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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT NO.
1
TO
FORM 10
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or (g) of
the
Securities Exchange Act of 1934
InnovaQor,
Inc.
(Exact
name of registrant as specified in its charter)
Nevada |
|
88-0436055 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
|
|
|
400
S. Australian Avenue, Suite 800
West
Palm Beach, Florida |
|
33401 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(561)
421-1900
(Registrant’s
telephone number, including area code)
Copies
of communications to:
J.
Thomas Cookson, Esq. |
|
Gerard
Dab |
Shutts
& Bowen LLP |
|
Director,
Corporate Secretary |
200
South Biscayne Boulevard, Suite 4100 |
|
400
S. Australian Avenue, Suite 800 |
Miami,
Florida 33131 |
|
West
Palm Beach, Florida 33401 |
(305)
379-9141 |
|
(561)
421-1905 |
Securities
to be registered pursuant to Section 12(b) of the Act: None
Securities
to be registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.0001 per share
Title
of each class to be so registered
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
|
Non-accelerated
filer ☒ |
Smaller
reporting company ☒ |
|
|
Emerging
growth company ☒ |
If
an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
TABLE
OF CONTENTS
Item
1. Business.
Overview
InnovaQor,
Inc., a Nevada corporation (“InnovaQor” or the “Company”), provides information technology solutions and services
to healthcare and laboratory customers in the United States. Our goal is to develop and deliver a technology-based social media and
communication platform to a broad range of healthcare professionals and businesses using a subscription revenue model with added
value bolt on services. The Company, through a recent acquisition that closed on June 25, 2021, has a number of fully developed products
and services which it offers through six wholly-owned subsidiaries that provide medical support services primarily to clinical
laboratories, corporate operations, rural hospitals, physician practices and behavioral health/substance abuse centers.
The Company has the following wholly-owned subsidiaries,
which it purchased on June 25, 2021: Health Technology Solutions, Inc., Medical Mime, Inc., ClinLab, Inc., Advanced Molecular Services
Group, Inc. (“AMSG”), Genomas, Inc. and CollabRx, Inc. These subsidiaries provided products and services to approximately
27 customers in the United States and generated approximately $217,000 in net revenues during the six months ended June 30, 2021,
prior to their acquisition by the Company and while they were owned by the former parent, Rennova Health, Inc. (“Rennova”).
Sales made to the former parent and related entities amounted to approximately $125,000 for the six months ended June 30, 2021. The Company
had no revenue for the years ended June 30, 2021 and 2020. Consolidated net revenues amounted to $245,991 (including $112,898
from a related party) for the six months ended December 31, 2021, to approximately 23 customers since the Company
completed the acquisition of the above subsidiaries from Rennova in late June 2021.
Health
Technology Solutions, Inc. (“HTS”): HTS provides virtual chief information officer (vCIO), IT managed services and data analytics
dashboards to our subsidiaries and outside medical service providers. HTS operates from the corporate offices in West Palm Beach, Florida.
Medical
Mime, Inc. (“Mime”): Mime was formed on May 9, 2014. It specializes in electronic health records (EHR) software and subscription
services for the behavioral health and rehabilitation market segments. It currently serves nine behavioral health/substance abuse facilities.
ClinLab,
Inc. (“ClinLab”): ClinLab develops and markets laboratory information management systems to mid-size clinical laboratories.
It currently services 13 clinical laboratories across the country.
AMSG
owns CollabRx, Inc. (“CollabRx”) and Genomas, Inc. (“Genomas”), each of which is an inactive operation.
Genomas
operated a diagnostics lab until December 31, 2019, and was focused solely on the pharmacogenomics technology and platform, MedTuning,
to interpret diagnostics outcomes and translate these outcomes into easily usable information to indicate the effectiveness of medications
for a patient. This solution would require minimum effort to be back in operation. CollabRx owns a technology platform and database for
interpreting diagnostics outcomes from cancer patients that could match the result to known treatments and or clinical trials. This solution
has been dormant for a number of years and to be viable in the marketplace will require updates to the technology and the database.
Each
of the subsidiaries is wholly owned by the Company and complements each other, allowing for cross selling of products and services. The
Company believes the current solutions will become an added value option to a technology-based social media communication platform to
a broad range of healthcare professionals and businesses using a subscription revenue model with added value bolt on services the Company
plans to develop.
In
the coming year we plan to develop, acquire or license and offer a telehealth solution through corporate partnerships in the emerging
health technology sector.
Cautionary
Statement Concerning Forward-Looking Statements
This
registration statement contains forward-looking statements. Statements contained in this registration statement that refer to the Company’s
estimated or anticipated future results are forward-looking statements that reflect current perspectives of existing trends and information
as of the date of this registration statement. Forward-looking statements generally will be accompanied by words such as “anticipate,”
“believe,” “plan,” “could,” “should,” “estimate,” “expect,” “forecast,”
“outlook,” “guidance,” “intend,” “may,” “might,” “will,” “possible,”
“potential,” “predict,” “project,” or other similar words, phrases or expressions. Such forward-looking
statements include statements about the Company’s plans, objectives, expectations and intentions. It is important to note that
the Company’s goals and expectations are not predictions of actual performance. Actual results may differ materially from the Company’s
current expectations depending upon a number of factors affecting the Company’s business. These risks and uncertainties include
those set forth under “Risk Factors” beginning on page 10, as well as, among others, business effects, including the effects
of industry, economic or political conditions outside of the Company’s control; the inherent uncertainty associated with financial
projections; the anticipated size of the markets and demand for the Company’s products and services; the impact of competitive
products and pricing; and access to available financing on a timely basis and on reasonable terms. We caution you that the foregoing
list of important factors that may affect future results is not exhaustive.
When
relying on forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the
foregoing factors and other uncertainties and potential events and read the Company’s filings with the Securities and Exchange
Commission (the “SEC”) for a discussion of these and other risks and uncertainties. The Company undertakes no obligation
to update or revise any forward-looking statement, except as may be required by law. The Company qualifies all forward-looking statements
by these cautionary statements.
Company
History
The
Company was originally incorporated in the State of Nevada on September 7, 1999, under the name Ancona Mining Corporation.
The
Company’s name was changed to VisualMED Clinical Solutions Corporation on November 30, 2004, from Ancona Mining Corporation.
The
Company’s name was changed to InnovaQor, Inc. on September 8, 2021, from VisualMED Clinical Solutions Corporation.
VisualMED
was a medical information company that used technology to assist physicians and nurses streamline the mass of patient information in
a coherent and usable manner. Its clinical information systems were designed for use in hospitals, healthcare delivery organizations
and regional and national healthcare authorities. In response to changes in the marketplace, the Company then sought to take its applications
originally created for clinicians and make them available to patients and individuals concerned about their health. As part of this process
the Company partnered with various consultants to consider the medical applications, develop a marketing strategy and investigate how
best to transition its existing applications to upgraded versions, including integrating artificial intelligence for data assessment
and outcomes. With the onset of the COVID-19 pandemic, however, it became apparent that this business opportunity would require more
capital, management capability and time than what was available to the Company.
In late 2020, the majority
of shareholders and the Board of Directors charged management of VisualMED to find a new business opportunity for the Company that
would allow it to leverage its healthcare, software and IT experience. At the beginning of 2021, the Company initiated measures that
would facilitate a new opportunity for the Company. Subsequently, in May 2021, then CEO Gerard Dab
entered into an agreement with and engaged the services of Epizon Limited (“Epizon”), a Nassau, Bahamas, based management
consulting company specializing in the provision of management services to secure financing and opportunities for growth. Seamus Lagan,
the Chief Executive Officer of Rennova, the company we ultimately completed a transaction with, is also the managing director of Epizon.
The objective of the
agreement with Epizon was to help VisualMED find a new opportunity in its core healthcare technology business. The Company needed to
find and develop new products that would be more relevant for a changing healthcare marketplace. Epizon was engaged to assist VisualMED
with its capital structure, and to look for new business opportunities and/or acquisitions that could result in improved shareholder
value. The terms of the agreement with Epizon called for the transfer to Epizon of 1,000 shares of Series A Supermajority Voting Preferred
Stock (the “Series A Preferred Stock”), with a stated value of $10.00 each, personally owned by Gerard Dab, on the successful
completion of a transaction as defined in the agreement. It was determined that an agreement with Rennova was the most viable opportunity
available to VisualMED. The conditions of the Epizon agreement have been met and the transfer of shares of Series A Preferred Stock has
been completed. This transfer resulted in a change of voting control of VisualMED, as the Series A Preferred Stock, in the aggregate,
has the right to the number of votes equal to 51% of the votes entitled to be cast at a meeting or to vote by written consent. Epizon
will be able to exercise control over all matters submitted for stockholder approval.
In
May 2021, VisualMED entered into an acquisition agreement with Rennova to acquire certain assets owned by Rennova.
On
June 25, 2021, VisualMED closed the acquisition agreement with Rennova , and acquired 100% ownership of certain subsidiaries of Rennova.
These subsidiaries are Health Technology Solutions, Inc., Medical Mime, Inc., ClinLab, Inc., Advanced Molecular Services Group, Inc.,
Genomas, Inc. and CollabRx, Inc., and combined are referred to herein as HTS and AMSG (the “HTS Group”).
Products
offered by the acquired entities include vCIO services, IT managed services, healthcare finance and operational business intelligence
analytics dashboards, an EHR (electronic health records software), an LIS (laboratory information system), and a lab ordering
and reporting software. The CollabRx and Genomas subsidiaries provided actionable data analytics and reporting for oncologists
to enhance cancer diagnoses and treatment and PhyzioType Systems for DNA-guided management and prescription of drugs. These subsidiaries
are not currently operating.
The
Company intends to operate its subsidiaries under the following structure.
In consideration for the shares of HTS and AMSG and
the elimination of inter-company debt between Rennova and HTS and AMSG, the Company issued 14,000 shares of its Series B Convertible
Redeemable Preferred Stock (the “Series B Preferred Stock”) to Rennova. The number of shares of Series B Preferred Stock
was subject to a post-closing adjustment which resulted in 950 additional shares of Series B Preferred Stock due Rennova which were issued
in September 2021. Each share of Series B Preferred Stock has a stated value of $1,000 and is convertible into that number of shares
of the Company’s common stock equal to the product of the stated value divided by 90% of the average closing price of the common
stock during the 10 trading days immediately prior to the conversion date. Conversion of the Series B Preferred Stock, however, is subject
to the limitation that no conversion can be made to the extent the holder’s beneficial interest (as defined pursuant to the terms
of the Series B Preferred Stock) in the common stock of the Company would exceed 4.99%. The shares of Series B Preferred Stock may be
redeemed by the Company upon payment of the stated value of the shares plus any accrued declared and unpaid dividends. In addition, prior
to the acquisition the Company’s former CEO, Gerard Dab, forgave $300,000 owed to him by the Company in exchange for the issuance
of 1,000 shares of Series A Preferred Stock. These shares of Series A Preferred Stock have now been transferred to Epizon. Mr. Dab
also forgave another $200,000 owed to him from the Company in exchange for 200 shares of Series C Convertible Redeemable Preferred
Stock (the “Series C Preferred Stock”) with each share having a stated value of $1,000 and convertible into that number of
shares of common stock equal to the product of the stated value divided by 90% of the average closing price of the previous 10 trading
days immediately prior to the conversion date. Conversion of the Series C Preferred Stock is also subject to a similar 4.99% beneficial
ownership limitation. Shares of the Series B Preferred Stock and Series C Preferred Stock may not be converted prior to the first anniversary
of their issuance without the consent of the holders of a majority of the then outstanding shares, if any, of the Series A Preferred
Stock.
The
following table represents the Company’s issued shares at December 31, 2021:
Common Shares | |
| 234,953,286 | |
Series A Preference Shares | |
| 1,000 | |
Series B Preference Shares | |
| 14,950 | |
Series C Preference Shares | |
| 200 | |
Subsidiaries
The
Company has six wholly-owned subsidiaries that provide medical support services primarily to clinical laboratories, corporate
operations, rural hospitals, physician practices and behavioral health/substance abuse centers.
Health
Technology Solutions, Inc. (“HTS”): HTS provides vCIO, IT managed services and data analytics dashboards to our subsidiaries and outside medical
service providers. HTS operates from the corporate offices in West Palm Beach, Florida.
Medical
Mime, Inc. (“Mime”): Mime was formed on May 9, 2014. It specializes in electronic health records (EHR) software and subscription
services for the behavioral health and rehabilitation market segments. It currently serves nine behavioral health/substance abuse facilities.
ClinLab,
Inc. (“ClinLab”): ClinLab develops and markets laboratory information management systems to mid-size clinical laboratories.
It currently services 13 clinical laboratories across the country.
AMSG
owns and operates CollabRx, Inc. (“CollabRx”) and Genomas, Inc. (“Genomas”), each of which is an inactive operation.
Genomas operated a diagnostics lab until December 31, 2019, and was focused solely on the pharmacogenomics technology and platform, MedTuning,
to interpret diagnostics outcomes and translate these outcomes into easily usable information to indicate the effectiveness of medications
for a patient. This solution would require minimum effort to be back in operation CollabRx owns a technology platform and database for
interpreting diagnostics outcomes from cancer patients that could match the result to known treatments and or clinical trials. This solution
has been dormant for a number of years and to be viable in the marketplace will require updates to the technology and the database.
Each
of the subsidiaries is wholly owned by the Company and complements each other, allowing for cross selling of products and services. The
Company believes the current solutions will become an added value option to a technology-based social media communication platform
to a broad range of healthcare professionals and businesses using a subscription revenue model with added value bolt on services the
Company plans to develop.
In
the coming year we plan to develop, acquire or license and offer a telehealth solution through partnerships in the emerging
health technology sector.
Company
Information
The
address of our principal executive offices is 400 S. Australian Avenue, Suite 800, West Palm Beach, Florida 33401 and our telephone number
at that location is (561) 421-1900.
Our
website is www.innovaqor.com. The information contained on, or that may be obtained from, our website is not a part of this registration
statement. We have included our website address in this information statement solely as an inactive textual reference.
Terms
of the recent acquisition
Background
On
June 25, 2021, the Company completed the acquisition agreement with Rennova, and acquired 100% ownership of certain subsidiaries of Rennova.
The acquired businesses are now the main business of the Company.
Reasons
for the Acquisition
The
previous business model of the Company had not generated revenue for over five years. The Board of Directors and majority shareholders
had determined the Company should pursue other opportunities for acquisition of technology and services that were similar in nature to
the existing business of the Company. The Company had limited resources of cash and management and believed that an acquisition that
could be completed without cash and that had its own management team would provide the best opportunity for a successful closing. The
Company believes that the acquired assets and new management team create a new opportunity for the Company in a sector in which the Company’s
solutions and services are in demand and should generate profitable revenue. The Company believes the acquisition brings the following
benefits for shareholders:
|
● |
Enhanced strategic and
management focus – The acquisition will provide the Company with a well-established and accomplished management team to more
effectively pursue its distinct operating priorities and strategies and enable the management to quickly and efficiently make decisions
and concentrate efforts on the unique needs of each business and pursue opportunities for long-term growth and profitability. In
this way, the Company’s management will be able to focus exclusively on its IT products and services business and productize
its services to third parties. |
|
● |
Direct access to capital
markets – The acquisition provides the Company with a variety of existing product lines, some already generating revenue. These
constitute a firm basis for supporting the Company’s business expansion. This should also mean that the Company will achieve
better access to the capital markets to support a credible expansion plan. |
|
● |
Alignment of incentives
with performance objectives – The acquisition will facilitate incentive compensation arrangements for employees more directly
tied to the performance of the business, and may enhance employee hiring and retention by, among other things, improving the alignment
of management and employee incentives with performance and growth objectives. |
The Company cannot assure you that, as a result
of the acquisition, any of the benefits described above or otherwise will be realized to the extent anticipated or at all and would highlight
that the acquisition adds increased risk to the Company with the following;
|
● |
Increased costs –
the Company will assume increased costs related to the business operations and development plan and will see an immediate increase
in legal and accounting costs associated with the acquisition and the Company’s plans to become fully reporting and compliant
with the SEC reporting requirements. If the Company fails to raise additional capital it may fail to deliver its business plan. |
|
● |
The Company may experience
disruptions to the business of the acquired entities as a result of the acquisition. The acquired entities had enjoyed revenue and
financial assistance from related parties under its previous structure. There is no guarantee that these revenues can be retained
and the acquired entities will no longer be able to rely on the support and services received prior to acquisition. |
|
● |
One-time costs of the
acquisition may be significant. The Company will incur costs in connection with the acquisition that may include accounting, tax,
legal and other professional services costs, recruiting, and relocation costs associated with hiring or reassigning personnel, costs
related to establishing a new brand identity in the marketplace and costs to separate information systems. |
Inability to realize anticipated benefits of the
acquisition – the Company may not achieve the anticipated benefits of the acquisition for a variety of reasons, including, among
others: following the acquisition, the Company may be more susceptible to market fluctuations and other adverse events.
The
prior Board of Directors concluded that the potential benefits of the acquisition outweighed the risks and concluded that it was in the
best interest of the Company and its shareholders to complete the acquisition as described.
Business
InnovaQor
has expertise in the areas of IT involving the design, development, creation, use and maintenance of information systems for the healthcare
industry. These applications and systems will continue to improve patient care, lower costs, increase efficiency, reduce errors and improve
patient outcomes. In addition, these applications and systems will accelerate and maximize reimbursements for healthcare providers.
InnovaQor
also recognizes the future in interoperability (sharing data between multiple various health IT systems), telemedicine (the ability to
access and interact with health data and practitioners/patients via mobile devices) and the increasing use of blockchain technologies
to protect access to medical records.
We
intend to develop, acquire or license and offer a telehealth solution through corporate partnerships in the emerging health technology
sector.
We
also intend to build a single-source, global social media solution for individuals practicing medicine to connect and avail of expertise,
services, resources and education, think LinkedIn for the medical industry. The platform will include a talent search module and the
Uber of staffing module.
Existing products offered by the Company’s
subsidiaries are as follows:
“Medical
Mime” is a custom built, cloud based, electronic health record which meets the needs of substance
abuse treatment and behavioral health providers. Medical Mime’s specialized clinical workflow provides intuitive prompts for symptoms
and enables you to quickly select problems and create master treatment plans with goals, objectives, and interventions. Medical
Mime provides best-in-class patient lifecycle management for Behavioral Health/Substance Abuse (BH/SA) treatment centers. From pre-admission
to billing and aftercare, Medical Mime is an electronic health record and patient management software that seamlessly integrates into
the natural workflow of day-to-day operations.
“M2Pro”
is a custom built, cloud based, electronic health record for ambulatory physician practices that meets meaningful use stage 2 and no
further. Its unique dictation services further automate the workflow process for physicians allowing them to focus on their continuum
of patient care.
“ClinLab”
is a turnkey client/server lab information system for mid-range laboratories. ClinLab supports interfaces to all major reference labs
and the ClinLab team can provide an interface to any system with that capability. ClinLab also features an optional EHR package which
enables interfacing with the most popular EHR systems allowing lab test results to integrate seamlessly into a provider’s EHR for
an improved patient record and to fulfill the federal government requirements.
“Qira”
is our healthcare business analytics tool powered by PowerBI. It is a culmination of healthcare financial and revenue cycle management
plus clinical operations oversight needs. It aggregates data from multiple healthcare systems to produce a single source business intelligence
tool with executive level daily briefing to deep dive operational management of claims and operational efficiencies. There are many other
analytical services available that customize solutions but none that has a proven template for success. Our competitive advantage
comes from having created these tools to identify the deficiencies in the real world for the former parent Rennova from its former national
laboratory operations to its more recent rural hospitals.
“vCIO
Services”. Based on the skills and experience inherent within
InnovaQor and resulting from work undertaken on behalf of the former parent, Rennova, InnovaQor offers a range of CIO services
centered on our ability to link IT systems to business objectives combined with our knowledge of technology trends likely to impact our
sector. The CIO services would include (but not be limited to):
|
● |
Program
and Project Management |
|
● |
Business
Continuity and Disaster Recovery |
|
● |
Security
Services |
|
● |
Business
Intelligence and Analytics |
|
● |
Network
Infrastructure Management |
|
● |
Helpdesk
Provision |
“MedTuning”
is the technology and platform owned by Genomas. It utilized proprietary biomarkers, treatment algorithms, and a web-based interactive
physician portal delivery system to provide clinical decision support for physicians and personalized drug treatment for patients. Products
were DNA-guided to improve the therapeutic benefit of widely used prescription drugs while also reducing the risk of significant
side effects for patients.
Medical
Informatics: Our technology platform, proprietary algorithms and physician interface portal can be extended to a wide range of drug categories.
Research
and Development: Technology platform applicable to numerous disease states; current pipeline in mental health, pain management, cardiovascular
and diabetes.
“Advantage”
is a proprietary HIPAA compliant software developed to eliminate the need for paper requisitions by providing an easy to use and efficient
web-based system that lets customers securely place lab orders, track samples and view test reports in real time from any web-enabled
laptop, notepad or smart phone.
Brands
We
intend to trademark both InnovaQor and its products i.e. ClinLab, Medical Mime, Qira and Health Technology Solutions.
Sales
HTS subsidiaries provided product and services to
approximately 27 customers in the US which generated approximately $217,000 in net revenues during the six months ended June 30,
2021, prior to the acquisition by the Company. Sales made to the former parent, Rennova, amounted to $125,000 for the six months ended
June 30, 2021. Consolidated net revenues amounted to $245,991 (including $112,898 from related party) for the six
months ended December 31, 2021, since InnovaQor completed the acquisition of the HTS Group from Rennova in late June
2021.
Distribution
InnovaQor
intends to sell its Health Technology Solutions, Medical Mime and ClinLab products and services directly to customers through
its internal sales and digital marketing team. InnovaQor intends to identify strategic partnerships that sell into the sectors it is
targeting. InnovaQor intends to promote these products and services to the strategic partnerships’ existing clientele coming to
agreement on a recurring revenue based on cash collected for closed sales of these products and services.
Competitive
Position
The
healthcare software, IT and vCIO consulting services industry is extremely competitive, highly fragmented, and subject to rapid change.
