results of operations, financial
position, or cash flows.
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Seasonality
We do not expect our net revenues to be impacted by seasonal demands for our
products and services.
Comparison of the Three Months Ended September 30, 2022 and 2021
The following summary of our condensed consolidated results of operations should
be read in conjunction with our interim consolidated financial statements as of
and for the three months ended September 30, 2022, and 2021, which are included
herein.
The following table summarizes the results of our consolidated operations for
the three months ended September 30, 2022 and 2021 (unaudited):
Three Months Ended September 30,
2022 2021 Change
Net revenues $ 78,027 $ 129,426 $ (51,399 )
Operating expenses:
Direct costs of revenue 32,245 97,282 (65,037 )
General and administrative expenses 332,657 367,234 (34,577 )
Total operating expenses 364,902 464,753 (99,851 )
Loss from operations (286,875 ) (335,327 ) 48,452
Other (Expense) Income (46,153 ) 97,976 (144,129 )
Loss before income taxes (333,028 ) (237,351 ) (95,677 )
Provision for income taxes - - -
Net loss $ (333,028 ) $ (237,351 ) $ (95,677 )
Net Revenues
Net revenues were $78,027 and $129,426 for the three months ended September 30,
2022, and 2021, respectively. The reduced revenues were a result of losing
customers that were acquired or went out of business and new customers not being
secured because of our inability to invest in sales, marketing and delivery or
in further development of our products.
Direct Costs of Revenue
Direct costs of revenue decreased by $65,037 compared to the three months ended
September 30, 2021, principally due to decreases in payroll and related
expenses.
General and Administrative Expenses
General and administrative expenses decreased by $34,577 compared to the three
months ended September 30, 2021, principally due to decreases in payroll and
related expenses and professional fees.
Loss from Operations
Our operating loss decreased by $48,452 for the three months ended September 30,
2022, when compared to a loss of $335,327 for the same period last year. The
decrease was due principally to the decreases in our direct cost of revenue and
general and administrative expenses.
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Net Loss
Our net loss was $333,028 for the three months ended September 30, 2022, as
compared to a net loss of $237,351 for the three months ended September 30,
2021. The $95,677 increase in net loss was principally due to the decrease in
revenues.
Capitalization
The following table sets forth InnovaQor's capitalization as of September 30,
2022, and December 31, 2021, on an historical basis. In addition, it is not
indicative of our future capitalization. This table should be read in
conjunction with InnovaQor's financial statements and notes thereto included
elsewhere in this registration statement.
The following table sets forth our cash and capitalization as of September 30,
2022, and December 31, 2021:
September 30, December 31,
2022 2021
Cash $ 3,160 $ 46
Stockholders' Equity
Preferred Series A-1 Stock, Par Value $0.0001,
1,000 shares authorized, 1,000 shares issued and
outstanding - -
Common stock, Par Value $0.0001, 325,000,000
shares authorized, 234,953,286 issued and
outstanding 23,495 23,495
Additional Paid-in Capital 5,857,658 5,857,658
Total capitalization $ 5,884,313 $ 5,881,199
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INNOVAQOR, INC. 
