You should read the following discussion of our financial condition and results
of operations in conjunction with our unaudited condensed consolidated financial
statements and the related notes included in Item 1, "Financial Statements" of
this Form 10-Q. In addition to our historical unaudited condensed consolidated
financial information, the following discussion contains forward-looking
statements that reflect our plans, estimates, and beliefs which involves risk,
uncertainty and assumptions. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below and elsewhere in
this Form 10-Q.
Corporate Information
SCWorx, LLC (n/k/a SCW FL Corp.) ("SCW LLC") was a privately held limited
liability company which was organized in Florida on November 17, 2016. On
December 31, 2017, SCW LLC acquired Primrose Solutions, LLC ("Primrose"), a
Delaware limited liability company, which became its wholly-owned subsidiary and
focused on developing functionality for the software now used and sold by SCWorx
Corp. (the "Company" or "SCWorx"). The majority interest holders of Primrose
were interest holders of SCW LLC and based upon Staff Accounting Bulletin Topic
5G, the technology acquired has been accounted for at predecessor cost of $0. To
facilitate the planned acquisition by Alliance MMA, Inc., a Delaware corporation
("Alliance"), on June 27, 2018, SCW LLC merged with and into a newly-formed
entity, SCWorx Acquisition Corp., a Delaware corporation ("SCW Acquisition"),
with SCW Acquisition being the surviving entity. Subsequently, on August 17,
2018, SCW Acquisition changed its name to SCWorx Corp. On November 30, 2018, our
company and certain of our stockholders agreed to cancel 6,510 shares of common
stock. In June 2018, we began to collect subscriptions for common stock. From
June to November 2018, we collected $1,250,000 in subscriptions and issued 3,125
shares of common stock to new third-party investors. In addition, on February 1,
2019, (i) SCWorx Corp. (f/k/a SCWorx Acquisition Corp.) changed its name to SCW
FL Corp. (to allow Alliance to change its name to SCWorx Corp.) and (ii)
Alliance acquired SCWorx Corp. (n/k/a SCW FL Corp.) in a stock-for-stock
exchange transaction and changed Alliance's name to SCWorx Corp., which is our
company's current name, with SCW FL Corp. becoming our subsidiary. On March 16,
2020, in response to the COVID-19 pandemic, SCWorx established a wholly-owned
subsidiary, Direct-Worx, LLC.
Our principal executive offices are located at 590 Madison Avenue, 21st Floor,
New York, New York, 10022. Our telephone number is (844) 472-9679. The Company
also had a lease in Greenwich, CT which expired in March 2020 and became a month
to month tenancy until it was terminated in April 2021.
In this Quarterly Report, the terms "SCWorx," the "Company," "we," "us" and
"our" refer to SCWorx Corp., a Delaware corporation, unless the context requires
otherwise. Unless specified otherwise, the historical financial results in this
Annual Report are those of our company and our subsidiaries on a consolidated
basis.
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 care information technology solutions
and associated services that improve healthcare processes and information flow
within hospitals and other healthcare facilities. SCWorx's software enables a
healthcare provider to simplify 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"). Customers use our software to achieve multiple operational
benefits, such as supply chain cost reductions, decreased accounts receivables
aging, accelerated and completed patient billing in less than 72 hours, contract
optimization, increased supply chain management and total cost visibility via
dynamic AI connections that automatically structures, repairs, synchronizes and
maintains purchasing ("MMIS"), Clinical ("EMR") and finance ("CDM") systems.
SCWorx's customers include some of the most prestigious healthcare organizations
in the United States. SCWorx offers an advanced software solution for the
management of health care providers' foundational business applications,
empowering its customers to significantly reduce costs, drive better clinical
outcomes and enhance their revenue. SCWorx supports the interrelationship
between the three core healthcare provider systems: Supply Chain, Financial and
Clinical. This solution integrates common keys within distinct and variable
databases that allows the repaired foundational data to move seamlessly from one
application to another enabling our Customers to drive supply chain cost
reductions, optimize contracts, increase supply chain management ("SCM"), cost
visibility, control rebates and contract administration fees.
21
Currently, the business systems of hospitals are frequently deficient and often
unconnected from each other. These deficiencies in part result from the vast
amount of unstructured, manually created and managed data that proliferates
within the hospital's supply chain, clinical and billing systems. SCWorx's
solutions are designed to improve the flow of information quickly and accurately
between the buy-side (supply chain purchasing systems), the consumption-side
(clinical documentation systems like the electronic medical records ("EMR")) and
billing and collection systems (patient billing systems). The currently poor
state of interoperability limits the potential value of each independent system
and requires significant expense and extensive human resource commitments from
senior personnel to stay ahead of problems and complete basic administrative
tasks. SCWorx provides an information service that ultimately leads to safer,
more cost effective and financially efficient patient care.