The industry includes a large number of participants with a variety of skills and industry expertise, including other strategy, business
operations, technology, technical advisory firms, regional and specialty consulting firms, and the internal professional resources of
organizations. We compete with a large number of service and technology providers in all of our segments. Our competitors often vary,
depending on the particular practice area. We expect to continue to face competition from new entrants.
We
believe the principal competitive factors in our market include reputation, the ability to attract and retain top talent, and the capacity
to manage engagements effectively to drive high value to clients. There is also competition on price, although to a lesser extent due
to the criticality of the issues that many of our services address. Our competitors often have a greater geographic footprint,
a broader international presence, and more resources than we do, but we believe that our industry experience and reputation, ability
to deliver meaningful client results, and balanced portfolio of services enable us to compete favorably in the consulting marketplace.
Our
rehab EHR product, Medical Mime, is a main competitor in its sector and our immediate competition is provided by KIPU, BestNotes, Zencharts,
Sunwave, and TherapyNotes. Our competitive advantage is a system developed with and for facilities practicing in this sector along with
customized reports and forms. Our system offers partially automated implementation and fully automated billing files that restrict
billing until all required documentation is available while flagging operational deficiencies.
Our
LIS, ClinLab, is a small player in its sector and our immediate competitors are LabDaq, Schuyler House and RelayMed. Our competitive
advantage is a select feature set and affordability.
Our
vCIO services are just launching and have the experience of being the internal IT team for the former parent company, Rennova.
With a 10-year experience in providing complete services, consulting, project management, software management, vendor management and
network engineering. vCIO will specialize in healthcare facilities.
Qira
is our healthcare business analytics tool powered by PowerBI. It is a culmination of healthcare financial and revenue cycle management
plus clinical operations operational oversight needs. It aggregates data from multiple healthcare systems to produce a single source
business intelligence tool with executive level daily briefing to deep dive operational management of claims and operational efficiencies.
There are many other analytical services available that customize solutions but none that has a proven template for success. Our
competitive advantage comes from having created these tools to identify the deficiencies in the real world for the former parent Rennova
from its former national laboratory operations to its more recent rural hospitals. This product easily pays for itself as it immediately
eliminates the need for accountants’ monthly delivery of numbers that can cost upwards of $25,000 a month.
Research
and Development
The
industries and market segments in which we plan to operate and compete are subject to rapid technological developments, evolving industry
standards, changes in customer requirements and competitive new products and features. As a result, we believe our success, in part,
will depend on our ability to build and enhance our products in a timely and efficient manner and to develop and introduce new products
that meet our clients’ needs and help our clients reduce their total cost of operation. To achieve these objectives, we plan to
make research and development investments through internal and third-party development activities, third-party licensing agreements and
potentially through joint ventures and acquisitions.
Research
and Intellectual Property
Our
future success and ability to compete will depend on our ability to develop and maintain our intellectual property and proprietary technology
and to operate without infringing on the proprietary rights of others. Software products are generally licensed to customers on a non-exclusive
basis for internal use in a customer’s organization. We plan to also grant rights in intellectual property that we plan on developing
or acquiring to third parties to allow them to market certain of our future products on a non-exclusive or limited-scope exclusive basis
for an application of such product or to a specific geographic region.
InnovaQor
plans to protect its intellectual property in the other subsidiaries through a combination of trademarks and copyrights in the coming
year. InnovaQor will evaluate the possibility of acquiring or developing patents that are related to healthcare services and products.
Our
IP strategy encompasses protection on composition of matter and method for DNA markers, marker ensembles, and predictive biostatistical
algorithms.
Platform
Technology
Trademarks
and Copyrights
U.S.
Copyright (Registration Number VA 1-797-692): Personalized Health Portal with design, user interface and algorithm
While
we believe our intellectual property will be an asset, and our ability to maintain and protect our intellectual property rights is important
to our success, we do not anticipate that our business will be materially dependent on any patent, trademark, license, or other intellectual
property right.
Employees
Currently
we have nine employees and five contractors, the majority of whom are working on maintenance and customer service of our existing products.
We expect to grow with a focus on sales and business development eventually expanding our technical team to support the growth. We plan
to hire a team of employees and contractors to deliver on the goal of developing and delivering a technology-based communication platform
to a broad range of healthcare professionals and businesses using a subscription revenue model with added value bolt on services.
Cyclical
Nature of the Business
We
have found that our business is not very cyclical but it does exhibit certain seasonality around holiday periods.
Regulatory
Matters
The
healthcare industry is subject to extensive government regulation, most notably the Health Insurance Portability and Accountability Act
(HIPAA) and Protected Health Information (PHI).
HIPAA
helps protect the privacy
of patient information by:
|
● |
Providing
the ability to transfer and continue health insurance coverage for millions of American workers and their families when they change
or lose their jobs; |
|
● |
Reducing
health care fraud and abuse; |
|
● |
Mandating
industry-wide standards for health care information on electronic billing and other processes; and |
|
● |
Requiring
the protection and confidential handling of protected health information |
PHI
is a HIPAA Privacy Rule that provides federal protections for personal health information held by covered entities and gives patients
an array of rights with respect to that information. At the same time, the Privacy Rule is balanced so that it permits the disclosure
of personal health information needed for patient care and other important purposes.
Although
the standards are challenging, we believe that our products are compliant with HIPAA and PHI regulations. Nonetheless, our Company could
be adversely affected if a third party is impacted by HIPAA or PHI related software defects.
Emerging
Growth Company Status of InnovaQor
An
emerging growth company (EGC) is any company that meets the following requirements and will lose its emerging growth status should it
exceed any of these:
| ● | The
company has less than $1.07 billion or more of total gross revenue in a consecutive
12-month period; |
| ● | Is
within 5 years of its original IPO; |
| ● | The
company cannot have issued more than $1 billion in non-convertible bonds within the last
3 years; and |
| ● | The
company does not qualify as a large accelerated filer, meaning having a public float of over
$700 million. |
InnovaQor
is an “emerging growth company” as defined in the Jumpstart our Business Startups Act (the “JOBS Act”). As such,
InnovaQor will be eligible to take advantage of certain exemptions from various reporting requirements
that apply to other public companies that are not emerging growth companies, including compliance with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act and the requirements to hold a non-binding advisory vote on executive compensation and any golden
parachute payments not previously approved. If InnovaQor does take advantage of some or all of these exemptions, some investors may find
its common stock less attractive. The result may be a less active trading market for the common stock and its stock price may be more
volatile.
In
addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided
in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised
accounting standards, meaning that InnovaQor, as an emerging growth company, can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. It is InnovaQor’s present intention to adopt any applicable
accounting standards timely. If at some time InnovaQor delays adoption of a new or revised accounting standard, our financial statements
may not be comparable to those of companies that comply with such new or revised accounting standards.
Item
1A. Risk
Factors.
An
investment in our common stock is highly speculative and involves a high degree of risk. In determining whether to purchase InnovaQor’s
common stock, an investor should carefully consider all of the material risks described below, together with the other information
contained in this report. An investor should only purchase InnovaQor’s securities if he or she can afford to suffer the loss
of his or her entire investment.
General
Business and Industry Risks
An
inability to retain our senior management team would be detrimental to the success of our business.
We
rely heavily on our senior management team; our ability to retain them is particularly important to our future success. Given the
highly specialized nature of our services (Healthcare, IT), the senior management team must have a thorough understanding of our
product and service offerings as well as the skills and experience necessary to manage an organization consisting of a diverse group
of professionals and external parties. In addition, we rely on our senior management team to generate and market our business successfully
in a crowded, complex and legislatively bound marketplace. Further, our senior management’s personal reputations and relationships
with our clients are a critical element in obtaining and maintaining client engagements. We will enter into non-solicitation agreements
with our senior management team, and we will also enter into well scoped non-competition agreements. If one or more members of our
senior management team leave and we cannot replace them with a suitable candidate quickly, we could experience difficulty in securing
and successfully completing engagements and managing our business properly, which could harm our business prospects and results of
operations.
Our
inability to hire and retain talented people in an industry where there is great competition for talent could have a serious negative
effect on our prospects and results of operations.
Our
business involves the delivery of software products and professional services and is labor intensive. Our success depends largely
on our general ability to attract, develop, motivate, and retain highly skilled professionals. Further, we must successfully maintain
the right mix of professionals with relevant experience and skill sets as we grow, as we expand into new service offerings,
and as the market evolves. The loss of a significant number of our professionals, the inability to attract, hire, develop, train,
and retain additional skilled personnel, or failure to maintain the right mix of professionals could have a serious negative effect
on us, including our ability to manage, staff, and successfully complete our existing engagements and obtain new engagements. Qualified
professionals are in great demand, and we face significant competition for both senior and junior professionals with the requisite
credentials and experience. Our principal competition for talent comes from other software and consulting firms as well as from organizations
seeking to staff their internal professional positions. Many of these competitors may be able to offer significantly greater compensation
and benefits or more attractive lifestyle choices, career paths, or geographic locations than we do. Therefore, we may not be successful
in attracting and retaining the skilled persons we require to conduct and expand our operations successfully. Increasing competition
for these revenue-generating professionals may also significantly increase our labor costs, which could negatively affect our margins
and results of operations. |
Additional
hiring, departures, business acquisitions and dispositions could disrupt our operations, increase our costs or otherwise harm our
business.
Our
business strategy is dependent in part upon our ability to grow by hiring individuals or groups of individuals and by acquiring complementary
businesses. However, we may be unable to identify, hire, acquire, or successfully integrate new employees and acquired businesses
without substantial expense, delay, or other operational or financial obstacles. From time to time, we will evaluate the total mix
of products and services we provide and we may conclude that businesses may not achieve the results we previously expected. Competition
for future hiring and acquisition opportunities in our markets could increase the compensation we offer to potential employees or
the prices we pay for businesses we wish to acquire. In addition, we may be unable to achieve the financial, operational, and other
benefits we anticipate from any hiring or acquisition, as well as any disposition, including those we have completed so far. New
acquisitions could also negatively impact existing practices and cause current employees to depart. Hiring additional employees or
acquiring businesses could also involve a number of additional risks, including:
|
● |
the
diversion of management’s time, attention, and resources from managing and marketing our Company; |
|
|
|
|
● |
the
failure to retain key acquired personnel or existing personnel who may view the acquisition unfavorably; |
|
|
|
|
● |
the
potential loss of clients of acquired businesses; |
|
|
|
|
● |
the
need to compensate new employees while they wait for their restrictive covenants with other institutions to expire; |
|
|
|
|
● |
the
potential need to raise significant amounts of capital to finance a transaction or the potential issuance of equity securities that
could be dilutive to our existing shareholders; |
|
|
|
|
● |
increased
costs to improve, coordinate, or integrate managerial, operational, financial, and administrative systems; |
|
|
|
|
● |
the
potential assumption of liabilities of an acquired business; |
|
|
|
|
● |
the
inability to attain the expected synergies with an acquired business; |
|
|
|
|
● |
the
usage of earn-outs based on the future performance of our business acquisitions may deter the acquired company from fully integrating
into our existing business; |
|
|
|
|
● |
the
perception of inequalities if different groups of employees are eligible for different benefits and incentives or are subject to
different policies and programs; and |
|
|
|
|
● |
difficulties
in integrating diverse backgrounds and experiences of consultants, including if we experience a transition period for newly hired
consultants that results in a temporary drop in our utilization rates or margins. |
Our
intangible assets primarily consist of customer relationships, trade names, customer contracts, technology and software. We evaluate
our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. No impairment charges for intangible assets were recorded in the year ended June 30, 2021 or the six months
ended December 31, 2021.
Determining
the fair value of a reporting unit requires us to make significant judgments, estimates, and assumptions. While we believe that the
estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significant
impact on whether or not a non-cash goodwill impairment charge is recognized and also the magnitude of any such charge. The results
of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting
units will be consistent with our projections. We will monitor any changes to our assumptions and will evaluate goodwill as deemed
warranted during future periods. Any significant decline in our operations could result in additional non-cash goodwill impairment
charges.
Changes
in capital markets, legal or regulatory requirements, and general economic or other factors beyond our control could reduce demand
for our services, in which case our revenues and profitability could decline.
A
number of factors outside of our control affect demand for our services. These include:
● fluctuations
in the U.S. economy;
● the
U.S. or global financial markets and the availability, costs, and terms of credit;
● changes
in laws and regulations; and
● other
economic factors and general business conditions.
We
are not able to predict the positive or negative effects that future events or changes to the U.S. economy, financial markets,
or regulatory and business environment could have on our operations.
Changes
in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations and financial conditions.
We
are subject to income and other taxes in the U.S. at the state and federal level. Changes in applicable U.S. state or federal tax
laws and regulations, or their interpretation and application, could materially affect our tax expense and profitability. The
Company has not filed its federal tax returns for the last 10 years. The Company does not anticipate material adjustments of its
tax liabilities when such returns are filed, but there is no guarantee that such filings will not have a material adverse effect.
Acquisition
of the HTS Group will present management with new challenges that did not exist under the umbrella of its former parent.
Under
the former parent, management had the support of an experienced financial team, HR support and support
for SEC filings. This support system does not currently exist in the current company and new challenges are presenting themselves
every day. The immature knowledge and experience in these areas are likely to take longer to complete actions and will take management’s
attention away from the day to day operations where it is needed to improve revenues.
If
we are unable to manage fluctuations in our business successfully, we may not be able to achieve profitability.
To
successfully manage growth, we must periodically adjust and strengthen our operating, financial, accounting, and other systems, procedures,
and controls, which could increase our costs and may adversely affect our gross profits and our ability to achieve profitability
if we do not generate increased revenues to offset the costs. As a public company, our information and control systems must enable
us to prepare accurate and timely financial information and other required disclosures. If we discover deficiencies in our existing
information and control systems that impede our ability to satisfy our reporting requirements, we must successfully implement improvements
to those systems in an efficient and timely manner. |
The
nature of our services and the general economic environment make it difficult to predict our future operating results. To achieve
profitability, we must:
● attract,
integrate, retain, and motivate highly qualified professionals;
● achieve
and maintain adequate utilization and suitable billing rates for our revenue-generating professionals;
● expand
our existing relationships with our clients and identify new clients in need of our services;
● successfully
resell product/ engagements and secure new client sales/engagements every year;
● maintain
and enhance our brand recognition; and
● adapt
quickly to meet changes in our markets, our business mix, the economic environment, the credit markets, and competitive developments.
Our
financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our products
and services.
Our
profitability depends to a large extent on the utilization and billing rates of our professionals. Utilization of our professionals
is affected by a number of factors, including:
● the
number and size of client sales/ engagements;
● the
timing of the commencement, completion and termination of engagements, which in many cases is unpredictable;
● our
ability to transition our consultants efficiently from completed engagements to new engagements;
● the
hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop
in our utilization rate;
● unanticipated
changes in the scope of client engagements;
● our
ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and
● conditions
affecting the industries in which we practice as well as general economic conditions.
The
billing rates of our consultants that we are able to charge are also affected by a number of factors, including:
● our
clients’ perception of our ability to add value through our products/services;
● the
market demand for the products/services we provide;
● an
increase in the number of sales/engagements in the government sector, which are subject to federal contracting regulations;
● introduction
of new product/services by us or our competitors;
● our
competition and the pricing policies of our competitors; and
● current
economic conditions.
If
we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants,
our financial results could materially suffer. In addition, our consultants may need to perform services at the physical locations
of our clients. If there are natural disasters, disruptions to travel and transportation or problems with communications systems,
our ability to perform services for, and interact with, our clients at their physical locations may be negatively impacted which
could have an adverse effect on our business and results of operations. |
It
is likely that our quarterly results of operations may fluctuate in the future as a result of certain factors, some of which may
be outside of our control.
A
key element of our strategy is to market our products and services directly to certain specific organizations, such as health systems
and hospitals, and to increase the number of our products and services utilized by existing clients. The sales cycle for some of
our products and services is often lengthy and may involve significant commitment of client personnel. As a consequence, the commencement
date of a client engagement often cannot be accurately forecasted. Certain of our client contracts contain terms that result in revenue
that is deferred and cannot be recognized until the occurrence of certain events. As a result, the period of time between contract
signing and recognition of associated revenue may be lengthy, and we are not able to predict with certainty the period in which revenue
will be recognized.
Certain
of our contracts provide that some portion or all of our fees are at risk if our services do not result in the achievement of certain
performance targets. To the extent that any revenue is contingent upon the achievement of a performance target, we only recognize
revenue upon client confirmation that the performance targets have been achieved. If a client fails to provide such confirmation
in a timely manner, our ability to recognize revenue will be delayed.
Fee
discounts, pressure to not increase or even decrease our rates, and less advantageous contract terms could result in the loss of
clients, lower revenues and operating income, higher costs, and less profitable engagements. More discounts or write-offs than we
expect in any period would have a negative impact on our results of operations.
Other
fluctuations in our quarterly results of operations may be due to a number of other factors, some of which are not within our control,
including:
● the
timing and volume of client invoices processed and payments received, which may affect the fees payable to us under certain of our
engagements;
● client
decisions regarding renewal or termination of their contracts;
● the
amount and timing of costs related to the development or acquisition of technologies or businesses; and
● unforeseen
legal expenses, including litigation and other settlement gains or losses.
The
profitability of our fixed-fee engagements with clients may not meet our expectations if we underestimate the cost of these engagements.
When
making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements. These estimates reflect
our best judgment regarding the efficiencies of our methodologies and consultants as we plan to deploy them on engagements. Any increased
or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused
by factors outside our control, could make these contracts less profitable or unprofitable, which would have an adverse effect on
our profit margin.
Our
business is becoming increasingly dependent on information technology and will require additional investments in order to grow and
meet the demands of our clients.
We
depend on the use of sophisticated technologies and systems. Some of services may become dependent on the use of software applications
and systems that we do not own and could become unavailable. Moreover, our technology platforms will require continuing investments
by us in order to expand existing service offerings and develop complementary services. Our future success depends on our ability
to adapt our services and infrastructure while continuing to improve the performance, features, and reliability of our services in
response to the evolving demands of the marketplace. |
Adverse
changes to our relationships with key third-party vendors, or in the business of our key third-party vendors, could unfavorably impact
our business.
A portion of our services and solutions depends
on technology or software provided by third-party vendors. Some of these third-party vendors refer potential clients to us, and others
require that we obtain their permission prior to accessing their software. These third-party vendors could terminate their relationship
with us without cause and with little or no notice, which could limit our service offerings and harm our financial condition and operating
results. In addition, if a third-party vendor’s business changes or is reduced, that could adversely affect our business. Moreover,
if third-party technology or software that is important to our business does not continue to be available or utilized within the marketplace,
or if the services that we provide to clients is no longer relevant in the marketplace, our business may be unfavorably impacted.
We
could experience system failures, service interruptions, or security breaches that could negatively impact our business.
Our
organization is comprised of employees who work on matters throughout the United States. We may be subject to disruption to our operating
systems from technology events that are beyond our control, including the possibility of failures at third-party data centers, disruptions
to the Internet, natural disasters, power losses, and malicious attacks. In addition, despite the implementation of security measures,
our infrastructure and operating systems, including the Internet and related systems, may be vulnerable to physical break-ins, hackers,
improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, or other attacks by third
parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. While
we have taken and are taking reasonable steps to prevent and mitigate the damage of such events, including implementation of system
security measures, information backup, and disaster recovery processes, those steps may not be effective and there can be no assurance
that any such steps can be effective against all possible risks. We will need to continue to invest in technology in order to achieve
redundancies necessary to prevent service interruptions. Access to our systems as a result of a security breach, the failure of our
systems, or the loss of data could result in legal claims or proceedings, liability, or regulatory penalties and disrupt operations,
which could adversely affect our business and financial results.
Our
reputation could be damaged and we could incur additional liabilities if we fail to protect client and employee data through our
own accord or if our information systems are breached.
We
rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations
and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the potential risk of
security breaches which could lead to potential unauthorized disclosure of confidential information.
In
providing services to clients, we may manage, utilize, and store sensitive or confidential client or employee data, including personal
data and protected health information. As a result, we are subject to numerous laws and regulations designed to protect this information,
such as the U.S. federal and state laws governing the protection of health or other personally identifiable information, including
the Health Insurance Portability and Accountability Act (HIPAA). In addition, many states, and U.S. federal governmental authorities
have adopted, proposed or are considering adopting or proposing, additional data security and/or data privacy statutes or regulations.
Continued governmental focus on data security and privacy may lead to additional legislative and regulatory action, which could increase
the complexity of doing business. The increased emphasis on information security and the requirements to comply with applicable U.S.
data security and privacy laws and regulations may increase our costs of doing business and negatively impact our results of operations.
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These
laws and regulations are increasing in complexity and number. If any person, including any of our employees, negligently disregards
or intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates
that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines, and/or criminal prosecution.
In
addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee
negligence, fraud, or misappropriation, could damage our reputation and cause us to lose clients and their related revenue in the
future.
Changes
in capital markets, legal or regulatory requirements, general economic conditions and monetary or geo-political disruptions, as well
as other factors beyond our control, could reduce demand for our practice offerings or services, in which case our revenues and profitability
could decline.
Different
factors outside of our control could affect demand for our practices and our services. These include:
● fluctuations
in the U.S. economy, including
economic recessions and the strength and rate of any general economic recoveries;
● the
U.S. financial markets and the availability, costs and terms of credit and credit modifications;
● business
and management crises, including the occurrence of alleged fraudulent or illegal activities and practices;
● new
and complex laws and regulations, repeals of existing laws and regulations or changes of enforcement of laws, rules and regulations;
● other
economic, geographic or political factors; and
● general
business conditions.
We are not able to predict the positive or
negative effects that future events or changes to the U.S. economy will have on our business. Fluctuations, changes and disruptions
in financial, credit, mergers and acquisitions and other markets, political instability and general business factors could
impact various segments’ operations and could affect such operations differently. Changes to factors described above, as well
as other events, including by way of example, contractions of regional economies, monetary systems, banking, real estate and retail
or other industries; debt or credit difficulties or defaults by businesses; new, repeals of or changes to laws and regulations, including
changes to the bankruptcy and competition laws of the U.S.; tort reform; banking reform; a decline in the implementation or adoption
of new laws of regulation, or in government enforcement, litigation or monetary damages or remedies that are sought; or political
instability may have adverse effects on our business.
Our
revenues, operating income and cash flows are likely to fluctuate.
We
expect to experience fluctuations in our revenues and cost structure and the resulting operating income and cash flows.
We may experience fluctuations in our annual and quarterly financial results, including revenues, operating income and earnings
per share, for reasons that include (i) the types and complexity, number, size, timing and duration of client engagements; (ii) the
timing of revenue recognition under U.S. GAAP; (iii) the utilization of revenue-generating professionals, including the ability to
adjust staffing levels up or down to accommodate our business and prospects; (iv) the time it takes before a new hire becomes
profitable; (v) the geographic locations of our clients or the locations where services are rendered; (vi) billing rates and fee
arrangements, including the opportunity and ability to successfully reach milestones and complete projects, and collect for
them; (vii) the length of billing and collection cycles and changes in amounts that may become uncollectible; (viii) changes
in the frequency and complexity of government regulatory and enforcement activities; and (ix) economic factors beyond our control.
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We may also experience fluctuations in our
operating income and related cash flows because of increases in employee compensation, including changes to our incentive compensation
structure and the timing of incentive payments. Also, the timing of investments or acquisitions and the cost of integrating them
may cause fluctuations in our financial results, including operating income and cash flows. This volatility may make it difficult
to forecast our future results with precision and to assess accurately whether increases or decreases in any one or more quarters
are likely to cause annual results to exceed or fall short of expectations.
If
we do not effectively manage the utilization of our professionals or billable rates, our financial results could decline.
Our failure to manage the utilization of
our professionals who bill on an hourly basis, or maintain or increase the hourly rates we charge our clients for our services, could
result in adverse consequences, such as non- or lower-revenue-generating professionals, increased employee turnover, fixed compensation
expenses in periods of declining revenues, the inability to appropriately staff engagements (including adding or reducing staff during
periods of increased or decreased demand for our services), or special charges associated with reductions in staff or operations.
Reductions in workforce or increases of billable rates will not necessarily lead to savings. In such events, our financial results
may decline or be adversely impacted. A number of factors affect the utilization of our professionals. Some of these factors we cannot
predict with certainty, including general economic and financial market conditions; the complexity, number, type, size and timing
of client engagements; the level of demand for our services; appropriate professional staffing levels, in light of changing client
demands and market conditions; and competition and acquisitions. In addition, any expansion into or within locations where
we are not well-known or where demand for our services is not well-developed could also contribute to low or lower utilization rates.
InnovaQor
may enter into engagements which involve non-time and material arrangements, such as fixed fees and time and materials with caps.
Failure to effectively manage professional hours and other aspects of alternative fee engagements may result in the costs of providing
such services exceeding the fees collected by InnovaQor. Failure to successfully complete or reach milestones with respect to contingent
fee or success fee assignments may also lead to lower revenues or the costs of providing services under those types of arrangements
may exceed the fees collected by InnovaQor.
We may receive requests to discount our fees
or to negotiate lower rates for our services and to agree to contract terms relative to the scope of services and other terms that
may limit the size of an engagement or our ability to pass through costs. We will consider these requests on a case-by-case
basis. In addition, our clients and prospective clients may not accept rate increases that we put into effect or plan to implement
in the future. Fee discounts, pressure not to increase or even decrease our rates, and less advantageous contract terms could result
in the loss of clients, lower revenues and operating income, higher costs and less profitable engagements. More discounts or write-offs
than we expect in any period would have a negative impact on our results of operations. There is no assurance that significant client
engagements will be renewed or replaced in a timely manner or at all, or that they will generate the same volume of work or revenues,
or be as profitable as past engagements. |
Our
Company faces certain risks, including (i) industry consolidation and a heightened competitive environment, (ii) downward pricing
pressure, (iii) technology changes and obsolescence, (v) failure to protect client information against cyber-attacks and (vi) failure
to protect IP, which individually or together could cause the financial results and prospects of the Company to decline.
Our
Company is facing significant competition from other consulting and/or software providers. There continues to be significant consolidation
of companies providing products and services similar to those offered by our Company, which may provide competitors access to greater
financial and other resources than those of InnovaQor. This industry is subject to significant and rapid innovation. Larger competitors
may be able to invest more in research and development, react more quickly to new regulatory or legal requirements and other changes,
or innovate more quickly and efficiently. Our Medical Mime and ClinLab software has been facing significant competition from competing
software products.
The
software and products of our Company are subject to rapid technological innovation. There is no assurance that we will successfully
develop new versions of our Medical Mime and ClinLab software or other products. Our software may not keep pace with necessary changes
and innovation. There is no assurance that new, innovative or improved software or products will be developed, compete effectively
with the software and technology developed and offered by competitors, be price competitive with other companies providing similar
software or products, or be accepted by our clients or the marketplace. If InnovaQor is unable to develop and offer competitive software
and products or is otherwise unable to capitalize on market opportunities, the impact could adversely affect our operating margins
and financial results.
Our reputation for providing secure information
storage and maintaining the confidentiality of proprietary, confidential and trade secret information is critical to the success of our
Company, which hosts client information as a service. We may face cyber-based attacks and attempts by hackers and similar unauthorized
users to gain access to or corrupt our information technology systems. Such attacks could disrupt our business operations, cause us to
incur unanticipated losses or expenses, and result in unauthorized disclosures of confidential or proprietary information. Although we
seek to prevent, detect and investigate these network security incidents, and have taken steps to mitigate the likelihood of network
security breaches, there can be no assurance that attacks by unauthorized users will not be attempted in the future or that our security
measures will be effective.
We
rely on a combination of copyrights, trademarks, trade secrets, confidentiality and other contractual provisions to protect our assets.
Our software and related documentation will be protected principally under trade secret and copyright laws, which afford only limited
protection, and the laws of some foreign jurisdictions provide less protection for our proprietary rights than the laws of the U.S.
Unauthorized use and misuse of our IP by employees or third parties could have a material adverse effect on our business, financial
condition and results of operations. The available legal remedies for unauthorized or misuse of our IP may not adequately compensate
us for the damages caused by unauthorized use. |
If we (i) fail to compete effectively, including by
offering our software and services at a competitive price, (ii) are unable to keep pace with industry innovation and user requirements,
(iii) are unable to replace clients or revenues as engagements end or are canceled or the scope of engagements are curtailed, or (iv)
are unable to protect our clients’ or our own IP and proprietary information, the financial results of InnovaQor would be adversely
affected. There is no assurance that we can replace clients or the revenues from engagements, eliminate the costs associated with those
engagements, find other engagements to utilize our professionals, develop competitive products or services that will be accepted or preferred
by users, offer our products and services at competitive prices, or continue to maintain the confidentiality of our IP and the information
of our clients.
We
may not manage our growth effectively, and our profitability may suffer.
Periods
of expansion may strain our management team, or human resources and information systems. To manage growth successfully, we may need to
add qualified managers and employees and periodically update our operating, financial and other systems, as well as our internal procedures
and controls. We also must effectively motivate, train and manage a larger professional staff. If we fail to add or retain qualified
managers, employees and contractors when needed, estimate costs, or manage our growth effectively, our business, financial results and
financial condition may suffer.
We
cannot assure that we can successfully manage growth through acquisitions and the integration of the companies and assets we acquire
or that they will result in the financial, operational and other benefits that we anticipate. Some acquisitions may not be immediately
accretive to earnings, and some expansion may result in significant expenditures.
In
periods of declining growth, underutilized employees and contractors may result in expenses and costs being a greater percentage of revenues.
In such situations, we will have to weigh the benefits of decreasing our workforce or limiting our service offerings and saving costs
against the detriment that InnovaQor could experience from losing valued professionals and their industry expertise and clients.
Our
business, financial condition, results of operations and growth could be harmed by the effects of the COVID-19 pandemic.
We
are subject to risks related to the public health crises such as the global pandemic associated with the coronavirus (COVID-19). In
December 2019, a novel strain of coronavirus, SARS-CoV-2, was reported to have surfaced in Wuhan, China. Since then, SARS-CoV-2, and
the resulting disease COVID-19, has spread to most countries, and all 50 states within the United States. In March 2020, the World
Health Organization declared the COVID-19 outbreak a pandemic. Further, the President of the United States declared the COVID-19
pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster
response, and under the Defense Production Act, the legislation that facilitates the production of goods and services necessary for
national security and for other purposes. Numerous governmental jurisdictions have imposed, and others in the future may impose,
“shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their
residents to control the spread of COVID-19. Most states and the federal government have declared a state of emergency related to
the spread of COVID-19. Such orders or restrictions, and the perception that such orders or restrictions could occur, have resulted
in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events,
among other effects, thereby negatively impacting our customers, employees, and offices, among others. We may experience further
limitations on employee resources in the future, because of sickness of employees or their families.
Healthcare
organizations around the world, including our health care provider customers, have faced and will continue to face, substantial challenges
in treating patients with COVID-19, such as the diversion of staff and resources from ordinary functions to the treatment of COVID-19,
supply, resource and capital shortages and overburdening of staff and resource capacity. In the United States, governmental authorities
have also recommended, and in certain cases required, that elective, specialty and other procedures and appointments, including certain
primary care services, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection
with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19. These measures and challenges will
likely continue for the duration of the pandemic, which is uncertain, and will disproportionately harm the results of operations, liquidity
and financial condition of these health care organizations and our health care provider customers. As a result, our health care provider
customers may seek contractual accommodations from us in the future. To the extent such health care provider customers experience challenges
and difficulties, it will adversely affect our business operation and results of operations. Further, a recession or prolonged economic
contraction as a result of the COVID-19 pandemic could also harm the business and results of operations of our customers,
resulting in potential business closures, layoffs of employees and a significant increase in unemployment in the United States which may continue even after the pandemic. The occurrence of any such events may lead to reduced income for customers and reduced size
of workforces, which could reduce our revenue and harm our business, financial condition and results of operations.
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The
widespread COVID-19 pandemic has resulted in, and may continue to result in, significant volatility and uncertainty in U.S.
financial markets, which may reduce our ability to access capital, which could in the future negatively affect our liquidity. In
addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value
of our common stock.
Further,
given the dislocation and government-imposed travel related limitations as a consequence of the COVID-19 pandemic, our ability to complete
acquisitions in the near-term may be delayed. Future acquisitions may be subject to difficulties in evaluating potential acquisition
targets as a result of the inability to accurately predict the duration or long-term economic and business consequences resulting from
the COVID-19 pandemic.
The
global outbreak of COVID-19 continues to rapidly evolve. We have taken steps intended to mitigate the effects of the pandemic and to
protect our workforce. Although we believe we have taken the appropriate
actions, we cannot guarantee that these measures will mitigate all or any negative effects of the pandemic. The ultimate impact of the
COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We cannot at this time precisely predict what
effects the COVID-19 outbreak will have on our business, results of operations and financial condition, including the uncertainties relating
to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, the availability of vaccinations,
and the governmental responses to the pandemic. However, we will continue to monitor the COVID-19 situation closely and are committed
to continuing to make appropriate changes as and when needed.
We
may not secure the capital required to develop our business.
Our
business is dependent on securing additional capital. If we fail to secure the required capital our business will fail.
Going
Concern Risk Factor
Although
our financial statements have been prepared on a going concern basis, we have accumulated significant losses and have negative cash flows
from operations that could adversely affect our ability to secure additional capital to fund our operations or limit our ability
to react to changes in the economy or our industry. These or additional risks or uncertainties not presently known to us, or that we
currently deem immaterial, raise substantial doubt about our ability to continue as a going concern.
Under
Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) Accounting
Standards Codification (“ASC 205-40”), 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 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.
The accompanying consolidated financial statements
have been prepared in accordance with U.S. GAAP and the rules and regulations of the SEC. The consolidated financial statements have
been prepared using U.S. GAAP applicable to a going concern that contemplates the realization of assets and liquidation of liabilities
in the normal course of business. InnovaQor has accumulated significant losses and has negative cash flows from operations and, at December
31, 2021, had a working capital deficit and accumulated deficit of $2.8 million and $33.3 million, respectively. In addition, the Company’s
cash position is critically deficient and critical payments are not being made in the ordinary course of business, all of which raises
substantial doubt about InnovaQor’s ability to continue as a going concern. 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 discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
InnovaQor
has incurred substantial costs in connection with the acquisition of the Group 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, among other costs. The cost of performing such functions is anticipated
to be higher than the amounts reflected in InnovaQor’s historical financial statements, which would cause its future losses
to increase. Accordingly, InnovaQor will continue to focus on increasing revenues.
There
can be no assurance that InnovaQor will be able to achieve its business plan, raise any additional capital or secure the additional
financing necessary 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.
Risks
Related to Our Common Stock
Our
stock is considered a “penny stock,” and is therefore considered risky.
OTC
Pink Sheet stocks, and especially those being offered for less than $5.00 per share, are often known as “penny stocks”
and are subject to regulations which mandate the dispersion of certain disclosures to potential investors prior to any investor’s
purchase of any penny stocks. Penny stocks are low-priced securities with low trading volume. Consequently, the price of the stock
is often volatile and investors may be unable to buy or sell the stock when you desire. The SEC extensively monitors “penny
stocks,” and such regulations are enumerated in Exchange Act Section 15(h) and Exchange Act Rules 3a51-1 and 15g-1 through
15g-100. With certain exceptions, brokers selling our stock must adhere to the SEC’s “penny stock” regulations,
which requirements include, but are not limited to, the following:
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Brokers
must provide you with a risk disclosure document relating to the penny stock market. |
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Brokers
must disclose price quotations and other information relating to the penny stock market. |
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Brokers
must disclose any compensation they receive from the sale of our stock. |
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Brokers
must provide a disclosure of any compensation paid to any associated persons in connection with transactions relating to our stock. |
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Brokers
must provide you with quarterly account statements. |
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Brokers
may not sell any of our stock that is held in escrow or trust accounts. |
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Prior
to selling our stock, brokers must approve your account for buying and selling penny stocks. |
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Brokers
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. |
These
additional sales practices and the disclosure requirements could impede the sale of our securities. In addition, the liquidity for
our securities may be adversely affected, with related adverse effects on the price of our securities.
FINRA
sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment
to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts
to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under
interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be
suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend their customers
buy our common stock, which may have the effect of reducing the trading activity in our common stock. As a result, fewer broker-dealers
may be willing to make a market in our common stock, reducing a stockholder’s ability to resell shares of our common stock,
thereby potentially reducing the liquidity of our common stock.
We
have no plans to pay dividends on our Common Stock.
We
have not previously paid any cash dividends, nor have we determined to pay dividends on any share of preferred stock or shares of
Common Stock. There can be no assurance that our operations
will result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flows. Furthermore,
there is no assurance that the Board of Directors will declare dividends even if profitable. Dividend policy is subject to the discretion
of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other
factors.
If
we issue additional shares in the future, it will result in the dilution of our existing shareholders.
InnovaQor
has authorized 325,000,000 shares of $0.0001 par value Common Stock of which 234,953,286 are issued and outstanding as of December
31, 2021 and June 30, 2021, respectively. These shares have 1 vote per share. The issuance of any such shares may result in
a reduction of market price of our outstanding shares of our common stock.
Our
common stock is subject to conversion of other securities into common stock.
The
Company has outstanding convertible preferred stock. Conversions of the convertible preferred stock could result in substantial dilution
of our common stock and a decline in its market price. Our Board of Directors, upon the approval of the shareholders, may seek to
change the number of authorized shares in the future, may seek to adjust the number of shares issued, and may choose to issue shares
to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares may result in
a reduction of market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance
will cause a reduction in the proportionate ownership of current shareholders.
Voting
power is highly concentrated in holders of our Series A Preferred Stock.
InnovaQor
has authorized 1,000 shares of $0.0001 par value (stated value $10) Series A Supermajority Voting Preferred Stock of which 1,000
were issued and outstanding as of December 31, 2021 and June 30, 2021. So long as one share of Series A Preferred Stock is outstanding,
the outstanding shares of the Series A Preferred Stock shall have the number of votes, in the aggregate, equal to 51% of all votes
of all classes of shares entitled to be voted at any stockholder meeting or action by written consent. These shares have no
rights to receive dividends and liquidation rights are equal to the stated value per share. Such concentrated control of InnovaQor
may adversely affect the price of our common stock. Epizon Limited will be able to exercise control over all matters submitted for
stockholder approval. A stockholder that acquires common stock will not have an effective voice in the management of InnovaQor.
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We
are a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to smaller
reporting companies will make our Common Stock less attractive to investors.
We
are a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, and we may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies, including “emerging growth companies”
such as, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved. Our status as a smaller reporting company is determined on an annual basis. We cannot predict if
investors will find our Common Stock less attractive or our Company less comparable to certain other public companies because
we will rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future financial results
may not be as comparable to the financial results of certain other companies in our industry that adopted such standards. If some
investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our
stock price may be more volatile.
The
requirements of being a reporting public company may strain our resources, divert management’s attention and affect our ability
to attract and retain additional executive management and qualified board members.
As
a reporting public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the
Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase
our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly and increase demand on our
systems and resources, particularly after we are no longer a “smaller reporting company.” The Exchange Act requires,
among other things, that we file annual, quarterly, and current reports with respect to our business and results of operations. As
a “smaller reporting company,” we receive certain reporting exemptions under the Sarbanes-Oxley Act.
Changing
laws, regulations and standards relating to corporate governance and public disclosure create uncertainty for public companies, increase
legal and financial compliance costs and increase time expenditures for internal personnel. These laws, regulations and standards
are subject to interpretation, in many cases due to their lack of specificity, and their application in practice may evolve
over time as regulators and governing bodies provide new guidance. These changes may result in continued uncertainty regarding compliance
matters and may necessitate higher costs due to ongoing revisions to filings, disclosures and governance practices. We intend to
invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and
administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or
governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate regulatory or
legal proceedings against us and our business may be adversely affected.
As
a public company under these rules and regulations, we expect that it may make it more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These
factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors, and could also make it more difficult to attract qualified executive officers.
|
Our
stock price may be volatile, which may result in losses to our shareholders.
The
stock markets have experienced and may experience significant price and trading volume fluctuations, and the market prices
of companies quoted on the Pink Tier of the OTC Marketplace, which is where our stock is currently quoted, have experienced sharp
share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely
in response to many factors both in and outside of our control, and include but are not limited to the following:
● variations
in our operating results;
● changes
in expectations of our future financial performance, including financial estimates by securities analysts and investors;
● changes
in operating and stock price performance of other companies in our industry;
● additions
or departures of key personnel; and
● future
sales of our common stock.
Stock markets often experience significant
price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance,
may adversely affect the price of our common stock.
Volatility
in the price of our common stock may subject us to securities litigation.
The
market for our common stock may be characterized by significant price volatility as compared to seasoned issuers, and we expect that
our share price will be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have
often initiated securities class action litigation against a company following periods of volatility in the market price of its securities.
We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities
and could divert management’s attention and resources.
Our
common stock may become thinly traded and you may be unable to sell at or near ask prices, or at all.
We
cannot predict the extent to which an active public market for trading our common stock will be sustained. The trading volume of
our common stock may be sporadically or “thinly-traded,” meaning that the number of persons interested in purchasing
our common stock at or near bid prices at certain given time may be relatively small or non-existent.
This
situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock
analysts, stockbrokers, institutional investors and others in the investment community who generate or influence sales volume. Even
if we came to the attention of such persons, those persons may be reluctant to follow, purchase, or recommend
the purchase of shares of an unproven company such as ours until such time as we become more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect
on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop
or be sustained. |
The market price for our common stock may
become volatile given our status as a relatively small company, which could lead to wide fluctuations in our share price. You may be
unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.
The market for penny stocks has suffered in recent
years from patterns of fraud and abuse. Such patterns include but are not limited to: (1) control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers
and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the
abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior
of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
General
Risk Statement
Based
on all of the foregoing, we believe it is possible for future revenue, expenses and operating results to vary significantly from
quarter to quarter and year to year. As a result, quarter-to-quarter and year-to-year comparisons of operating results are not necessarily
meaningful or indicative of future performance. Furthermore, we believe that it is possible that in any given quarter or fiscal year
our operating results could differ from the expectations of public market analysts or investors. In such event or in the event that
adverse conditions prevail, or are perceived to prevail, with respect to our business or generally, the market price of our Common
Stock would likely decline. |
Item
2. Financial Information.
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, which are included elsewhere in this filing.
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 accounting principles generally accepted in the United States of America (“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.
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 discussed below and elsewhere in this Form 10, particularly in the section entitled
“Risk Factors”.
Critical
Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
consolidated financial statements include the accounts of InnovaQor and, since the date of acquisition on June 25, 2021, its wholly-owned
subsidiaries, are prepared in conformity with 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.
All
intercompany transactions among InnovaQor and its subsidiaries have been eliminated in the consolidation.
We
have identified the policies discussed below as critical to our business and to the understanding of our results of operations.
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,” InnovaQor 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, InnovaQor 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 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.
Impairment
of Long-lived Assets
InnovaQor
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 December 31, 2021 and June 30, 2021, the
majority of InnovaQor’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.
Goodwill
and Other Intangible Assets
Goodwill
represents the excess of cost over the fair value of net assets acquired in connection with business acquisitions. Goodwill is tested
at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a business
for which financial information is available and is regularly reviewed by management. InnovaQor assesses goodwill for impairment at least
annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. The annual impairment
review is completed in the fourth quarter of InnovaQor’s fiscal year.
If
the carrying amount of a reporting unit exceeds its fair value, InnovaQor measures the possible goodwill impairment based upon an allocation
of the estimate of fair value to the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible
assets, based upon known facts and circumstances as if the acquisition occurred currently. The excess of the fair value of the reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized
to the extent the carrying value of goodwill exceeds the implied fair value of the goodwill.
Impairment
losses, if any, are reflected in operating income or loss in the Consolidated Statements of Operations. There were no impairment losses
for any period presented.
Income
Taxes
InnovaQor
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, InnovaQor has determined whether a tax position of InnovaQor 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 InnovaQor recording
a tax liability that would reduce net assets. InnovaQor has determined that it has not incurred any liability for tax benefits as of
December 31, 2021 and June 30, 2021 and 2020. State income taxes will also be due on any income generated in the future.