SCWorx has demonstrated that in order for the core hospital systems to function
properly there must be a Single Source of Truth ("SSOT") for all products
utilized and ultimately billed for. The Item Master File ("IMF"), which is a
database of all known products used in hospital and health care settings, must
be accurate at all times and expanded upon to hold both clinical and financial
attributes. An accurate and expanded Item Master File supports interoperability
between the supply chain, clinical and financial systems by delivering, on
demand, reports detailing the purchasing, utilization and revenue associated
with each and every item used, allowing hospitals to better manage their
business. The Single Source of Truth establishes a common vernacular and syntax,
while assigning a consistent meaning across the healthcare provider's core
systems and accurately migrating data from one application to another and
removing disconnects between critical business systems.
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;
? EMR management;
? CDM management;
? contract management;
? request for proposal automation;
? rebate management;
? Integration of acquired management;
? big data analytics modeling;
? data integration and warehousing; and
? ScanWorx.
SCWorx continues to provide transformational data-driven solutions to some of
the finest, most well-respected healthcare providers in the United States.
Clients are geographically dispersed throughout the country. Our focus is to
assist healthcare providers with issues they have pertaining to data
interoperability.
SCWorx's software solutions are delivered to clients within a fixed term period,
typically a three-to-five-year contracted term, where such software is hosted in
SCWorx data centers (Amazon Web Service's "AWS" or RackSpace) and accessed by
the client through a secure connection in a software as a service ("SaaS")
delivery method.
22
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.
SCWorx, as part of the acquisition of Alliance MMA, owns an online event
ticketing platform focused on serving regional MMA ("mixed martial arts")
promotions which it has paused due to COVID-19.
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.
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.
Impact of the COVID-19 Pandemic
The Company's operations and business have experienced disruption due to the
unprecedented conditions surrounding the COVID-19 pandemic which spread
throughout the United States and the world. The outbreak adversely impacted new
customer acquisition. The Company has followed the recommendations of local
health authorities to minimize exposure risk for its team members since the
outbreak.
In addition, the Company's customers (hospitals) also experienced extraordinary
disruptions to their businesses and supply chains, while experiencing
unprecedented demand for health care services related to COVID-19. As a result
of these extraordinary disruptions to the Company's customers' business, the
Company's customers were focused on meeting the nation's health care needs in
response to the COVID-19 pandemic. As a result, the Company believes that its
customers were not able to focus resources on expanding the utilization of the
Company's services, which has adversely impacted the Company's growth prospects,
at least until the adverse effects of the pandemic subside. In addition, the
financial impact of COVID-19 on the Company's hospital customers could cause the
hospitals to delay payments due to the Company for services, which could
negatively impact the Company's cash flows.
The Company sought to mitigate these impacts to revenue through the sale of
personal protective equipment ("PPE") and COVID-19 rapid test kits to the health
care industry, including many of the Company's hospital customers. On March 16,
2020, in response to the COVID-19 pandemic, SCWorx established a wholly-owned
subsidiary, Direct-Worx, LLC to endeavor to source and provide critical,
difficult-to-find items for the healthcare industry. Items had become difficult
to source due to unexpected disruptions within the supply chain due to the
COVID-19 pandemic. The products the Company sought to source included:
? Test Kits - the Company currently has no contracted supply of Rapid Test Kits.
? PPE - Personal Protective Equipment (PPE) includes items such as masks,
gloves, gowns, shields, etc. Currently the Company has no contracted supply of
PPE.
23
Regarding PPE and Test Kits, the Company's Board of Directors determined during
the second quarter of 2020 to limit the Company's role to acting as an
intermediary between buyers and sellers with commission based compensation. We
are endeavoring to sell our existing inventory of PPE products primarily through
use of our internal and external sales personnel.
Results of Operations - three months ended March 31, 2022
Our operating results for the three month period ended March 31, 2022 and 2021
are summarized as follows:
Three months ended
March 31, March 31,
2022 2021 Difference
Revenue $ 1,030,949 $ 1,148,257 $ (117,308 )
Cost of revenues 697,636 694,938 2,698
General and administrative 1,099,454 1,201,262 (101,808 )
Other income (expense) 139,595 - 139,595
Provision for income taxes - - -
Net loss (626,546 ) (747,943 ) 121,397
Revenues
Revenue for the three months ended March 31, 2022 was $1,030,949 as compared to
$1,148,257 for the three months ended March 31, 2021. This decrease was
primarily due to normal fluctuations in our billing cycle. We expect near term
revenues to remain relatively flat, unless and until we raise sufficient capital
to fully implement our business plan.
Operating Expenses
Cost of revenues
Cost of revenues was $697,636 for the three months ended March 31, 2022 compared
to $694,938 for the same period in 2021. The small increase was primarily the
result of slight salary fluctuations.
General and administrative
General and administrative expenses decreased $101,808 to $1,099,454 for the
three months ended March 31, 2022, as compared to $1,201,262 in the same period
of 2021. The decrease is primarily attributable to a decrease in stock-based
compensation of $153,150 partially offset by approximate increases in legal and
professional fees of $62,000, accounting fees of $42,000 and bad debt reserve
expense of $62,000. We expect general and administrative expenses to remain
relatively flat during the rest of 2022, unless we complete a capital raise, in
which case we would expect expenses to grow as we ramp our sales force.