Revenue
Recognition
We
will 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 contract price. |
| ● | Allocate
the transaction price to the performance obligations of the contract. |
| ● | Recognize
revenue when or as you satisfy a performance obligation. |
Temporary Equity
The Company classifies its Series B and Series
C Convertible Preferred Stock as temporary equity 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 on a fixed dollar amount.
Basic
and Diluted Net Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with ASC 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.
Diluted
loss per share excludes all dilutive potential shares if their effect is antidilutive. As of December 31, 2021 and June 30, 2021 and
2020, there were approximately 1,773,099,415, 1,660,936,000 and 0 common stock equivalents, respectively, which were antidilutive
due to the Company’s losses.
Recent
Accounting Pronouncements
InnovaQor
reviews all of the Financial Accounting Standard Board’s updates periodically to ensure InnovaQor’s compliance of its accounting
policies and disclosure requirements to the Codification Topics.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period recognized
in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date
and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for InnovaQor for annual and interim periods beginning
on July 1, 2021. Early adoption of this standard is permitted. The adoption of this ASU by InnovaQor did not have a material impact on
its consolidated results of operations, financial position and cash flows.
In
August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this standard, customers
will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The
adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation
costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU will be effective for InnovaQor
for annual and interim periods beginning on July 1, 2021. Early adoption of this standard is permitted and may be applied either prospectively
to eligible costs incurred on or after the date of the new guidance or retrospectively. The adoption of this ASU by InnovaQor did not
have a material impact on its consolidated results of operations, financial position and cash flows.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance
simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas
such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of
tax laws or rate changes. This standard will be effective for InnovaQor for annual periods beginning on July 1, 2021, including interim
periods within those fiscal years. Adoption of this standard is permitted, including adoption of all amendments in any interim period
for which financial statements have not yet been issued. The adoption of this ASU by InnovaQor did not have a material impact on its
consolidated results of operations, financial position and cash flows.
Other
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 InnovaQor’s consolidated financial
statements.
InnovaQor
will continue to monitor these emerging issues to assess any potential future impact on its 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 for the fiscal years ended June 30, 2021 and 2020.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 this filing.
Comparison
for the Years Ended June 30, 2021 and 2020
The
following summary of our consolidated results of operations should be read in conjunction with our audited consolidated financial statements
for the years ended June 30, 2021 and 2020, which are included herein.
The
following table summarizes the results of our consolidated operations for the years ended June 30, 2021 and 2020:
| |
Year Ended June 30, | | |
| |
| |
2021 | | |
2020 | | |
Change | |
Net revenues | |
$ | — | | |
$ | — | | |
$ | — | |
Operating expenses: | |
| | | |
| | | |
| | |
Direct costs of revenue | |
| — | | |
| — | | |
| — | |
General and administrative expenses | |
| 507,768 | | |
| 17,913 | | |
| -489,855 | |
Depreciation | |
| — | | |
| — | | |
| — | |
Loss from operations | |
| (507,768 | ) | |
| (17,913 | ) | |
| -489,855 | |
Other expense | |
| — | | |
| — | | |
| — | |
Loss before income taxes | |
| (507,768 | ) | |
| (17,913 | ) | |
| -489,855 | |
Provision for income taxes | |
| — | | |
| — | | |
| — | |
Net loss | |
$ | (507,768 | ) | |
$ | (17,913 | ) | |
$ | -489,855 | |
Net
Revenues
Consolidated
net revenues were zero for the years ended June 30, 2021 and 2020, since InnovaQor completed the acquisition of the HTS Group from Rennova
in late June 2021.
General
and Administrative Expenses
General
and administrative expenses increased by $489,855, compared to the year ended June 30, 2020 due to an agreement with Mr. Dab, the Company’s
former CEO, to provide services in connection with the acquisition of the HTS Group from Rennova in exchange for $500,000.
Loss
from Operations
Our
operating loss was increased by $489,855, for the year ended June 30, 2021, when compared to a loss of $17,913 for the same period a
year ago. The increase was due to the increases in our general and administrative expenses.
Net
Loss
Our
net loss was $507,768 for the year ended June 30, 2021, as compared to a net loss of $17,913 for the year ended June 30, 2020. The $489,855
increase in net loss was due to the increases in our general and administrative expenses.
Liquidity,
Capital Resources and Acquisition
At
June 30, 2021, we had $46 in cash on hand, a working capital deficit of $2,244,923 and an accumulated deficit of $32.7 million. In addition,
we incurred a loss from operations of $507,768 and $17,913 for the years ended June 30, 2021 and 2020, respectively. For the years ended
June 30, 2021 and 2020, we have financed our operations with non-interest bearing loans from our former CEO.
InnovaQor
acquired all of the common stock of the HTS Group from Rennova on June 25, 2021.
Below
is a summary of the assets acquired and liabilities assumed stated at fair market value on the date of acquisition:
| |
June
25, 2021 | |
Assets Acquired: | |
| | |
Cash | |
$ | 46 | |
Accounts Receivable | |
| 34,591 | |
Prepaid Expenses and other current assets | |
| 858 | |
Property and equipment, net | |
| 711 | |
Intellectual Property | |
| 2,365,000 | |
Customer Relationships | |
| 66,000 | |
Tradename | |
| 473,000 | |
Goodwill | |
| 7,956,824 | |
| |
| | |
Total Assets Acquired | |
$ | 10,897,030 | |
| |
| | |
Liabilities Assumed | |
| | |
Accounts payable | |
$ | 766,343 | |
Accrued expenses | |
| 1,379,922 | |
Notes payable | |
| 298,419 | |
| |
| | |
Total Liabilities Assumed | |
| 2,444,684 | |
| |
| | |
Net Assets Acquired | |
$ | 8,452,346 | |
The
following is a summary Statement of Operations as if the acquisition of the HTS Group had taken place on July 1, 2020:
| |
Year
Ended
June 30, 2021 | |
| |
| |
Net revenues (including $271,524 from former Parent) | |
$ | 493,621 | |
| |
| | |
Operating Expenses | |
| | |
Direct costs of revenues | |
| 7,166 | |
General and administrative expenses | |
| 1,343,436 | |
Depreciation and amortization | |
| 195,055 | |
| |
| | |
Total Operating Expenses | |
| 1,545,657 | |
| |
| | |
Loss from operations | |
$ | (1,052,036 | ) |
| |
| | |
Other (Expense) | |
| (42,103 | ) |
| |
| | |
Net Loss | |
$ | (1,094,139 | ) |
| |
| | |
Basic and Diluted (loss) per share | |
$ | (0.00 | ) |
Basic and Diluted weighted average common stock outstanding | |
| 234,953,286 | |
The
change in cash used in operations for the years ended June 30, 2021 and 2020 is presented in the following table:
| |
Year Ended June 30, | | |
| |
| |
2021 | | |
2020 | | |
Change | |
| |
| | |
| | |
| |
Net loss | |
$ | (507,768 | ) | |
$ | (17,913 | ) | |
$ | -489,855 | |
Non-cash adjustments to loss | |
| | | |
| | | |
| | |
Accounts payable and accrued expenses | |
| 496,418 | | |
| (2,475 | ) | |
| -498,893 | |
Other | |
| — | | |
| — | | |
| — | |
Net cash used in operating activities | |
$ | (11,350 | ) | |
$ | (20,388 | ) | |
$ | 9,038 | |
No
cash was provided by investing or financing activities for the years ended June 30, 2021 or 2020.
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 $2.2 million
and $32.7 million, respectively, at June 30, 2021. In addition, InnovaQor had a loss from operations of approximately $508,000 and cash
used in operating activities of $11,350 for the year ended June 30, 2021. 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:
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.
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 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 the acquisition of the HTS Group 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 guarantee 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 June 30, 2021, 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. Recently issued accounting pronouncements are more fully discussed in Note 15 to our audited
consolidated financial statements, which are included herein.
Seasonality
We
do not expect our net revenues to be impacted by seasonal demands for our products and services.
Comparison
for the Six Months ended December 31, 2021 and 2020
The
following summary of our consolidated results of operations should be read in conjunction with our interim consolidated financial statements
for the six months ended December 31, 2021 and 2020, which are included herein.
The
following table summarizes the results of our consolidated operations for the six months ended December 31, 2021 and 2020 (unaudited):
|
|
Six
Months Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
Change |
Net revenues |
|
$ |
245,991 |
|
|
$ |
— |
|
|
$ |
-245,991 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of revenue |
|
|
137,647 |
|
|
|
— |
|
|
|
-137,647 |
|
General and administrative
expenses |
|
|
699,830 |
|
|
|
5,505 |
|
|
|
-694,325 |
|
Depreciation |
|
|
711 |
|
|
|
— |
|
|
|
-711 |
|
Amortization |
|
|
96,800 |
|
|
|
— |
|
|
|
-96,800 |
|
Other |
|
|
— |
|
|
|
2,165 |
|
|
|
2,165 |
|
Total operating expenses |
|
|
934,988 |
|
|
|
(7,670 |
) |
|
|
-925,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and payroll tax liabilities |
|
|
(4,944 |
) |
|
|
— |
|
|
|
4,945 |
|
Other income, net |
|
|
104,918 |
|
|
|
— |
|
|
|
-104,968 |
|
Loss before income taxes |
|
|
(589,023 |
) |
|
|
(7,670 |
) |
|
|
-581,353 |
|
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
$ |
(589,023 |
) |
|
$ |
(7,760 |
) |
|
$ |
-581,353 |
|
Net
Revenues
During
for the six months ended December 31, 2021, the Company had net revenues of $245,991 compared to $0 for the same period in 2020, due
to the acquisition of the HTS Group from Rennova in late June 2021.
Operating
Expenses
During
the six months ended December 31, 2021, the Company had total operating expenses of $934,988, compared to $7,670 for the same period
in 2020, due to the acquisition of the HTS Group in late June 2021. The major increases in operating expenses were general and administrative
expenses and amortization expense of the acquired intangibles.
Interest
Expense and Other Income
Interest
expense increased during the six months ended December 31 from $0 in 2020 to $4,944 in 2021, respectively, due to the acquisition of
the HTS Group in late June 2021.
Other
income increased during the six months ended December 31 from $0 in 2020 to $104,918 in 2021, respectively, principally due to forgiveness
of a Payroll Protection Program Loan in the amount of $103,900 in July 2021.
Net
Loss
Since
the Company has incurred losses since inception, it has not recorded any income tax expense or benefit. Accordingly, the Company’s
net loss is driven by operating and other expenses.
Comparison of
Historical to Proforma Results of Operations
The
following table sets forth a comparison of the historical consolidated statement of operations to the proforma statement of operations
(which appears in footnote 3 to the unaudited consolidated financial statements) assuming the acquisition of the HTS Group occurred on
July 1, 2020, for the periods indicated. The table and the discussion below should be read in conjunction with the accompanying unaudited
consolidated financial statements and the notes thereto, appearing elsewhere herein.
| |
Six
Months Ended December 31, | | |
| |
| |
2021 | | |
2020 | | |
Change | |
Net
revenues | |
$ | 245,991 | | |
$ | 266,446 | | |
$ | (20,455 | ) |
| |
| | | |
| | | |
| | |
Operating
expenses | |
| | | |
| | | |
| | |
Direct
costs of revenue | |
| 137,647 | | |
| — | | |
| 137,647 | |
Amortization | |
| 96,800 | | |
| 96,800 | | |
| — | |
Depreciation | |
| 711 | | |
| — | | |
| 711 | |
General
and administrative | |
| 699,830 | | |
| 794,262 | | |
| (94,432 | ) |
Other | |
| — | | |
| — | | |
| — | |
Total
operating expenses | |
| 934,988 | | |
| 891,062 | | |
| 43,926 | |
| |
| | | |
| | | |
| | |
Interest
expense | |
| (4,944 | ) | |
| — | | |
| (4,944 | ) |
Other
Income (Expense) | |
| 104,918 | | |
| (62,703 | ) | |
| 167,621 | |
| |
| 99,974 | | |
| (62,703 | ) | |
| 162,677 | |
Net
loss | |
$ | (589,023 | ) | |
$ | (687,319 | ) | |
$ | (98,296 | ) |
Net Revenues
During
the six months ended December 31, 2021, the Company had net revenues of $245,991 compared to $266,446 on a proforma bases for 2020 or
a reduction of $20,455. This reduction is principally a result of reduced subscription business.
Operating
Expenses
During
the six months ended December 31, 2021, the Company had total operating expenses of $934,988 compared to $891,062 on a proforma basis
for 2020 or an increase of $43,926. The major increases in operating expenses were direct cost of revenues which is principally a result
of increased payroll expenses.
Other
Income (Expense)
Interest
expense increased during the six months ended December 31 from $0 in 2020 to $4,944 in 2021, respectively, due to more debt in 2021.
Other
income (expense) increased during the six months ended December 31 from expense of $62,703 in 2020 to income of $104,918 in 2021, respectively,
principally due to forgiveness of a Payroll Protection Program Loan in the amount of $103,900 in July 2021.
Net
Loss
Since
the Company has incurred losses since inception, it has not recorded any income tax expense or benefit. Accordingly, the Company’s
net loss is driven by operating and other expenses.
Liquidity
and Capital Resources
The
Company has historically met its liquidity requirements primarily through advances from its former parent and/or its former CEO. At December
31, 2021, the Company had cash of $46.
Working
capital is the amount by which current assets exceed current liabilities. The Company had negative working capital of $2,840,335 and
$2,244,923, respectively, at December 31, 2021 and June 30, 2021. The increase in negative working capital was due to the significant
increase in accrued expenses. The Company’s cash resources are not sufficient to fund its operations. Based on its current
forecast and budget, management believes that $2.2 million will be required over the next 12 months for its current
business operations. It is anticipated that this additional capital will be secured from outside parties as debt or equity
investments. There is no assurance that capital in any form will be available to us, and if available, on terms and conditions that
are acceptable.
Off-Balance
Sheet Arrangements
Currently,
the Company has no off-balance sheet arrangements.
Cash
Flows
Cash
flows from operating, investing and financing activities were as follows:
| |
Six Months Ended December 31, | |
| |
2021 | | |
2020 | |
Net cash (used in) operating activities | |
$ | (374,473 | ) | |
$ | (11,287 | ) |
Net cash from investing activities | |
| — | | |
| — | |
Net cash from financing activities | |
| 374,473 | | |
| 7,670 | |
Net
cash (used in) operating activities increased due to an increase in expenses, specifically an increase of $581,353 in the loss from operations
and the non-cash gain on forgiveness of the PPP Loan in the amount of $103,900 which was offset by an increase in accounts payable and
accrued expenses of $218,290 and an increase in depreciation and amortization of $97,511.
Net
cash provided by financing activities increased by $366,803 due to increased advances from the Company’s former Parent during the
six months ended December 31, 2021.
Management
believes the Company’s funds are insufficient to provide for its projected needs for operations for the next 12 months. The Company
is currently working to close additional funding to support product development or for other purposes. The Company may have to rely on
equity or debt financing that may involve substantial dilution to our then existing stockholders. If it is unable to close additional
equity financing, the Company may have to cease operations.
Going
Concern
The
Company has incurred net losses of $33,277,221 since inception, raising substantial doubt about its ability to continue as a going concern.
Management believes that the Company’s ability to continue as a going concern is dependent on its ability to raise capital, generate
revenue, achieve profitable operations and repay its obligations when they come due. As of December 31, 2021, we had $46 in cash and
we owed $2,933,582 for various liabilities. We are pursuing various financing alternatives to address the payment of outstanding liabilities
and to support the sales, as well as the completion of the elements of our business plan. There can be no assurance, however, that we
will obtain adequate funding or that we will be successful in accomplishing any of our objectives. Consequently, we may not be able to
continue as an operating company.
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. Recently issued accounting pronouncements are more fully discussed in Note 15 to our unaudited consolidated
financial statements, which are included herein.
Seasonality
We
do not expect our sales to be impacted by seasonal demands for our products and services.
Capitalization
The
following table sets forth InnovaQor’s capitalization as of December 31, 2021 and June 30, 2021, on a 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 December 31, 2021 and June 30, 2021:
| |
December
31, 2021 | | |
June
30, 2021 | |
Cash | |
$ | 46 | | |
$ | 46 | |
| |
| | | |
| | |
Stockholders’
Equity | |
| | | |
| | |
| |
| | | |
| | |
Preferred
Series A 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 | |
| 31,908,618 | | |
| 31,908,618 | |
Total
capitalization | |
$ | 31,932,159 | | |
$ | 31,932,159 | |
Item
3. Properties.
InnovaQor
does not own any properties, and currently subleases office space from Rennova on a month to month term at a cost of approximately $6,500
a month.
Item
4. Security Ownership of Certain Beneficial Owners and Management.
The
following table sets forth, as of November 30, 2021, information regarding beneficial ownership of our capital stock by:
|
● |
Each
person, or group of affiliated persons, known by us to beneficially own more than 5% of any class of our voting securities; |
|
|
|
|
● |
Each
of our executive officers; |
|
|
|
|
● |
Each
of our directors; and |
|
|
|
|
● |
All
of our current executive officers and directors as a group. |
Beneficial
ownership is determined according to the rules of the Securities and Exchange Commission (the “SEC”) and generally means
that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security,
including convertible securities, warrants and options that are convertible or exercisable within 60 days. Except as indicated by the
footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and
investment power with respect to all shares shown that they beneficially own, subject to community property laws where applicable. The
address for each of our executive officers and directors is c/o InnovaQor, Inc., 400 South Australian Avenue, Suite 800, West Palm Beach,
Florida 33401.
Title of Class | |
Name of Beneficial Owner | |
No. of Shares of Class Owned | | |
Percentage of Ownership (1) | | |
Total Percentage of Voting Power (2) | |
Series A Preferred Stock | |
Epizon Limited (3) | |
| 1,000 | | |
| 100 | % | |
| 51.0 | % |
| |
| |
| | | |
| | | |
| | |
Common Stock | |
Sharon L. Hollis | |
| - | | |
| - | | |
| - | |
| |
| |
| | | |
| | | |
| | |
| |
Justin Doherty | |
| - | | |
| - | | |
| - | |
| |
| |
| | | |
| | | |
| | |
| |
Gerard Dab (4) | |
| - | | |
| - | | |
| - | |
| |
| |
| | | |
| | | |
| | |
| |
All Directors and Executive Officers as a Group (3 persons) | |
| - | (5) | |
| - | % | |
| - | % |
| |
| |
| | | |
| | | |
| | |
| |
Michel Dab (6) | |
| 27,785,000 | | |
| 11.8 | % | |
| 5.8 | % |
| |
| |
| | | |
| | | |
| | |
| |
Ithaca Scientific Ventures (7) | |
| 22,000,000 | | |
| 9.4 | % | |
| 4.6 | % |
| |
| |
| | | |
| | | |
| | |
| |
Real Gauthier (8) | |
| 18,300,000 | | |
| 7.8 | % | |
| 3.8 | % |
(1) |
Based
on 234,953,286 shares of Common Stock issued and outstanding as of November 30, 2021, and additional shares deemed to be outstanding
as to a particular person, in accordance with applicable rules of the SEC. Beneficial ownership is determined in accordance with
SEC rules to generally include shares of Common Stock subject to options or issuable upon conversion of convertible securities or
exercise of warrants, and such shares are deemed outstanding for computing the percentage of the person holding such options, securities
or warrants, but are not deemed outstanding for computing the percentage of any other person. This table assumes the Company has
sufficient authorized shares of Common Stock available to permit the conversion of all outstanding convertible securities and the
exercise of all outstanding warrants and options. |
|
|
(2) |
The
Company has two classes of voting securities, the Common Stock and the Series A Preferred Stock. Each share of Common Stock has one
vote. So long as one share of Series A Preferred Stock is outstanding, the Series A Preferred Stock has the number of votes, in the
aggregate, equal to 51% of all votes of all classes of shares entitled to be voted at any stockholder meeting or action by written
consent. |
|
|
(3) |
Epizon
Limited (“Epizon”) owns all of the issued and outstanding shares of Series A
Preferred Stock. The Series A Preferred Stock is not convertible into Common Stock but holders
of Series A Preferred Stock are entitled to vote on all matters submitted to a vote of the
holders of Common Stock. Regardless of the number of shares of Series A Preferred Stock outstanding
and so long as at least one share of Series A Preferred Stock is outstanding, the outstanding
shares of Series A Preferred Stock shall have the number of votes, in the aggregate, equal
to 51% of all votes entitled to be voted at any annual or special meeting of stockholders
of the Company or action by written consent of stockholders. Epizon will be able
to exercise control over all matters submitted for stockholder approval. Epizon’s
address is Suite 104a, Saffrey Square, Bank Lane, P.O. Box N-9306, Nassau, Bahamas. All of
the outstanding capital stock of Epizon is owned by The Shanoven Trust, of which P. Wilhelm
F. Tooth serves as trustee. Seamus Lagan is the settlor and Mr. Lagan’s family are
beneficiaries of The Shanoven Trust. Mr. Lagan is also the Chief Executive Officer of Rennova.
Rennova owns 14,850 shares of Series B Preferred Stock, which has no voting rights but is
convertible into Common Stock under certain circumstances. The Series B Preferred Stock is
not currently convertible without the consent of Epizon, as the holder of the Series A Preferred
Stock. If it were converted, the shares held by Rennova would, as of November 30, 2021, be
convertible into up to 4.99% of the then outstanding shares of Common Stock (due to the 4.99%
ownership blocker in the terms of the Series B Preferred Stock). |
(4) |
Gerard
Dab owns 200 shares of Series C Preferred Stock, which is all of the currently outstanding
shares of Series C Preferred Stock. The Series C Preferred Stock has no voting rights but
is convertible into Common Stock under certain circumstances. The Series C Preferred Stock
is not currently convertible without the consent of Epizon, as the holder of the Series A
Preferred Stock. If it were converted, the shares held by Mr. Dab would, as of November 30,
2021, be convertible to up to 4.99% of the then outstanding shares of Common Stock (due to
the 4.99% ownership blocker in the terms of the Series C Preferred Stock). |
|
|
(5) |
Includes
Ms. Hollis and Messrs. Doherty and Dab. Mr. Dab also owns 200 shares of Series C Preferred Stock, as described in the above footnote.
|
|
|
(6) |
Michel
Dab is Gerard Dab’s adult son. Michael Dab was Treasurer of the Company from December 15, 2008 until June 29, 2021. Mr. Dab’s
address is 50 High Park Avenue, Apt.1609, Toronto, Ontario M6P 2R9 Canada. |
|
|
(7) |
Ithaca
Scientific Ventures’ address is 30 N. Gould St., Suite R, Sheridan, Wyoming 82801.
Dr. Linda McHarg is the sole owner and control person of Ithaca Scientific Ventures. Dr.
McHarg is married to Gerard Dab. Under Quebec law, Mr. Dab and Dr. McHarg are subject to
the matrimonial regime of separation as to property. Each spouse remains the owner of his
or her property and administers the property alone. As a result, Mr. Dab disclaims any beneficial
interest in any securities owned by Ithaca Scientific Ventures or Dr. McHarg and Dr. McHarg
similarly disclaims any beneficial interest in any securities owned by Mr. Dab. |
|
|
(8) |
Mr.
Gauthier’s address is 225 Chabanel, Suite 114, Montreal, Quebec H2N 2C9 Canada. |
Change-in-Control
We
do not currently have, nor are we aware of, any arrangements which if consummated may result in a change of control in the future.
Item
5. Directors and Executive Officers.
Directors
and Executive Officers
The
following table sets forth the names and ages of our initial directors and executive officers which currently serve on the Board of Directors
for InnovaQor. Directors will be elected annually.
Name | |
Age | | |
Position | |
Justin
Doherty | |
| 53 | | |
Director,
Chairman | |
Sharon
L. Hollis | |
| 45 | | |
Director,
President, CEO | |
Gerard
Dab | |
| 73 | | |
Director,
Secretary | |
There
are no agreements with respect to electing directors. Each director shall serve for a term of one year or until his successor is elected
at our Annual Meeting of Shareholders and is qualified, subject to removal by InnovaQor’s
shareholders. The Board of Directors appoints officers annually and each executive officer serves at the discretion of the Board of Directors.
InnovaQor does not have any standing board committees at this time, and due to its
small size does not believe that committees are necessary at this time. As of the date of this filing our three directors fulfill the
duties of an audit committee. None of the directors held any directorships during the past five years in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such act, or of any
company registered as an investment company under the Investment Company Act of 1940.
Justin
Doherty is a member of our Board and was appointed to our Board and as Chairman on July 6, 2021. Mr. Doherty brings over 20 years
of international experience in integrated facility management and software solutions for multiple industries across the UK, Europe and
the USA. Mr. Doherty previously owned and operated Axis Control Systems for over 10 years, where he started, grew and eventually sold
the business. His main area of expertise is operational management and process improvement within the technological and healthcare field,
with experience ranging from security systems to healthcare solutions and dementia home health care facilities.
Mr.
Doherty was previously CEO of Medical Mime and ClinLab from April 2016 and March 2014, respectively, each an InnovaQor company specializing
in healthcare technologies for medical practices throughout the United States. He is currently a Board member for Pathlogic Limited.
Mr. Doherty is the managing director of Zest Fire and Security Ltd., which he founded in August 2020.
Sharon L. Hollis is a member of our
Board and was appointed to our Board and as our Chief Executive Officer on July 6, 2021. Ms. Hollis transitioned from property sales
in New York and Florida into healthcare in 2010 when she oversaw the development of a proprietary lab ordering and reporting
software, Advantage, which allowed doctors and clinical laboratories to evolve from paper orders and reports with minimal disruption
and cost. Ms. Hollis oversaw the evolution of Advantage to a fully integrated product that allowed real time tracking of lab samples
and their results from sample collection to reporting and billing. Ms. Hollis sold her interests in this software into the predecessor
of Rennova, Medytox Solutions, Inc., in 2012 and was the VP of Operations of the corporate office to 2015 overseeing sales development,
customer care, process improvement and development of software products and their integration and medical billing related processes.
From October 2015, as the owner of PetVetCorp, Inc., Ms. Hollis built a veterinarian health records software. Ms. Hollis re-joined Rennova
in 2016 and became the COO of the software division, HTS in 2018. Ms. Hollis has been focused on setting direction for the software division
in anticipation of a separation from Rennova and has been engaged in the provision of software solutions to Rennova’s hospital
entities for real-time reporting and analysis of billing related data in easy to utilize dashboards for management. Ms. Hollis’
focus is on the provision of easy-to-use software solutions that create efficient solutions and visual interpretation of necessary and
actionable data and information.
Gerard Dab is a member of our Board and was
appointed as a Director, CEO, Chairman of the Board, and Corporate Secretary on October 6, 2004. As part of the agreement with Rennova
he resigned his position as CEO and Chairman of the Board on July 6, 2021 and retained the positions of Director and Corporate Secretary.
Mr. Dab is a pioneer of the modern healthcare informatics industry – He is notably the co-founder of one of the world’s most
innovative systems for the automation of clinical workflow in hospitals and medical facilities that had been originally developed at McGill
University Royal Victoria Hospital.
His
companies provided advanced software platforms that power clinical applications at point of care in hospitals and clinics developed at
a cost of some $50,000,000. These applications offered advanced patient management clinical systems with full diagnostic and medical
content including decision support that have been developed by senior McGill University practitioners and were used by more than 1,000
clinicians and care givers in the US and Canada.
Prior
to his work in the healthcare field, Mr. Dab worked for advertising giant Foote, Cone & Belding of Chicago following his graduation
from McGill University. During the 1980s, he founded and was the managing partner of Productions Publi-Cité, a film and television
finance company that helped raise some $100,000,000 in production money for independent film producers. During the 1990s, Dab Communications
was noted for producing weekly information programs on Canadian network television about investing, created with the support of Maryland
Public Television and Louis Rukeyser, long-time host of Wall Street Week.
Independence
of Directors
In
determining the independence of our directors, we will apply the definition of “independent director” provided under the
listing rules of The NASDAQ Stock Market LLC (“NASDAQ”). Pursuant to these rules, we anticipate that two of our directors
will be independent within the meaning of NASDAQ Listing Rule 5605.
We
do not expect there to be a family relationship between any of the individuals who are expected to serve as members of our Board and
as our executive officers.
Item
6. Executive Compensation.
The Board of Directors has approved a compensation
for its CEO, Sharon L. Hollis of $250,000 a year and approved compensation of $7,500 a month for Thomas J. Bellante to
act as a part time contracted CFO.
Currently,
there are no other executives but InnovaQor plans to appoint additional executives and may reimburse its executives for expenses incurred
in connection with travel, networking, and day to day business development.
The
following table sets forth all of the compensation awarded to, earned by or paid to each individual that served as our principal executive
officer or principal financial officer during the fiscal years ended June 30, 2020 and 2021. The Company did not have any other executive
officers during the fiscal years ended June 30, 2020 and 2021. Mr. Dab performed the duties of both the principal executive officer and
the principal financial officer during those fiscal years.
Name and Principal Position | |
Fiscal Year | | |
Salary | | |
Stock Awards | | |
Option Awards | | |
Nonequity Incentive Plan Compensation | | |
Nonqualified Deferred Compensation
Earnings | | |
All Other Compensation (2) | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Gerard Dab, former CEO and Director (1) | |
| 2021 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 500,000 | | |
$ | 500,000 | |
| |
| 2020 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| (1) | Mr.
Dab resigned as Chief Executive Officer of the Company on July 6, 2021. He continues to act
as Secretary and as a Director. |
| (2) | Pursuant
to our agreement with the Company, Mr. Dab provided services in connection with the acquisition
of the Group in exchange for $500,000. Mr. Dab then forgave $300,000 owed to him by the Company
in exchange for 1,000 shares of Series A Preferred Stock and forgave an additional $200,000
owed to him by the Company in exchange for 200 shares of Series C Preferred Stock. |
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table provides information regarding outstanding equity awards held by the named executive officers at June 30, 2020 and 2021:
Name |
|
Number
of shares
underlying
unexercised
options
exercisable |
|
|
Number
of shares
underlying
unexercised
options
unexercisable |
|
|
Equity
Incentive Plan
Awards;
Number of shares
underlying
unexercised
unearned
options |
|
|
Option
exercise price |
|
|
Option
Expiration date |
|
|
Number
of shares
or
units of stock
that
have not vested |
|
|
Market
value of
shares
or units of
stock
that
have
not vested $ |
|
|
Equity
Incentive Plan
Awards:
Number of unearned
shares,
units
or
other
rights
that
have
not vested |
|
|
Equity
Incentive Plan
Awards:
Market or
payout
value of
unearned
shares,
units
or other rights
that
have not vested $ |
|
Gerard Dab |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
AGREEMENTS WITH NAMED
EXECUTIVE OFFICERS
Gerard Dab
Consulting Agreement
– the Company entered into a consulting agreement effective June 1, 2021, with a company owned by Mr. Dab for a period
of one year to assist in developing the Company’s business including communications with existing shareholders and the general
public. This company shall be paid $60,000 upon receipt of funding from an outside source or within 90 days of signing the agreement.
This has not yet been paid. Additionally, this company shall be paid $3,500 per month until the agreement expires.
Director
Compensation
InnovaQor
has not paid any director’s fees or other cash compensation for services rendered as a director since the acquisition of the HTS
Group to the date of this filing. Compensation of $30,000 per year for each director (excluding the CEO) has been agreed for the next
12 months.
We do not pay employee directors for Board service
in addition to their regular employee compensation. The Board has the primary responsibility for considering and determining the amount
of director compensation.
The following table shows amounts earned by each
non-employee Director in the fiscal years ended June 30, 2020 and 2021:
Director | |
| Fees earned or paid in cash | | |
| Stock Awards | | |
| Option Awards | | |
| Non-equity Incentive Plan Compensation | | |
| All
Other Compensation | | |
| Total | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gerard Dab | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Lewis Lombardo (1) | |
$ | — | | |
$ | — | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | — |
| (1) | Mr.
Lombardo resigned as a Director in connection with the acquisition of the Group on June
25, 2021. |
Item
7. Certain Relationships and Related Transactions, and Director Independence.
Mr. Dab, the former CEO of InnovaQor, paid
all the disbursements on behalf of the Company for the fiscal years ended June 30, 2021 and 2020. The cash disbursements amounted
to $11,385 and $20,388 for the years ended June 30, 2021 and 2020, respectively, and are shown in the accompanying Statements of Operations,
operating expenses.
In addition, during the year ended June 30,
2021 under an agreement with the Company, Mr. Dab provided services in connection with the acquisition of the Group in
exchange for $500,000. This was reflected in the accompanying Statement of Operations as a General and Administrative Expense.
Mr. Dab then forgave the $500,000 owed to him by the Company in exchange for shares of Series A Preferred Stock and Series C Preferred
Stock as described above.
During the three months ended March 31, 2022,
Ms. Hollis, the Chief Executive Officer of the Company, loaned the Company an aggregate of $84,100. The loans bear an original issue
discount of 10% and an interest rate of 2% a month until repaid.
The above amounts are not necessarily indicative
of what third parties would have agreed to.
Item
8. Legal Proceedings.
From
time to time, InnovaQor may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes,
employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course
of business. InnovaQor operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware
that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on InnovaQor’s
consolidated financial position or results of operations. Management, in consultation with legal counsel, has addressed known assertions
and predicted unasserted claims below.
P2P
Staffing Corp. received a judgment against HTS during 2018 in the amount of $58,783 for amounts owed. As of June 30, 2021 and 2020, $10,464
was outstanding and owed for this judgment and included in accounts payable at each respective balance sheet date.
Two
former employees of CollabRx, Inc., one of the acquired subsidiaries, filed suits in a California state court against the former Parent,
Rennova and CollabRx, Inc., in connection with amounts claimed to be owed under their respective employment
agreements with CollabRx, Inc. One former employee received a judgment for approximately $253,000. The other former employee received
a judgment for approximately $173,000.
ClinLab,
Medical Mime and HTS, as well as the former Parent, Rennova and many of its subsidiaries, were defendants in a case filed in Broward
County Circuit Court by TCA Global Credit Master Fund, L.P. The plaintiff alleged a breach by Medytox Solutions, Inc. of its obligations
under a debenture and claimed damages in excess of $2,000,000 plus interest, costs and fees. In May 2020, the SEC appointed a Receiver
to close down the TCA Global Credit Master Fund, L.P. The other entities were sued as alleged guarantors of the debenture. In September
2021, the parties entered into a settlement agreement with the Receiver to pay $500,000 as full and final settlement of all claims in
this matter. Subject to Rennova abiding by the terms of the settlement agreement, InnovaQor does not believe it has any risk or liability
in this matter. The Company has not recorded any liability for this obligation as it expects Rennova to complete payments per its
settlement agreement. Regardless of the going concern disclosure in Rennova’s filings, Rennova has succeeded in securing additional
capital when required and has paid $300,000 of the $500,000 settlement.
CTI
Consulting LLC filed suit against Health Technology Solutions, Inc. in September 2021, claiming approximately $45,000 as owed
for services provided. The Company has agreed to pay $5,000 per month until the obligation is satisfied.
Item
9. Market Price of and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.
Market
Information
Our
Common Stock is not listed on any securities exchange and is quoted on the OTC Pink Market under the symbol “VMCS”. Because
our Common Stock is not listed on a securities exchange and its quotation on the OTC Pink are limited and sporadic, there is currently
no established public trading market for our Common Stock.
The following table sets forth the high and low closing
prices per share of our common stock as reported for the periods indicated. Such quotations represent inter-dealer prices without retail
markup, markdown on commissions and may not represent actual transactions. On April __, 2022, the closing price of our common
stock on the OTC Pink was $________ per share.
Quarter Ended | |
High | | |
Low | |
September 30, 2019 | |
$ | 0.0220 | | |
$ | 0.0045 | |
December 31, 2019 | |
$ | 0.0064 | | |
$ | 0.0017 | |
March 31, 2020 | |
$ | 0.0025 | | |
$ | 0.0013 | |
June 30, 2020 | |
$ | 0.0022 | | |
$ | 0.0010 | |
September 30, 2020 | |
$ | 0.0036 | | |
$ | 0.0018 | |
December 31, 2020 | |
$ | 0.0027 | | |
$ | 0.0012 | |
March 31, 2021 | |
$ | 0.0064 | | |
$ | 0.0016 | |
June 30, 2021 | |
$ | 0.0308 | | |
$ | 0.0027 | |
September 30, 2021 | |
$ | 0.0162 | | |
$ | 0.0088 | |
December 31, 2021 | |
$ | 0.0126 | | |
$ | 0.0049 | |
March 31, 2022 | |
$ | 0.0065 | | |
$ | 0.0029 | |
June 30, 2022 (through April__, 2022) | |
$ | | | |
$ | | |
Record
Holders
There
were 78 holders of record as of November 30, 2021. In many instances, a registered shareholder is a broker or other entity holding
shares in street name for one or more customers who beneficially own the shares.
The
transfer agent for our Common Stock is Olde Monmouth Stock Transfer Co., Inc., 200 Memorial Parkway, Atlantic Heights, New Jersey 07716.
Their telephone number is (732) 872-2727.
Dividend
Policy
We
have never paid cash dividends on our Common Stock and have no plans to do so in the foreseeable future. Our future dividend policy will
be determined by our Board of Directors and will depend on a number of factors, including our financial condition and performance, our
cash needs, income tax consequences and any restrictions that applicable laws, our preferred stock and any future credit or other agreements
may then impose.
Dividends
on our Series B Preferred Stock and Series C Preferred Stock are only payable when and if declared by our Board of Directors.
Penny
Stock
Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC.
Penny stocks generally are equity securities with a price of less than $5.00. Excluded from the penny stock designation are securities
registered on certain national securities exchanges or quoted on NASDAQ, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange/system or sold to established customers or accredited investors.
The
penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in connection with the transaction, and the monthly account statements showing the market value of each penny stock held
in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the
broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction.
These
disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. As our Common Stock has become subject to the penny stock rules, investors may find it more difficult
to sell their shares.
Equity
Compensation Plans
The
Company currently has no compensation plans under which the Company’s equity securities are authorized for issuance.
Item
10. Recent Sales of Unregistered Securities.
On
June 9, 2021, the Company issued 1,000 shares of Series A Preferred Stock to Gerard Dab in consideration of his forgiveness of
$300,000 owed to him by the Company. These securities were not registered under the Securities Act but were issued in reliance upon
the exemption from registration contained in Section 4(a)(2) of the Securities Act and by Rule 506 of Regulation D promulgated
thereunder as a transaction by an issuer not involving a public offering.
On
June 25, 2021, the Company issued 200 shares of Series C Preferred Stock to Gerard Dab in consideration of his forgiveness of $200,000
owed to him by the Company. These securities were not registered under the Securities Act but were issued in reliance upon the
exemption from registration contained in Section 4(a)(2) of the Securities Act and by Rule 506 of Regulation D promulgated
thereunder as a transaction by an issuer not involving a public offering.
On
June 25, 2021, the Company issued 14,000 shares of Series B Preferred Stock in connection with the acquisition of the Group from Rennova,
and on September 30, 2021, the Company issued an additional 950 shares of Series B Preferred Stock to Rennova as a post-closing adjustment.
These securities were not registered under the Securities Act but were issued in reliance upon the exemption from registration contained
in Section 4(a)(2) of the Securities Act and by Rule 506 of Regulation D promulgated thereunder as a transaction by an issuer not involving
a public offering.
Item
11. Description of Registrant’s Securities to be Registered.
The
following is a summary of the material terms of InnovaQor’s capital stock. The summaries and descriptions below do not purport
to be complete statements of the relevant provisions of InnovaQor’s articles of incorporation or bylaws, which you must read for
complete information about InnovaQor’s capital stock. The articles of incorporation and bylaws are included as exhibits to InnovaQor’s
registration statement on Form 10. The summaries and descriptions below do not purport
to be complete statements of the Nevada Revised Statutes.
Authorized
and Outstanding Capital Stock
Common
Stock
InnovaQor
has authorized 325,000,000 shares of $0.0001 par value Common Stock of which 234,953,286 were issued and outstanding as of December
31, 2021 and June 30, 2021. These shares have 1 vote per share.
Preferred
Stock
Preferred
Stock Series A
InnovaQor
has authorized 1,000 shares of $0.0001 par value (stated value $10) Series A Supermajority Voting Preferred Stock of which 1,000 were issued
and outstanding as of December 31, 2021 and June 30, 2021. So long as one share of Series A Preferred Stock is outstanding,
the outstanding shares of the Series A Preferred Stock shall have the number of votes, in the aggregate, equal to 51% of all votes
entitled to be voted at any stockholder meeting. These shares have no rights to receive dividends and liquidation rights are equal
to the stated value per share.
Preferred
Stock Series B
InnovaQor
has authorized 25,000 shares of $0.0001 par value (stated value $1,000) Series B Convertible Redeemable Preferred Stock of which 14,950
and 14,000 were issued and outstanding as of December 31, 2021 and June 30, 2021, respectively. These shares have no voting
rights, dividends on these shares shall accrue at the rate of 5% of the stated value per share and liquidation rights are equal to the
stated value per share. These shares are convertible into InnovaQor’s Common Stock based on the stated value at a conversion price
equal to 90% of the average closing price of the Common Stock on the 10 Trading Days immediately prior to the Conversion Date but in
any event no less than the par value of the Common Stock. The Series B Preferred Stock may not be converted prior to the first anniversary
of its issuance except with the consent of the holders of a majority of the then outstanding shares, if any, of the Series A Preferred
Stock. No conversion can be made to the extent the holder’s beneficial interest (as defined pursuant to the terms of the Series
B Preferred Stock) in the common stock of InnovaQor would exceed 4.99%. These shares are redeemable at the option of InnovaQor at their
stated value plus declared and unpaid dividends.
Preferred
Stock Series C
InnovaQor
has authorized 2,000 shares of $0.0001 par value (stated value $1,000) Series C Convertible Redeemable Preferred Stock of which 200 were
issued and outstanding as of December 31, 2021 and June 30, 2021. These shares have no voting rights, dividends on these shares
shall accrue at the rate of 10% of the stated value per share and liquidation rights are equal to the stated value per share. These shares
are convertible into InnovaQor’s Common Stock based on the stated value at a conversion price equal to 90% of the average closing
price of the Common Stock on the 10 Trading Days immediately prior to the Conversion Date but in any event no less than the par value
of the Common Stock. The Series C Preferred Stock may not be converted prior to the first anniversary of its issuance except with the
consent of the holders of a majority of the then outstanding shares, if any, of the Series A Preferred Stock. No conversion can be made
to the extent the holder’s beneficial interest (as defined pursuant to the terms of the Series C Preferred Stock) in the common
stock of InnovaQor would exceed 4.99%. These shares are redeemable at the option of InnovaQor at their stated value plus declared and
unpaid dividends.
The
following table represents the Company’s issued shares at December 31, 2021:
Common Shares | |
| 234,953,286 | |
Series A Preference Shares | |
| 1,000 | |
Series B Preference Shares | |
| 14,950 | |
Series C Preference Shares | |
| 200 | |
Anti-takeover
Provisions in InnovaQor’s Articles of Incorporation and Bylaws
Authorized
but Unissued Preferred Stock
At
the time of filing there is no existing obligation that involves the issuance of preferred stock or common stock (except upon conversion
of outstanding shares of preferred stock).
Amending
the Bylaws
Our
articles of incorporation authorize the Board to make, alter, amend or repeal our bylaws, subject to the power of the
holders of stock having voting power to make, alter, amend or repeal the bylaws made by the Board.
Special
Meetings of Shareholders
Our bylaws
provide that special meetings of our shareholders may be called at any time only by (i) the holders of 10% of the
voting shares of the Company, (ii) by the President or (iii) by the Board of Directors or a majority thereof. No business may be
transacted at any special meeting except as specified in the notice thereof.
Filling
Vacancies
Our
bylaws provide that any vacancy on the Board of Directors, including vacancies created from an increase in the number of directors,
may be filled by the Board of Directors, though less than a quorum, for the unexpected term. The Board of Directors has the full power
to increase or decrease the number of directors from time to time without requiring a vote of the shareholders.
Board
Action Without Meeting
Our
bylaws provide that the Board may take action without a meeting if all the members of the Board consent to the action in writing. Board
action through consent allows the Board to make swift decisions, including in the event that a hostile takeover threatens current management.
Voting
Our
shares of Series A Preferred Stock have majority voting rights which means they represent 51% of the voting rights of all classes of
shares combined. Epizon Limited will be able to exercise control over all matters submitted for stockholder approval.