Other income
We had other income of $139,595 during the three months ended March 31, 2022
related to the forgiveness of a PPP Loan under the CARES Act.
Net Loss
For the three months ended March 31, 2022, we incurred a net loss of $626,546
compared to a net loss of $747,943 for the same period in 2021.
24
Liquidity and Capital Resources
Going Concern
The Company has suffered recurring losses from operations and incurred a net
loss of $626,546 for the three months ended March 31, 2022 and $747,943 for the
three months ended March 31, 2021. The accumulated deficit as of March 31, 2022
was $24,637,837. The Company has not yet achieved profitability and expects to
continue to incur cash outflows from operations. It is expected that its
operating losses will continue and, as a result, the Company will eventually
need to generate significant increases in product revenues to achieve
profitability. These conditions indicate that there is substantial doubt about
the Company's ability to continue as a going concern within one year after the
financial statement issuance date.
As of March 31, 2022, we had a working capital deficit of $1,861,403 and
accumulated deficit of $24,637,837. During the three months ended March 31,
2022, we had a net loss of $626,546 and used $62,782 of cash in operations. We
have historically incurred operating losses and negative operating cash flows,
which we may continue to incur for the foreseeable future. We believe that these
conditions may raise doubt about our ability to continue as a going concern.
This may hinder our future 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 raise additional capital and grow our revenues, we may not be able to
sustain our business, 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 the date of this report, we have only limited cash on hand, and we are
experiencing negative cash flows from operations. Consequently, we need to raise
additional capital in the very near term 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 approximately $400,000 in
cash per month over the next twelve months, or approximately $4.8 million of
which approximately $350,000 per month can be paid through current revenue
collections. Currently we have only limited cash on hand, and consequently, we
are unable to implement our current business plan. Accordingly, we have an
immediate need for additional capital to fund our operating activities.
In order to remedy this liquidity deficiency, we have cut spending and are
actively seeking to raise additional funds through the sale of equity and debt
securities. Ultimately, we will need to generate substantial positive operating
cash flows. Our internal sources of funds will consist of cash flows from
operations, but not until we begin to realize substantial additional revenues
from the sale of our products and services. As previously stated, our operations
are generating negative cash flows, and thus adversely affecting our liquidity.
If we are able to secure sufficient funding in the first half of 2022 to fully
implement our business plan, we expect that our operations could begin to
generate positive cash flows by the end of 2022, which should ameliorate our
liquidity deficiency. If we are unable to raise additional funds in the near
term, we will not be able to fully implement our business plan, in which case
there could be a material adverse effect on our results of operations and
financial condition.
In the event we do not generate sufficient funds from revenues or financing
through the issuance of common stock or from debt financing, we will not be able
to fully implement our business plan and pay our obligations as they become due,
any of which circumstances would have a material adverse effect on our business
prospects, financial condition, and results of operations. The accompanying
financial statements do not include any adjustments that might be required
should we be unable to recover the value of our assets or satisfy our
liabilities.
Based on our limited availability of funds we expect to spend minimal amounts on
software development and capital expenditures. We expect to fund any future
software development expenditures through a combination of cash flows from
operations and proceeds from equity and/or debt financing. If we are unable to
generate positive cash flows from operations, and/or raise additional funds
(either through debt or equity), we will be unable to fund our software
development expenditures, in which case, there could be an adverse effect on our
business and results of operations.
Cash Flows
Three months ended
March 31,
2022 2021
Net cash used in operating activities $ (62,782 ) $ (426,901 )
Net cash used in investing activities
- -
Net cash provided by financing activities - 139,595
Change in cash $ (62,782 ) $ (287,306 )
25
Operating Activities
Cash used in operating activities was approximately $63,000 for the three months
ended March 31, 2022 (about $21,000 per month), mainly related to the net loss
of approximately $626,000, a $279,000 increase in accounts receivable, a $56,000
increase in prepaid expenses, and a $140,000 gain on forgiveness of debt,
partially offset by non-cash stock-based compensation of $348,000, bad debt
expense of $47,000, an increase in accounts payable and accrued liabilities of
$352,000 and an increase in deferred revenue of $292,000.
Cash used in operating activities was approximately $427,000 for the three
months ended March 31, 2021 (about $142,000 per month), mainly related to the
net loss of approximately $750,000, a $285,000 increase in accounts receivable,
a $38,000 increase in prepaid expenses, and a $62,000 decrease in deferred
revenue, partially offset by non-cash stock-based compensation of $500,000, an
increase in accounts payable and accrued liabilities of $148,000 and
depreciation expense of $71,000.
Investing Activities
The Company did not have any investing activities during the three months ended
March 31, 2022 and 2021.
Financing Activities
The Company did not have any financing activities during the three months ended
March 31, 2022.
Cash provided by financing activities was $139,595 for the three months ended
March 31, 2021. This consisted of proceeds from a loan payable.
Off-Balance Sheet Arrangements
As of March 31, 2022 and December 31, 2021, we did not have any off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
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