Authorized
but Unissued Shares
InnovaQor’s
authorized but unissued shares of common stock and preferred stock will be available for future issuance. We may use additional shares
for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions and as employee compensation.
The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt
to obtain control of InnovaQor by means of a proxy contest, tender offer, merger or otherwise.
Listing
InnovaQor’s
common stock is quoted on the OTC Pink under the symbol VMCS. The Company has applied to FINRA for a new trading symbol.
Item
12. Indemnification of Directors and Officers.
The
Nevada Revised Statutes provide that we may indemnify our officers and directors against losses or liabilities which arise in their corporate
capacity. The effect of these provisions could be to dissuade lawsuits against our officers and directors.
Nevada Revised Statutes Section 78.7502 provides that:
| (1) | A
corporation may indemnify under this subsection any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an action by
or in the right of the corporation, by reason of the fact that the person is or was
a director, officer, employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys’ fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred by the
person in connection with the action, suit or proceeding if the person: (a) is not liable
pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to believe the
conduct was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not,
of itself, create a presumption that the person is liable pursuant to NRS 78.138 or did not
act in good faith and in a manner which he or she reasonably believed to be in or
not opposed to the best interests of the corporation, or that, with respect to any criminal
action or proceeding, he or she had reasonable cause to believe that the conduct
was unlawful. |
| (2) | A
corporation may indemnify under this subsection any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by reason of the fact
that the person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably
incurred by the person in connection with the defense or settlement of the action
or suit if the person: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith
and in a manner which he or she reasonably believed to be in or not opposed to the
best interests of the corporation. Indemnification may not be made for any claim, issue or
matter as to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts
paid in settlement to the corporation, unless and only to the extent that the court in which
the action or suit was brought or other court of competent jurisdiction determines upon application
that in view of all the circumstances of the case, the person is fairly and reasonably entitled
to indemnity for such expenses as the court deems proper. |
| (3) | Any
discretionary indemnification pursuant to this section, unless ordered by a court or advanced
pursuant to subsection 2 of Section 78.751, may be made by the corporation only as authorized
in each specific case upon a determination that the indemnification of a director, officer,
employee or agent of a corporation is proper in the circumstances. The determination must
be made by: (a) the stockholders; (b) the Board of Directors by majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding; or (c) by
independent legal counsel in a written opinion, if (1) a majority vote of a quorum consisting
of directors who were not parties to the action, suit or proceeding so orders; or (2) a quorum
consisting of directors who were not parties to the action, suit or proceeding cannot be
obtained. |
Nevada Revised Statutes Section 78.751 provides that:
| (1) | A
corporation shall indemnify any person who is a director, officer, employee or agent to the
extent that the person is successful on the merits or otherwise in defense of: (a) any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, including, without limitation, an action by or in right of the corporation,
by reason of the fact that the person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise;
or (b) any claim, issue or matter therein, against expenses, actually and reasonably incurred
by the person in connection with defending the action, including, without limitation, attorney’s
fees. |
| (2) | Unless
otherwise restricted by the
articles of incorporation, the bylaws or an agreement made by the corporation, the corporation
may pay the expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding as they are incurred and in advance of the final disposition
of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that the director or officer is not entitled to be indemnified by
the corporation. The articles of incorporation, the bylaws or an agreement made by the
corporation may require the corporation to pay such expenses upon receipt of such an undertaking.
The provisions of this subsection do not affect any rights to advancement of expenses
to which corporate personnel other than directors or officers may be entitled under any contract
or otherwise by law. |
| (3) | The
indemnification pursuant to this section and NRS 78.7502 and advancement of expenses
authorized in or ordered by a court pursuant to this section: (a) does not exclude any other
rights to which a person seeking indemnification or advancement of expenses may be entitled
under the articles of incorporation or any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, for either an action in the person’s
official capacity or an action in another capacity while holding office, except that indemnification,
unless ordered by a court pursuant to NRS 78.7502 or for the advancement of expenses made
pursuant to subsection 2, may not be made to or on behalf of any director or officer finally
adjudged by a court of competent jurisdiction, after exhaustion of any appeals taken
therefrom, to be liable for intentional misconduct, fraud or a knowing violation of law,
and such misconduct, fraud or knowing violation was material to the cause of action
and (b) continues for a person who has ceased to be a director, officer, employee
or agent and inures to the benefit of the heirs, executors and administrators of such person. |
| (4) | Unless
the articles of incorporation, the bylaws or an agreement made by a corporation provide otherwise,
if a person is entitled to indemnification or the advancement of expenses from the corporation
and any other person, the corporation is the primary obligor with respect to such indemnification
or advancement. |
| (5) | A
right to indemnification or to advancement of expenses arising under a provision of the articles
of incorporation or any bylaw is not eliminated or impaired by an amendment to such provision
after the occurrence of the act or omission that is the subject of the civil, criminal, administrative
or investigative action, suit or proceeding for which indemnification or advancement of expenses
is sought, unless the provision in effect at the time of such act or omission explicitly
authorizes such elimination or impairment after such action or omission has occurred. |
Our
articles of incorporation and bylaws include provisions that indemnify, to the fullest extent allowable under the Nevada Revised Statutes,
the personal liability of directors or officers for monetary damages for actions taken as a director or officer of InnovaQor, or for
serving at the request of InnovaQor as a director or officer or another position at another corporation or enterprise, as the case may
be. Our articles of incorporation and bylaws also provide that InnovaQor must indemnify and advance reasonable expenses to its directors
and officers, subject to its receipt of an undertaking from the indemnified party as may be required under the Nevada Revised Statutes.
InnovaQor’s bylaws expressly authorize InnovaQor to carry insurance to protect InnovaQor’s directors and officers against
any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not InnovaQor
would have the power to indemnify such person.
The
limitation of liability and indemnification provisions in InnovaQor’s articles of incorporation and bylaws may discourage shareholders
from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the
likelihood of derivative litigation against InnovaQor’s directors and officers, even though such an action, if successful, might
otherwise benefit InnovaQor and its shareholders. However, these provisions do not limit or eliminate InnovaQor’s rights, or those
of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s duty
of care. The provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be
adversely affected to the extent that, in a class action or direct suit, InnovaQor pays the costs of settlement and damage awards against
directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding
against any InnovaQor directors, officers or employees for which indemnification is sought.
In
addition, we intend to enter into separate indemnification agreements with our directors and executive officers, in addition to the indemnification
provided for in our articles of incorporation and bylaws. These agreements, among other things, may require us to indemnify our
directors and executive officers for certain expenses, including attorneys’ fees, judgments, penalties fines and settlement amounts
actually and reasonably incurred by a director or executive officer in any action or proceeding arising out of their services as one
of our directors or executive officers, or any other entity to which the person provides services at our request. We believe that these
charter provisions and indemnification agreements are necessary to attract and retain qualified persons such as directors and officers.
Item
13. Financial Statements and Supplementary Data.
See
historical financials on page F-1.
Item
14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item
15. Financial Statements and Exhibits.
(a)
Financial Statements
The
information required by this item is contained under the section of the registration statement entitled “Index to Financial
Statements” (and the financial statements and related noted referenced therein). That section is incorporated herein by reference.
(b)
Exhibits
The
following documents are filed as exhibits hereto:
2.1 |
|
Acquisition Agreement, dated as of May 12, 2021, between Rennova Health, Inc. and VisualMED Clinical Solutions Corporation, as supplemented on June 23, 2021 |
|
|
|
3.1(i) |
|
Articles of Incorporation, as amended, of InnovaQor, Inc. |
|
|
|
3.1(ii) |
|
Bylaws of InnovaQor, Inc.* |
|
|
|
10.1 |
|
Consulting Agreement, dated as of May 2, 2021, between Epizon Limited and Gerard Dab. |
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21 |
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Subsidiaries of the Registrant* |
* Previously filed
Where
You Can Find More Information
For further information with respect to InnovaQor
and its common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this
registration statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration
statement, including its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, NE, Washington,
D.C. 20549, by calling the SEC at 1-800-SEC-0330, as well as on the Internet website maintained by the SEC at www.sec.gov. Information
contained on any website referenced in this registration statement is not incorporated by reference in this registration
statement.
InnovaQor
intends that it will be subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange
Act, will file periodic reports, proxy statements and other information with the SEC.
InnovaQor
intends to furnish holders of its common stock with annual reports containing consolidated financial statements prepared in accordance
with U.S. GAAP and audited and reported on, with an opinion expressed by an independent registered public accounting firm.
You should rely only on the information contained
in this registration statement or to which this registration statement has referred you. InnovaQor has not authorized any
person to provide you with different information or to make any representation not contained in this registration statement.
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
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InnovaQor,
Inc. |
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By: |
/s/
Sharon L. Hollis |
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Name:
|
Sharon
L. Hollis |
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Title:
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President,
CEO and Director |
Date:
April 20, 2022
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONSOLIDATED
FINANCIAL STATEMENTS
Index
to Financial Statements
ADVANCED MOLECULAR AND
HEALTH TECHNOLOGY SOLUTIONS GROUP
COMBINED FINANCIAL STATEMENTS
Index to Combined Financial
Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of VisualMED Clinical Solutions Corp.
Opinion on the Financial Statements
We
have audited the accompanying balance sheets of VisualMED Clinical Solutions Corp. (the Company)
as of June 30, 2021 and 2020, and the related statements of operations, stockholders’
equity, and cash flows for each of the years in the two-year period ended June 30,
2021, and the related notes (collectively referred to as the financial statements). In our
opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of June 30, 2021 and 2020, and the results of its operations and
its cash flows for each of the years in the two-year period ended June 30, 2021, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Substantial Doubt about the Company’s
Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 1 to the financial statements, The Company has accumulated
significant losses and has negative cash flows from operations and, at June 30, 2021, had
a $2.2 million working capital deficit and $32.7 million accumulated deficit.
In addition, the Company’s cash position is critically deficient and critical payments
are not being made in the ordinary course of business, all of which raises substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
November 12, 2021
We have served as the Company’s auditor since 2021.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONSOLIDATED
BALANCE SHEETS
The
accompanying notes are an integral part of these consolidated financial statements.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONSOLIDATED
STATEMENTS OF OPERATIONS
The
accompanying notes are an integral part of these consolidated financial statements.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
The
accompanying notes are an integral part of these consolidated financial statements.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
The
accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note
1 – Description of Business
InnovaQor,
Inc. (which changed its name from VisualMED Clinical Solutions Corporation in September 2021) (“InnovaQor” or the
“Company”) was incorporated in the State of Nevada on September 7, 1999. Its business plan involves the distribution of medical
software. It was primarily involved in activities related to the distribution of medical software through associated companies to which
it has granted operating and distribution licenses.
The Company was previously a reporting company
and had reporting obligations from the time of filing a form 8-A12G on September 27, 2001 to January 20, 2011 when it filed a form 15
to suspend its reporting obligation. The Company suspended its obligation to report under the Exchange Act on January 20, 2011
because it was not financially viable at that time to meet the accounting and legal requirements and costs to remain reporting.
On
June 25, 2021, Rennova Health, Inc. (“Rennova”), a public reporting company, sold all the shares of stock of its subsidiaries,
HTS and AMSG, to InnovaQor.
In
consideration for the shares of HTS and AMSG and the elimination of inter-company debt between Rennova and HTS and AMSG, InnovaQor issued
to Rennova 14,000 shares of its Series B Convertible Redeemable Preferred Stock (the “Series B Preferred Stock”). The number
of shares of Series B Preferred Stock issuable was subject to a post-closing adjustment which resulted in an additional 950 shares of
Series B Preferred Stock due Rennova, which were issued in September 2021. Each share of Series B Preferred Stock has a stated value
of $1,000 and is convertible into that number of shares of InnovaQor’s common stock equal to the product of the stated value divided
by 90% of the average closing price of InnovaQor’s common stock during the 10 trading days immediately prior to the conversion
date. Conversion of the Series B Preferred Stock, however, is subject to the limitation that no conversion can be made to the extent
the holder’s beneficial interest (as defined pursuant to the terms of the Series B Preferred Stock) in the common stock of InnovaQor
would exceed 4.99%. The shares of Series B Preferred Stock may be redeemed by InnovaQor upon payment of the stated value of the shares
plus any accrued declared and unpaid dividends.
On June 9, 2021, InnovaQor
issued 1,000
shares of Series A Supermajority Voting Preferred
Stock (the “Series A Preferred Stock”) to the then CEO of the Company, Mr. Gerard Dab in exchange for $300,000
owed to Mr. Dab. The Series A Preferred Stock
has the right to the number of votes equal to 51%
of the votes entitled to be cast at a meeting or to vote by written consent, meaning the owner of the Series A Preferred Stock has voting
control of the Company. Mr. Dab was a party to an agreement whereby he committed to transfer the Series A Preferred Stock to Epizon Limited,
a Nassau, Bahamas, based management consulting company. No financial consideration was received by Mr. Dab for the transfer of his
shares and these shares had a fair market value of $100, as of the date of acquisition.
Seamus Lagan, the Chief Executive Officer of Rennova Health, Inc., the company we ultimately completed a transaction with, is also the
managing director of Epizon Limited. The conditions of the Epizon agreement to which Mr. Dab was a party have been met and the transfer
of shares of Series A Preferred Stock to Epizon has been completed. The terms of the agreement between Mr. Dab and Epizon had certain
conditions including a condition that within 120 days after a transaction was completed by VisualMED, subject to there not being any
dispute or efforts to unwind the transaction, then Mr. Dab would deliver the Preference A shares owed by him, to Epizon. Epizon Limited
will be able to exercise control over all matters submitted for stockholder approval.
InnovaQor
issued 200
shares of Series C Convertible Redeemable Preferred
Stock (the “Series C Preferred Stock”) to InnovaQor’s former CEO, Mr. Gerard Dab in exchange for $200,000
owed
to him. Additionally, Mr. Dab returned 14,465,259
shares of Common Stock in InnovaQor for cancellation.
The
goal of the Company is to develop and deliver a technology-based communication platform to a broad range of healthcare professionals
and businesses using a subscription revenue model with added value bolt on services.
InnovaQor
has six wholly-owned subsidiaries that provide medical support services primarily to clinical laboratories, corporate operations,
rural hospitals, physician practices and behavioral health/substance abuse centers.
Health
Technology Solutions, Inc. (“HTS”): HTS provides information technology and software solutions to our subsidiaries and outside
medical service providers. HTS provides vCIO, IT managed services and data analytics dashboards to our subsidiaries and outside medical
service providers. HTS operates from the corporate offices in West Palm Beach, Florida. HTS is actively conducting business operations
servicing Rennova, the former parent company.
Medical
Mime, Inc. (“Mime”): Mime was formed on May 9, 2014. It specializes in electronic health records (EHR) software and subscription
services for the behavioral health and rehabilitation market segments. It currently serves nine behavioral health/substance abuse facilities.
Mime is actively conducting business and seeking new business.
ClinLab,
Inc. (“ClinLab”): ClinLab develops and markets laboratory information management systems to mid-size clinical laboratories.
It currently services 13 clinical laboratories across the country. ClinLab is actively conducting business and seeking new business.
AMSG
owns CollabRx, Inc. (“CollabRx”) and Genomas, Inc. (“ Genomas”), each of which is an inactive operation.
Genomas
operated a diagnostics lab until December 31, 2019, and was focused solely on the pharmacogenomics technology and platform, MedTuning,
to interpret diagnostics outcomes and translate these outcomes into easily usable information to indicate the effectiveness of medications
for a patient. This solution would require minimum effort to be back in operation. CollabRx owns a technology platform and database
for interpreting diagnostics outcomes from cancer patients and can match the result to known treatments and or clinical trials. This
solution has been dormant for a number of years and to be viable in the marketplace will require updates to the technology and the database.
Each
of the subsidiaries is wholly owned by the Company and complements each other, allowing for cross selling of products and services. Health
Technology Solutions, Medical Mime and ClinLab are conducting business operations and are revenue generating companies. AMSG, CollabRx
and Genomas are currently inactive companies. The Company believes the current solutions will become an added value option to a technology-based
communication platform to a broad range of healthcare professionals and businesses using a subscription revenue model with added
value bolt on services the Company plans to develop.
Existing
products offered by the Company’s subsidiaries are as follows:
“Medical
Mime” is a custom built, cloud based, electronic health record which meets
the needs of substance abuse treatment and behavioral health providers.
Medical Mime’s specialized clinical workflow provides intuitive prompts for symptoms and enables you to quickly select problems
and create master treatment plans with goals, objectives, and interventions.
Medical Mime provides best-in-class patient lifecycle management for Behavioral Health/Substance Abuse (BH/SA) treatment centers. From
pre-admission to billing and aftercare, Medical Mime is an electronic health record and patient management software that seamlessly integrates
into the natural workflow of day-to-day operations.
“M2Pro”
is a custom built, cloud based, electronic health record for ambulatory physician practices that meets meaningful use stage 2 and no
further. Its unique dictation services further automate the workflow process for physicians allowing them to focus on their continuum
of patient care.
“ClinLab”
is a turnkey client/server lab information system for mid-range laboratories. ClinLab supports interfaces to all major reference labs
and the ClinLab team can provide an interface to any system with that capability. ClinLab also features an optional EHR package which
enables interfacing with the most popular EHR systems allowing lab test results to integrate seamlessly into a provider’s EHR for
an improved patient record and to fulfill the federal government requirements.
“Qira”
is our healthcare business analytics tool powered by PowerBI. It is a culmination of healthcare financial and revenue cycle management
plus clinical operations oversight needs. It aggregates data from multiple healthcare systems to produce a single source business intelligence
tool with executive level daily briefing to deep dive operational management of claims and operational efficiencies. There are many other
analytical services available that customize solutions but none that have a proven template for success. Our competitive advantage comes
from having created these tools to identify the deficiencies in the real world for the former parent Rennova from its former national
laboratory operations to its more recent rural hospitals.
“vCIO
Services”. Based on the skills and experience inherent within InnovaQor and resulting from work undertaken on behalf of the former
parent, Rennova, InnovaQor offers a range of CIO services centered on our ability to link IT systems to business objectives combined
with our knowledge of technology trends likely to impact our sector. The CIO services would include (but not be limited to):
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Program and Project Management |
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Business Continuity and Disaster Recovery |
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Security Services |
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Business Intelligence and Analytics |
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Network Infrastructure Management |
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Helpdesk Provision |
“MedTuning”
utilizes proprietary biomarkers, treatment algorithms, and a web-based interactive physician portal delivery system to provide clinical
decision support for physicians and personalized drug treatment for patients. Products are DNA-guided to improve the therapeutic benefit
of widely used prescription drugs while also reducing the risk of significant side effects for patients.
Medical
Informatics: Our technology platform, proprietary algorithms and physician interface portal can be extended to a wide range of drug categories.
Research
and Development: Technology platform applicable to numerous disease states; current pipeline in mental health, pain management, cardiovascular
and diabetes.
“Advantage”
is a proprietary HIPAA compliant software developed to eliminate the need for paper requisitions by providing an easy to use and efficient
web-based system that lets customers securely place lab orders, track samples and view test reports in real time from any web-enabled
laptop, notepad or smart phone.
In
the coming year we plan to develop, acquire or license and offer a telehealth solution through corporate partnerships in the emerging
health technology sector.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
consolidated financial statements include the accounts of InnovaQor and its wholly-owned subsidiaries, Advanced Molecular and Health
Technology Solutions Group (such subsidiaries, collectively, the “Group”) since the date of acquisition on June 25, 2021
and 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.
All
intercompany transactions between subsidiaries of the Company have been eliminated in the consolidation.
Comprehensive
Loss
During
the periods ended June 30, 2021 and 2020, comprehensive loss was equal to the net loss amounts presented in the accompanying consolidated
statements of operations.
Going
Concern
Under
Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC
205-40”), the Company 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 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 the Company’s ability
to continue as a going concern in accordance with the requirement of ASC 205-40.
The
accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the SEC.
The consolidated financial statements have been prepared using U.S. GAAP applicable to a going concern that contemplates the realization
of assets and liquidation of liabilities in the normal course of business. The Company has accumulated significant losses and has negative
cash flows from operations and, at June 30, 2021, had a working capital deficit and accumulated deficit of $2.2 million and $32.7 million,
respectively. In addition, the Company’s cash position is critically deficient and critical payments are not being made in the
ordinary course of business, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Company’s
ability to continue as a going concern are as follows:
The
Company will incur substantial costs in connection with the acquisition of the Group from Rennova, 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 the Company, tax costs and costs to separate information systems, among other costs. The cost of performing such functions
is anticipated to be higher than the amounts reflected in the Company’s historical financial statements, which would cause its
future losses to increase. Accordingly, the Company will continue to focus on reducing its operating costs and increasing revenues.
There
can be no assurance that the Company will be able to achieve its business plan of increasing revenue and turning the Company profitable,
raise any additional capital or secure the additional financing necessary to implement its current business plan. The ability of the
Company to continue as a going concern is dependent upon its ability to increase its revenues and eventually achieve profitable operations.
The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant areas of estimation include estimating the
fair value of intangible assets acquired, the impairment of assets, accrued and contingent liabilities, and future income tax obligations
(benefits), among other items. Actual results could differ from those estimates which would impact future results of operations and cash
flows.
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
Revenue
Recognition
We
will 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:
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Identify
the contract(s) with a customer. |
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Identify
the performance obligations in the contract. |
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Determine
the transaction price. |
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Allocate
the transaction price to the performance obligations in the contract. |
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Recognize
revenue when or as you satisfy a performance obligation. |
Impairment
or Disposal 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 June 30, 2021 and 2020, the majority 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.
Fair
Value of Financial Instruments
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:
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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. |
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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). |
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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 June 30, 2021 and 2020, 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 years ended June 30, 2021 and
2020, there were no realized or unrealized gains on instruments valued using fair value evaluation methods.
Goodwill
and Other Intangible Assets
Goodwill
represents the excess of cost over the fair value of net assets acquired in connection with business acquisitions. Goodwill is tested
at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a business
for which financial information is available and is regularly reviewed by management. The Company assesses goodwill for impairment at
least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. The annual
impairment review is completed in the fourth quarter of the Company’s fiscal year.
If
the carrying amount of a reporting unit exceeds its fair value, the Company measures the possible goodwill impairment based upon an allocation
of the estimate of fair value to the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible
assets, based upon known facts and circumstances as if the acquisition occurred currently. The excess of the fair value of the reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized
to the extent the carrying value of goodwill exceeds the implied fair value of the goodwill.
Impairment
losses, if any, are reflected in operating income or loss in the Consolidated Statements of Operations. There were no impairment losses
for any period presented.
Income
Taxes
The
Company 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
June 30, 2021 and 2020. State income taxes will also be due on any income generated in the future.
Temporary Capital
The Company classifies its Series B and Series
C Convertible Preferred Stock as temporary equity 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 on a fixed dollar amount.
Basic
and Diluted Net Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with ASC 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.
Diluted
loss per share excludes all dilutive potential shares if their effect is antidilutive. As of June 30, 2021 and 2020, there were approximately
1,660,936,000
and 0
common stock equivalents, respectively,
which were antidilutive due to the Company’s losses.
Note
3 – Acquisition
The
Company acquired all of the common stock of the Group from Rennova on June 25, 2021, for a fair value purchase price of $8,173,319.
Regardless that the Company had zero revenues prior to the acquisition, the Company was actively conducting business and for that
reason the acquisition was accounted for as a business combination.
Below
is a summary of the assets acquired and liabilities assumed stated at fair market value on the date of acquisition:
Schedule
of Assets Acquired and Liabilities Assumed in Acquisition
| |
June 25, 2021 | |
Assets Acquired: | |
| | |
Cash | |
$ | 46 | |
Accounts Receivable | |
| 34,591 | |
Prepaid Expenses and other current assets | |
| 858 | |
Property and Equipment, net | |
| 711 | |
Intellectual Property | |
| 2,365,000 | |
Customer Relationships | |
| 66,000 | |
Tradename | |
| 473,000 | |
Goodwill | |
| 7,956,824 | |
| |
| | |
Total Assets Acquired | |
| 10,897,030 | |
| |
| | |
Liabilities Assumed | |
| | |
| |
| | |
Accounts payable | |
| 766,343 | |
Accrued Expenses | |
| 1,379,922 | |
Notes Payable | |
| 298,419 | |
| |
| | |
Total Liabilities Assumed | |
| 2,444,684 | |
| |
| | |
Net Assets Acquired | |
$ | 8,452,346 | |
The
following is an unaudited summary Statement of Operations as if the acquisition of the Group had taken place on July 1, 2020:
Summary
of Statement of Operations Acquisition
| |
Year Ended
June 30, 2021 | |
| |
| |
Net Revenues (including $271,524
from former Parent) | |
$ | 493,621 | |
| |
| | |
Operating Expenses | |
| | |
| |
| | |
Direct costs of revenues | |
| 7,166 | |
General and Administrative expenses | |
| 1,343,436 | |
Depreciation and amortization | |
| 195,055 | |
| |
| | |
Total Operating Expenses | |
| 1,545,657 | |
| |
| | |
Loss from operations | |
$ | (1,052,036 | ) |
| |
| | |
Other (Expense) | |
| (42,103 | ) |
| |
| | |
Net Loss | |
$ | (1,094,139 | ) |
| |
| | |
Net loss attributed to common stockholders | |
| (1,861,639 | ) |
Basic and Diluted (loss) per share | |
$ | (0.00 | ) |
Basic and Diluted weighted average common shares outstanding | |
| 234,953,286 | |
Note
4 – Correction of Error
The
Company determined that its intangible assets in the amount of $4,530,000
which consisted of new product development and
customer relationships were impaired prior to June 30, 2019 and should have been written off then. Retained earnings as of June 30, 2019
have been restated to reflect that correction.
Note
5– Accounts Receivable
Accounts
receivable at June 30, 2021 and 2020 consisted of the following:
Summary
of Accounts Receivable
| |
June 30, | | |
June 30, | |
| |
2021 | | |
2020 | |
Accounts receivable – third parties | |
$ | 35,466 | | |
$ | — | |
Less: | |
| | | |
| | |
Allowance for discounts | |
| (875 | ) | |
| — | |
Accounts receivable, net | |
$ | 34,591 | | |
$ | — | |
For
the years ended June 30, 2021 and 2020, bad debt expense (recovery), was $0 and $0, respectively.
Note
6 – Property and Equipment
Property
and equipment at June 30, 2021 and 2020 consisted of the following:
Summary
of Property and Equipment
| |
June 30, | | |
June 30, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Software | |
$ | 1,435,875 | | |
$ | — | |
Furniture | |
| 8,227 | | |
| — | |
Office equipment | |
| 24,883 | | |
| — | |
Computer equipment | |
| 330,179 | | |
| — | |
| |
| 1,799,164 | | |
| — | |
Less accumulated depreciation | |
| (1,798,453 | ) | |
| — | |
Property and equipment, net | |
$ | 711 | | |
$ | — | |
Depreciation
expense on property and equipment was zero for both the years ended June 30, 2021 and 2020, respectively. Management periodically reviews
the valuation of long-lived assets, including property and equipment, for potential impairment. Management did not recognize any impairment
of these assets during the years ended June 30, 2021 and 2020.
Note
7 – Intangible Assets
Intangible
assets at June 30, 2021 and 2020 consisted of the following:
Schedule of Intangible Assets
| |
June 30, | | |
June 30, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Intellectual Property | |
$ | 2,365,000 | | |
$ | — | |
Customer Relationships | |
| 66,000 | | |
| — | |
Tradename | |
| 473,000 | | |
| — | |
Accumulated Amortization | |
| — | | |
| | |
Intangible Assets | |
$ | 2,904,000 | | |
$ | — | |
The
Company acquired the above intangible assets in connection with its acquisition of the Group from Rennova on June 25, 2021 in exchange
for certain Preferred Stock and other consideration as explained in Note 1 above.
Management
of the Company has determined the above intangible assets have a fifteen-year life and will start amortizing them in fiscal 2022.
Amortization
of these intangible assets shall amount to $193,600 per year for the next fifteen years.
Note
8 – Accrued Expenses
Accrued
expenses at June 30, 2021 and 2020 consisted of the following:
Schedule
of Accrued Expenses
| |
June 30, | | |
June 30, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Accrued payroll and related liabilities | |
$ | 1,221,131 | | |
$ | — | |
Accrued legal | |
| 37,997 | | |
| — | |
Accrued interest | |
| 1,224 | | |
| — | |
Deferred revenue and customer deposits | |
| 43,914 | | |
| — | |
Other accrued expenses | |
| 75,656 | | |
| — | |
Accrued expenses | |
$ | 1,379,922 | | |
$ | — | |
Accrued expenses (includes related party of $374,473 on December 31, 2021) | |
$ | 1,379,922 | | |
$ | - | |
Note
9 – Notes Payable
The
carrying amount of notes payable as of June 30, 2021 and 2020 was as follows
Schedule
of Notes Payable
| |
June 30, 2021 | | |
June 30, 2020 | |
| |
$ | 134,153 | | |
$ | — | |
Note payable with the Department of Economic and Community Development in the original amount of $147,372 due in monthly payments of principal and interest totaling $2,132 beginning January 1, 2017 with a final payment due on October 1, 2022. Non-interest bearing. Payments were not made in 2021 or 2020. | |
$ | 134,153 | | |
$ | — | |
| |
| | | |
| | |
Paycheck Protection Program Loans (PPP Loans). The PPP Loans and accrued interest are forgivable as long as the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the Company terminates employees or reduces salaries. No collateral or guarantees were provided in connection with the PPP Loans. The unforgiven portion of the PPP Loans are payable over two years at an interest rate of 1.0% per annum, with a deferral of payments for the first sixteen months. Beginning sixteen months from the dates of issuance, the Company is required (if not forgiven) to make monthly payments of principal and interest to the lenders. The Company intends to use all of the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loans, it cannot assure you that it will not take actions that could cause the Company to be ineligible for forgiveness of the loans, in whole or in part. | |
| 164,301 | | |
| — | |
| |
| 298,454 | | |
| — | |
| |
| | | |
| | |
Less current portion | |
| 134,153 | | |
| — | |
| |
| | | |
| | |
Notes payable, long term, net of current portion | |
$ | 164,301 | | |
$ | — | |
In
July, 2021, Evolve Bank and Trust Company and the Small Business Administration, forgave $103,900 respectively of Paycheck Protection
Program Loans (PPP Loans) and related interest.
Note
10 – Temporary Capital and Stockholders’
Equity
Common
Stock
The
Company has authorized 325,000,000 shares of $.0001 par value Common Stock of which 234,953,286 and 249,418,545 shares are issued and
outstanding as of June 30, 2021 and 2020, respectively. These shares have 1 vote per share.
Preferred
Stock Series A
The
Company has authorized 1,000
shares of $0.0001
par value (stated value $10)
Series A Supermajority Voting Preferred Stock of which 1,000
are issued and outstanding as of June 30, 2021.
So long as one share of Series A Preferred Stock is outstanding, the outstanding shares of the Series
A Preferred Stock shall have the number of votes, in the aggregate, equal to 51% of all votes entitled to be voted at any stockholder
meeting. Epizon Limited will be able to exercise
control over all matters submitted for stockholder approval.
These shares have no rights to receive dividends and liquidation rights are equal to the stated value per share.
Preferred
Stock Series B
The
Company has authorized 25,000 shares of $0.0001 par value (stated value $1,000) Series B Convertible Redeemable Preferred Stock of which
14,000 are issued and outstanding as of June 30, 2021. These shares have no voting rights, dividends on these shares shall accrue at
the rate of 5% of the stated value per share and liquidation rights are equal to the stated value per share. These shares are convertible
into the Company’s Common Stock based on the stated value at a conversion price equal to 90% of the average closing price of the
Common Stock on the 10 Trading Days immediately prior to the Conversion Date but in any event no less than the par value of the Common
Stock. The Series B Preferred Stock may not be converted prior to the first anniversary of its issuance except with the consent of the
holders of a majority of the then outstanding shares, if any, of the Series A Preferred Stock. No conversion can be made to the extent
the holder’s beneficial interest (as defined pursuant to the terms of the Series B Preferred Stock) in the common stock of InnovaQor
would exceed 4.99%. These shares are redeemable at the option of the Company at their stated value plus declared and unpaid dividends.
Preferred
Stock Series C
The
Company has authorized 2,000 shares of $0.0001 par value (stated value $1,000) Series C Convertible Redeemable Preferred Stock of which
200 are issued and outstanding as of June 30, 2021. These shares have no voting rights, dividends on these shares shall accrue at the
rate of 10% of the stated value per share and liquidation rights are equal to the stated value per share. These shares are convertible
into the Company’s Common Stock based on the stated value at a conversion price equal to 90% of the average closing price of the
Common Stock on the 10 Trading Days immediately prior to the Conversion Date but in any event not less than the par value of the Common
Stock. The Series C Preferred Stock may not be converted prior to the first anniversary of its original issuance except with the consent
of the holders of a majority of the then outstanding shares, if any, of the Series A Preferred Stock. No conversion can be made to the
extent the holder’s beneficial interest (as defined pursuant to the terms of the Series C Preferred Stock) in the common stock
of InnovaQor would exceed 4.99%. These shares are redeemable at the option of the Company at their stated value plus declared and unpaid
dividends.
Note
11 – Income Taxes
The
provision for income taxes is zero in each of the periods presented due to the Company’s net operating loss carryforwards.
The
components of the net deferred tax asset (liability) are as follows:
Schedule
of Deferred Tax Assets and Liabilities
| |
June 30, 2021 | | |
June 30, 2020 | |
Net operating loss carryforward | |
$ | 8,498,931 | | |
$ | 8,366,912 | |
| |
| | | |
| | |
Subtotal | |
$ | 8,498,931 | | |
$ | 8,366,912 | |
Less valuation allowance | |
| (8,498,931 | ) | |
| (8,366,912 | ) |
Net deferred tax assets (liabilities) | |
$ | 0 | | |
$ | 0 | |
The
Company is unaware of any uncertain income tax positions. Tax returns for the last ten years have not yet been filed. All tax returns
are subject to IRS examination.
The
Company estimates that it has net operating loss carryforwards totaling approximately $33,688,000
as of June 30, 2021, the usage of which
is subject to certain limitations.
Following
is a reconciliation of the applicable federal income tax as computed at the federal statutory tax rate to the actual income taxes reflected
in the Statements of Operations for the years ended June 30, 2021 and 2020:
Schedule
of Effective Income Tax Rate Reconciliation
| |
June 30, 2021 | | |
June 30, 2020 | |
Tax provision at U.S. federal income tax rate | |
| -21 | % | |
| 21 | % |
State income tax provision net of federal | |
| -5 | % | |
| 5 | % |
Valuation allowance | |
| 26 | % | |
| -26 | % |
Provision for income taxes | |
| 0 | % | |
| 0 | % |
Note
12 – Related Party Transactions
The
former CEO of InnovaQor paid all the disbursements on behalf of the Company for all periods presented. The cash disbursements amounted
to $11,385 and $20,388 for the years ended June 30, 2021 and 2020, respectively, and are shown in the accompanying Statements of Operations,
operating expenses.
In
addition, for the year ended June 30, 2021, the Company incurred $500,000 for services of its former CEO in connection with the acquisition
of the Group, which is shown in the accompanying Statement of Operations as a General and Administrative expense.
The
above amounts are not necessarily indicative of what third parties would have agreed to.
In
the six months ended December 31, 2021, the former Parent advanced funds and paid expenses of InnovaQor in the amount of $374,473
which is shown as an accrued expense in the accompanying Condensed Consolidated Balance Sheet.
Note
13 – Commitments and Contingencies
Consulting
Agreement – the
Company entered into a consulting agreement effective June 1, 2021, with a company owned by the Company’s former CEO for
a period of one year to provide assistance in developing the Company’s business including communications with existing shareholders
and the general public. This company shall be paid $60,000 upon receipt of funding from an outside source or within 90 days of signing
the agreement. This has not yet been paid. Additionally, this company shall be paid $3,500 per month until the agreement expires.
Concentration
of Credit Risk - Credit risk with respect to accounts receivable is generally low due to the nature of the customers comprising
the customer base and the significant related party component. The Company does not require collateral or other security to support customer
receivables. However, the Company continually monitors and evaluates its client acceptance and collection procedures to minimize potential
credit risks associated with its accounts receivable and establishes an allowance for uncollectible accounts and, as a consequence, believes
that its accounts receivable credit risk exposure beyond such allowance is not material to the consolidated financial statements.
The
Company maintains its cash balances in high-credit-quality financial institutions. The Company’s cash balances may, at times, exceed
the deposit insurance limits provided by the Federal Deposit Insurance Corp.
Guarantees
Certain
entities of the Company have cross guaranteed debt obligations of their former Parent. As part of the acquisition transaction with the
Company, the former Parent received a release of guarantees from certain institutional lenders and has been working to settle other debt
obligations where certain entities of the Company remain a cross guarantor. In September 2021, a settlement agreement was entered into,
as more fully disclosed in the Legal Matters below, that is expected to remove any risk related to previous cross guarantees that were
provided in that matter. The Company believes that any risk associated with previous cross guarantees is now minimal and immaterial.
Legal
Matters
From
time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes,
employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course
of business. The Company operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware
that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company’s
consolidated financial position or results of operations. Management, in consultation with legal counsel, has addressed known assertions
and predicted unasserted claims below.
P2P
Staffing Corp. received a judgment against HTS during 2018 in the amount of $58,783 for amounts owed. As of June 30, 2021 and 2020, $10,464
was outstanding and owed for this judgment and included in accounts payable at each respective balance sheet date.
Two
former employees of CollabRx, Inc., one of the acquired subsidiaries, filed suits in a California state court against the former Parent,
Rennova, and CollabRx, Inc., in connection with amounts claimed to be owed under their respective employment
agreements with CollabRx, Inc. One former employee received a judgment for approximately $253,000. The other former employee received
a judgment for approximately $173,000.
ClinLab,
Medical Mime and HTS, as well as the former Parent, Rennova and many of its subsidiaries, were defendants in a case filed in Broward
County Circuit Court by TCA Global Credit Master Fund, L.P. The plaintiff alleged a breach by Medytox Solutions, Inc. of its obligations
under a debenture and claimed damages in excess of $2,000,000
plus interest, costs and fees. The other entities
were sued as alleged guarantors of the debenture. In May 2020, the SEC appointed a Receiver to close down the TCA Global Master Fund,
L.P. In September 2021, the parties entered into a settlement agreement with the Receiver to pay $500,000
as full and final settlement of all claims in
this matter. Subject to Rennova abiding by the terms of the settlement agreement, InnovaQor does not believe it has any risk or liability
in this matter. The Company has not recorded any liability for this obligation as it expects Rennova to complete payments per its
settlement agreement. Regardless of the going concern disclosure in Rennova’s filings, Rennova has succeeded in securing additional
capital when required and has paid $300,000 of the $500,000 settlement.
CTI
Consulting LLC filed suit against Health Technology Solutions, Inc. in September 2021, claiming approximately $45,000
as owed for services provided. The Company has
agreed to pay $5,000 per month until the obligation is satisfied.
Note
14 – Supplemental Disclosure of Cash Flow Information
Schedule
of Supplemental Disclosure of Cash Flow Information
| |
Year Ended June 30, | |
| |
2021 | | |
2020 | |
Cash paid for interest | |
$ | — | | |
$ | — | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Non-cash
investing and financing activities in connection with the acquisition consist of the following for the year ended June 30, 2021:
Schedule of Non-cash
Investing and financing activities
| |
Year ended
June 30, 2021 | |
Purchase of working capital deficit for preferred stock and debt forgiveness | |
$ | 2,110,770 | |
Purchase of fixed assets for preferred stock and debt forgiveness | |
| (711 | ) |
Purchase of intangibles for preferred stock and debt forgiveness | |
| (2,904,000 | ) |
Purchase of goodwill for preferred stock and debt forgiveness | |
| (7,956,824 | ) |
Assumption of long-term notes payable | |
| 298,454 | |
Consideration given | |
| 8,452,357 | |
Cash received | |
$ | 46 | |
There
were no non-cash investing and financing activities during the year ended June 30, 2020.
In
September 2021 the Company issued 950 shares of Series B Preferred Stock in payment of its post-closing liability in connection with
the acquisition of the Group on June 25, 2021.
Note
15 – Recent Accounting Pronouncements
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period recognized
in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date
and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for the Company for annual and interim periods
beginning after December 31, 2020. Early adoption of this standard is permitted. The adoption of this ASU by the Company did not have
a material impact on its consolidated results of operations, financial position and cash flows.
In
August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this standard, customers
will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The
adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation
costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU will be effective for the Company
for annual and interim periods beginning after December 31, 2020. Early adoption of this standard is permitted and may be applied either
prospectively to eligible costs incurred on or after the date of the new guidance or retrospectively. The adoption of this ASU by the
Company did not have a material impact on its consolidated results of operations, financial position and cash flows.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance
simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas
such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of
tax laws or rate changes. This standard will be effective for the Company for annual periods beginning after January 1, 2021, including
interim periods within those fiscal years. Adoption of this standard is permitted, including adoption of all amendments in any interim
period for which financial statements have not yet been issued. The adoption of this ASU by the Company did not have a material impact
on its consolidated results of operations, financial position and cash flows.
Other
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.
Note
16 – Subsequent Events
In
July 2021, Evolve Bank and Trust Company and the Small Business Administration forgave $103,900 Paycheck Protection Program Loans (PPP
Loans) and related interest.
For
the period July 1, 2021 through December 31, 2021, the former Parent, Rennova, has advanced funds and paid expenses of
the Company in the amount of $374,473.
This is included as a liability.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONDENSED
CONSOLIDATED BALANCE SHEETS
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INNOVAQOR,
INC.
(FORMERLY
VISUALMED CLINICAL SOLUTIONS CORPORATION)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Description of Business
InnovaQor,
Inc. (which changed its name from VisualMED Clinical Solutions Corporation in September 2021) (“InnovaQor” or the
“Company”) was incorporated in the State of Nevada on September 7, 1999. Its business plan involves the distribution of medical
software. It was primarily involved in activities related to the distribution of medical software through associated companies to
which it has granted operating and distribution licenses.
On
June 25, 2021, Rennova Health, Inc. (“Rennova”), a public reporting company, sold all the shares of stock of its subsidiaries,
HTS and AMSG, to InnovaQor.
In
consideration for the shares of HTS and AMSG (HTS Group) and the elimination of inter-company debt between Rennova and HTS and AMSG,
InnovaQor issued to Rennova 14,000
shares of its Series B Convertible Redeemable
Preferred Stock (the “Series B Preferred Stock”). The number of shares of Series B Preferred Stock was subject to a post-closing
adjustment which resulted in an additional 950
shares of Series B Preferred Stock due Rennova,
which were issued in September 2021. Each share of Series B Preferred Stock has a stated value of $1,000
and is convertible into that number of shares
of InnovaQor’s common stock equal to the product of the stated value divided by 90% of the average closing price of InnovaQor’s
common stock during the 10 trading days immediately prior to the conversion date. Conversion of the Series B Preferred Stock, however,
is subject to the limitation that no conversion can be made to the extent the holder’s beneficial interest (as defined pursuant
to the terms of the Series B Preferred Stock) in the common stock of InnovaQor would exceed 4.99%.
The shares of Series B Preferred Stock may be redeemed by InnovaQor upon payment of the stated value of the shares plus any declared
and unpaid dividends
On June 9, 2021, InnovaQor issued 1,000
shares of Series A Supermajority Voting Preferred Stock (the “Series A Preferred Stock”) to the then CEO of the Company,
Mr. Gerard Dab in exchange for $300,000
owed to Mr. Dab. The Series A Preferred Stock has the right to the number of votes equal to 51%
of the votes entitled to be cast at a meeting or to vote by written consent, meaning the owner of the Series A Preferred Stock has voting
control of the Company. Mr. Dab was a party to an agreement whereby he committed to transfer the Series A Preferred Stock to Epizon Limited,
a Nassau, Bahamas, based management consulting company. No financial consideration was received by Mr. Dab for the transfer of his
shares and these shares had a fair market value of $100,
as of the date of acquisition. Seamus Lagan, the
Chief Executive Officer of Rennova Health, Inc., the company we ultimately completed a transaction with, is also the managing director
of Epizon Limited. The conditions of the Epizon agreement to which Mr. Dab was a party have been met and the transfer of shares of Series
A Preferred Stock to Epizon has been completed. The terms of the agreement between Mr. Dab and Epizon had certain conditions including
a condition that within 120 days after a transaction was completed by VisualMED, subject to there not being any dispute or efforts to
unwind the transaction, then Mr. Dab would deliver the Preference A shares owed by him, to Epizon. Epizon Limited will be able to exercise
control over all matters submitted for stockholder approval.
InnovaQor issued 200 shares of Series C Convertible
Redeemable Preferred Stock (the “Series C Preferred Stock”) to InnovaQor’s former CEO, Mr. Gerard Dab in exchange for
$200,000 owed to him. Additionally, Mr. Dab returned 14,465,259 shares of Common Stock in InnovaQor for cancellation.
The
goal of the Company is to develop and deliver a technology-based communication platform to a broad range of healthcare professionals
and businesses using a subscription revenue model with added value bolt on services.
InnovaQor
has six wholly-owned subsidiaries that provide medical support services primarily to clinical laboratories, corporate operations,
rural hospitals, physician practices and behavioral health/substance abuse centers.
Health
Technology Solutions, Inc. (“HTS”): HTS provides information technology and software solutions to our subsidiaries and
outside medical service providers. HTS provides vCIO, IT managed services and data analytics dashboards to our subsidiaries and
outside medical service providers. HTS operates from the corporate offices in West Palm Beach, Florida. HTS is actively
conducting business operations servicing Rennova, the former parent company.
Medical
Mime, Inc. (“Mime”): Mime was formed on May 9, 2014. It specializes in electronic health records (EHR) software and subscription
services for the behavioral health and rehabilitation market segments. It currently serves nine behavioral health/substance abuse facilities
Mime is actively conducting business and seeking new business.
ClinLab,
Inc. (“ClinLab”): ClinLab develops and markets laboratory information management systems to mid-size clinical laboratories.
It currently services 13 clinical laboratories across the country. ClinLab is actively conducting business and seeking new business.
AMSG
owns CollabRx, Inc. (“CollabRx”) and Genomas, Inc. (“Genomas”), each of which is an inactive operation.
Genomas
operated a diagnostics lab until December 31, 2019 and was focused solely on the pharmacogenomics technology and platform,
MedTuning, to interpret diagnostics outcomes and translate these outcomes into easily usable information to indicate the effectiveness
of medications for a patient. This solution would require minimum effort to be back in operation. CollabRx owns a technology platform
and database for interpreting diagnostics outcomes from cancer patients and can match the result to known treatments and or clinical
trials. This solution has been dormant for a number of years and to be viable in the marketplace will require updates to the technology
and the database.
Each
of the subsidiaries is wholly owned by the Company and complements each other, allowing for cross selling of products and services. The
Company believes the current solutions will become an added value option to a technology-based communication platform to a broad range
of healthcare professionals and businesses using a subscription revenue model with added value bolt on services, the Company plans to
develop.
Existing
products offered by the Company’s subsidiaries are as follows:
“Medical
Mime” is a custom built, cloud based, electronic health record which meets
the needs of substance abuse treatment and behavioral health providers.
Medical Mime’s specialized clinical workflow provides intuitive prompts for symptoms and enables you to quickly select problems
and create master treatment plans with goals, objectives, and interventions.
Medical Mime provides best-in-class patient lifecycle management for Behavioral Health/Substance Abuse (BH/SA) treatment centers. From
pre-admission to billing and aftercare, Medical Mime is an electronic health record and patient management software that seamlessly integrates
into the natural workflow of day-to-day operations.
“M2Pro”
is a custom built, cloud based, electronic health record for ambulatory physician practices that meets meaningful use stage 2 and no
further. Its unique dictation services further automate the workflow process for physicians allowing them to focus on their continuum
of patient care.
“ClinLab”
is a turnkey client/server lab information system for mid-range laboratories. ClinLab supports interfaces to all major reference labs
and the ClinLab team can provide an interface to any system with that capability. ClinLab also features an optional EHR package which
enables interfacing with the most popular EHR systems allowing lab test results to integrate seamlessly into a provider’s EHR for
an improved patient record and to fulfill the federal government requirements.
“Qira”
is our healthcare business analytics tool powered by PowerBI. It is a culmination of healthcare financial and revenue cycle management
plus clinical operations oversight needs. It aggregates data from multiple healthcare systems to produce a single source business intelligence
tool with executive level daily briefing to deep dive operational management of claims and operational efficiencies. There are many other
analytical services available that customize solutions but none that have a proven template for success. Our competitive advantage comes
from having created these tools to identify the deficiencies in the real world for the former parent Rennova from its former national
laboratory operations to its more recent rural hospitals.
“vCIO
Services”. Based on the skills and experience inherent within InnovaQor and resulting from work undertaken on behalf of the former
parent, Rennova, InnovaQor offers a range of CIO services centered on our ability to link IT systems to business objectives combined
with our knowledge of technology trends likely to impact our sector. The CIO services would include (but not be limited to):
|
● |
Program and Project Management |
|
● |
Business Continuity and Disaster Recovery |
|
● |
Security Services |
|
● |
Business Intelligence and Analytics |
|
● |
Network Infrastructure Management |
|
● |
Helpdesk Provision |
“MedTuning”
utilizes proprietary biomarkers, treatment algorithms, and a web-based interactive physician portal delivery system to provide clinical
decision support for physicians and personalized drug treatment for patients. Products are DNA-guided to improve the therapeutic benefit
of widely used prescription drugs while also reducing the risk of significant side effects for patients.
Medical
Informatics: Our technology platform, proprietary algorithms and physician interface portal can be extended to a wide range of drug categories.
Research
and Development: Technology platform applicable to numerous disease states; current pipeline in mental health, pain management, cardiovascular
and diabetes.
“Advantage”
is a proprietary HIPAA compliant software developed to eliminate the need for paper requisitions by providing an easy to use and efficient
web-based system that lets customers securely place lab orders, track samples and view test reports in real time from any web-enabled
laptop, notepad or smart phone.
In
the coming year we plan to develop, acquire or license and offer a telehealth solution through corporate partnerships in the emerging
health technology sector.
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
condensed consolidated financial statements include the accounts of the InnovaQor and its wholly-owned subsidiaries, Advanced
Molecular and Health Technology Solutions Group (such subsidiaries, collectively, the “Group”) since the date of acquisition
on June 25, 2021, and 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 December 31, 2021 and 2020 have been derived from unaudited financial
statements. 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.
Comprehensive
Loss
During
the six months ended December 31, 2021 and 2020, comprehensive loss was equal to the net loss amounts presented in the
accompanying condensed consolidated statements of operations.
Going
Concern
Under
Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) Accounting
Standards Codification (“ASC 205-40”), the Company 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 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 the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.
The
accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations
of the SEC. The condensed consolidated financial statements have been prepared using U.S. GAAP applicable to a going concern that contemplates
the realization of assets and liquidation of liabilities in the normal course of business. The Company has accumulated significant losses
and has negative cash flows from operations and, at December 31, 2021, had a working capital deficit and accumulated deficit of
$2.8 million
and $33.3 million,
respectively. In addition, the Company’s cash position is critically deficient and critical payments are not being made in the
ordinary course of business, all of which raises substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt
about the Company’s ability to continue as a going concern are as follows:
The
Company will incur substantial costs in connection with the acquisition of the Group from Rennova, 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 the Company, tax costs and costs to separate information systems, among other costs. The cost of performing such functions
is anticipated to be higher than the amounts reflected in the Company’s historical financial statements, which would cause its
future losses to increase. Accordingly, the Company will continue to focus on reducing its operating costs and increasing revenues.
There
can be no assurance that the Company will be able to achieve its business plan, raise any additional capital or secure the additional
financing necessary to implement its current operating plan. The ability of the Company to continue as a going concern is dependent upon
its ability to increase its revenues and eventually achieve profitable operations. The accompanying condensed consolidated financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant areas of estimation include estimating the
fair value of intangible assets acquired, the impairment of assets, accrued and contingent liabilities, and future income tax obligations
(benefits), among other items. Actual results could differ from those estimates and would impact future results of operations and cash
flows.
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
Revenue
Recognition
We
will 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. |
Revenue is recognized when control of the promised
services is transferred to the Company’s customers in an amount that reflects the consideration expected to be entitled to in exchange
for those services. As the Company completes its performance obligations which are identified in Note 10 below, 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
hour rate.
Impairment
or Disposal 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 December 31, 2021 and June 30, 2021, the majority 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.
Fair
Value of Financial Instruments
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 December 31, 2021 and June 30, 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 six
months ended December 31, 2021 and 2020, there were no realized and unrealized gains on instruments valued using fair value evaluation
methods.
Goodwill
and Other Intangible Assets
Goodwill
represents the excess of cost over the fair value of net assets acquired in connection with business acquisitions. Goodwill is tested
at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a business
for which financial information is available and is regularly reviewed by management. The Company assesses goodwill for impairment at
least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. The annual
impairment review is completed in the fourth quarter of the Company’s fiscal year.
If
the carrying amount of a reporting unit exceeds its fair value, the Company measures the possible goodwill impairment based upon an allocation
of the estimate of fair value to the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible
assets, based upon known facts and circumstances as if the acquisition occurred currently. The excess of the fair value of the reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized
to the extent the carrying value of goodwill exceeds the implied fair value of the goodwill.
Impairment
losses, if any, will be reflected in operating income or loss in the Condensed Consolidated Statements of Operations.
Income
Taxes
The
Company 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
December 31, 2021 and 2020. State income taxes will also be due on any income generated in the future.
Temporary Capital
The Company classifies its Series B and Series
C Convertible Preferred Stock as temporary equity 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 on a fixed dollar amount.
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 December 31, 2021 and 2020 there were approximately
1,773,099,415
and 0,
respectively, common stock equivalents which where antidilutive due to the Company’s losses.
Note
3 – Acquisition
The Company acquired
all of the common stock of the Group from Rennova on June 25, 2021, for a purchase price of $8,173,319.
The
following is an unaudited summary Statement of Operations as if the acquisition of the Group had taken place on July 1, 2020:
Summary of Statement of Operations Acquisition
|
|
Six
Months ended December 31, 2020 | |
Net Revenues (including $185,892
from former parent) |
|
$ | 266,446 | |
Net Revenues |
|
$ | 266,446 | |
|
|
| | |
Operating Expenses |
|
| | |
|
|
| | |
Direct costs of revenues |
|
| — | |
General and Administrative expenses |
|
| 794,262 | |
Depreciation and amortization |
|
| 96,800 | |
|
|
| | |
Total Operating Expenses |
|
| 891,062 | |
|
|
| | |
Loss from Operations |
|
$ | (624,616 | ) |
|
|
| | |
Other (Expense) |
|
| (62,703 | ) |
|
|
| | |
Net Loss |
|
$ | (687,319 | ) |
|
|
| | |
Basic and Diluted (loss) per share |
|
$ | (0.00 | ) |
Basic and Diluted weighted average common shares outstanding |
|
| 234,953,286 | |
Note
4 – Accounts Receivable
Accounts
receivable at December 31, 2021 and June 30, 2021 consisted of the following:
Summary of Accounts Receivable
| |
December 31, | | |
June 30, | |
| |
2021 | | |
2021 | |
Accounts receivable – third parties | |
$ | 32,800 | | |
$ | 35,466 | |
Less: | |
| | | |
| | |
Allowance for discounts | |
| — | | |
| (875 | ) |
Accounts receivable, net | |
$ | 32,800 | | |
$ | 34,591 | |
For
the six months ended December 31, 2021 and 2020, bad debt expense (recovery), was $2,275
and $0,
respectively.
Note
5 – Property and Equipment
Property
and equipment at December 31, 2021 and June 30, 2021 consisted of the following:
Summary of Property and Equipment
| |
December 31, | | |
June 30, | |
| |
2021 | | |
2021 | |
| |
| | |
| |
Software | |
$ | 1,435,875 | | |
$ | 1,435,875 | |
Furniture | |
| 8,227 | | |
| 8,227 | |
Office equipment | |
| 30,931 | | |
| 24,883 | |
Computer equipment | |
| 324,131 | | |
| 330,179 | |
Property, plant and equipment, gross | |
| 1,799,164 | | |
| 1,799,164 | |
Less accumulated depreciation | |
| (1,799,164 | ) | |
| (1,798,453 | ) |
Property and equipment, net | |
$ | — | | |
$ | 711 | |
Depreciation
expense on property and equipment was $711
and $0
for the six months ended December
30, 2021 and 2020, respectively. Management periodically reviews the valuation of long-lived assets, including property and equipment,
for potential impairment.
Note
6 – Intangible Assets
Intangible
assets at December 31, 2021 and June 30, 2021 consisted of the following:
Schedule of Intangible Assets
| |
December 31, | | |
June 30, | |
| |
2021 | | |
2021 | |
| |
| | |
| |
Intellectual Property | |
$ | 2,365,000 | | |
$ | 2,365,000 | |
Customer Relationships | |
| 66,000 | | |
| 66,000 | |
Tradename | |
| 473,000 | | |
| 473,000 | |
Accumulated Amortization | |
| (96,800 | ) | |
| — | |
Intangible Assets | |
$ | 2,807,200 | | |
$ | 2,904,000 | |
The
Company acquired the above intangible assets in connection with its acquisition of the Group from Rennova on June 25, 2021, in
exchange for certain Preferred Stock and other consideration as explained in Note 1 above.
Management
of the Company has determined the above intangible assets have a fifteen-year
life and started amortizing them in fiscal 2022. Amortization expense amounted to $96,800
for the six months ended December
31, 2021.
Amortization
for these intangible assets shall amount to $193,600 per year for the next fifteen years.
Note
7 – Accrued Expenses
Accrued
expenses at December 31, 2021 and June 30, 2021 consisted of the following:
Schedule of Accrued Expenses
| |
December 31, | | |
June 30, | |
| |
2021 | | |
2021 | |
| |
| | |
| |
Accrued payroll and related liabilities | |
$ | 1,331,918 | | |
$ | 1,221,131 | |
Accrued legal | |
| 37,997 | | |
| 37,997 | |
Accrued interest | |
| 384 | | |
| 1,224 | |
Deferred revenue and customer deposits | |
| 24,471 | | |
| 43,914 | |
Other accrued expenses (includes related party of $374,473
on December 31, 2021) | |
| 475,823 | | |
| 75,656 | |
Accrued expenses | |
$ | 1,870,593 | | |
$ | 1,379,922 | |
Accrued expenses | |
$ | 1,870,593 | | |
$ | 1,379,922 | |
Note
8 – Notes Payable
The
carrying amount of notes payable as of December 31, 2021 and June 30, 2021 was as follows:
Schedule of Notes Payable
| |
December 31, | | |
June 30, | |
| |
2021 | | |
2021 | |
| |
| | |
| |
| |
$ | 134,153 | | |
$ | 134,153 | |
Note payable with the Department of Economic and Community Development in the original amount of $147,372 due in monthly payments of principal and interest totaling $2,132 beginning January 1, 2017 with a final payment due on October 1, 2022. Non-interest bearing. Payments were not made in 2021 or 2020. | |
$ | 134,153 | | |
$ | 134,153 | |
| |
| | | |
| | |
Paycheck Protection Program Loans (PPP Loans). The PPP Loans and accrued
interest are forgivable as long as the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and
utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the Company terminates employees or
reduces salaries. No collateral or guarantees were provided in connection with the PPP Loans. The unforgiven portion of the PPP Loans
are payable over two years at an interest rate of 1.0%
per annum, with a deferral of payments for the first sixteen months. Beginning sixteen months from the dates of issuance, the Company
is required (if not forgiven) to make monthly payments of principal and interest to the lenders. The Company intends to use all of
the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet
the conditions for forgiveness of the loans, it cannot assure you that it will not take actions that could cause the Company to be
ineligible for forgiveness of the loans, in whole or in part. | |
| 60,401 | | |
| 164,301 | |
| |
| 194,554 | | |
| 298,454 | |
Less current portion | |
| 134,153 | | |
| 134,153 | |
Notes payable, long term, net of current portion | |
$ | 60,401 | | |
$ | 164,301 | |
In
July 2021, Evolve Bank and Trust Company and the Small Business Administration, forgave $103,900 of Paycheck Protection
Program Loans (PPP Loans) and related interest.
Note
9 – Temporary Capital and Stockholders’
Equity
Common
Stock
The
Company has authorized 325,000,000 shares
of $0.0001 par
value Common Stock of which 234,953,286
are issued and outstanding as of December 31, 2021 and
June 30, 2021. These shares have 1 vote per share.
Preferred
Stock Series A
The
Company has authorized 1,000
shares of $0.0001
par value (stated value $10)
Series A Supermajority Voting Preferred Stock of which 1,000
are issued and outstanding as of December
31, 2021 and June 30, 2021. So long as one share of Series A Preferred Stock is outstanding, the outstanding shares of the Series
A Preferred Stock shall have the number of votes, in the aggregate, equal to 51% of all votes entitled to be voted at any stockholder
meeting. These shares have no rights to receive dividends and liquidation rights are equal to the stated value per share.
Preferred
Stock Series B
The
Company has authorized 25,000
shares of $0.0001
par value (stated value $1,000)
Series B Convertible Redeemable Preferred Stock of which 14,950
and 14,000
are issued and outstanding as of December
31, 2021 and June 30, 2021, respectively. These shares have no voting rights, dividends on these shares shall accrue at the rate
of 5% of the stated value per share and liquidation rights are equal to the stated value per share. These shares are convertible into the Company’s
Common Stock based on the stated value at a conversion price equal to 90%
of the average closing price of the Common Stock on the 10
Trading Days immediately prior to the Conversion
Date but in any event no less than the par value of the Common Stock. The Series B Preferred Stock may not be converted prior
to the first anniversary of its issuance except with the consent of the holders of a majority of the then outstanding shares, if any,
of the Series A Preferred Stock. No conversion can be made to the extent the holder’s beneficial interest (as defined pursuant
to the terms of the Series B Preferred Stock) in the common stock of InnovaQor would exceed 4.99%.
These shares are redeemable at the option of the Company at their stated value plus declared and unpaid dividends.
Preferred
Stock Series C
The
Company has authorized 2,000
shares of $0.0001
par value (stated value $1,000)
Series C Convertible Redeemable Preferred Stock of which 200
are issued and outstanding as of December
31, 2021 and June 30, 2021. These shares have no voting rights, dividends on these shares shall accrue at the rate of 10% of the stated value per share and liquidation rights are equal to the stated value per share. These shares are convertible into the Company’s
Common Stock based on the stated value at a conversion price equal to 90%
of the average closing price of the Common Stock on the 10
Trading Days immediately prior to the Conversion
Date but in any event no less than the par value of the Common Stock. The Series C Preferred Stock may not be converted prior to the
first anniversary of its original issuance except with the consent of the holders of a majority of the then outstanding shares, if any,
of the Series A Preferred Stock. No conversion can be made to the extent the holder’s beneficial interest (as defined pursuant
to the terms of the Series C Preferred Stock) in the common stock of InnovaQor would exceed 4.99%.
These shares are redeemable at the option of the Company at their stated value plus declared and unpaid dividends.
Note 10 – Revenue
The Company had no revenue for the six months
ended December 31, 2020. Revenue consists of the following for the six months ended December 31, 2021:
Schedule
Of Revenue
| |
December 31, | |
| |
2021 | |
| |
| |
Dashboards | |
$ | 41,106 | |
IT Managed Services | |
| 51,480 | |
Software and Interfaces | |
| 49,959 | |
Support and Maintenance | |
| 48,959 | |
vCIO Services | |
| 20,313 | |
Software Licenses Fees | |
| 31,494 | |
Other | |
| 2,680 | |
Total Revenue | |
$ | 245,991 | |
Generally, work is billed monthly by the hour at agreed upon hour rates
for all of the above revenue streams.
For all 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 separate and distinct
and provides a separate and distinct value to the customer. Pricing is generally consistent for each service irrespective of the other
services or quantities requested by the customer.
When the Company receives consideration from a
customer prior to transferring services to the customer under the terms of the contract, it records deferred revenues on the Company’s
consolidated balance sheet, which represents a contract liability.
The Company has an internal sales force compensation
program where remuneration is based solely on the revenues recognized in the period and does not represent an incremental cost to the
Company which provides a future benefit expected to be longer than one year and would meet the criteria to be capitalized and presented
as a contract asset on the Company’s consolidated balance sheet.
Note
11 – Related
Party Transactions
Mr.
Dab, the former CEO of InnovaQor, paid some
of the disbursements on behalf of the Company for the six months ended December 31, 2021 and 2020. The disbursements
amounted to $24,993
and $7,670, respectively, and are shown in
the accompanying Condensed Consolidated Statements of Operations.
In
the six months ended December 31, 2021, the former Parent advanced funds and paid expenses of InnovaQor in the amount of
$374,473
which is shown as an accrued expense in the accompanying
Condensed Consolidated Balance Sheet.
The
above amounts are not indicative of what third parties would have agreed to.
Note
12 – Commitments and Contingencies
Consulting
Agreement – the
Company entered into a consulting agreement effective June 1, 2021, with a company owned by Mr. Dab, the Company’s
former CEO, for a period of one year to provide assistance in developing the Company’s business including communications
with existing shareholders and the general public. This company shall be paid $60,000 upon receipt of funding from an outside source
or within 90 days of signing the agreement. This has not yet been paid. Additionally, this company shall be paid $3,500 per month until
the agreement expires.
Concentration
of Credit Risk - Credit risk with respect to accounts receivable is generally low due to the nature of the customers comprising
the customer base and the significant related party component. The Company does not require collateral or other security to support customer
receivables. However, the Company continually monitors and evaluates its client acceptance and collection procedures to minimize potential
credit risks associated with its accounts receivable and establishes an allowance for uncollectible accounts and, as a consequence, believes
that its accounts receivable credit risk exposure beyond such allowance is not material to the condensed consolidated financial statements.
The
Company maintains its cash balances in high-credit-quality financial institutions. The Company’s cash balances may, at times, exceed
the deposit insurance limits provided by the Federal Deposit Insurance Corp.
Guarantees
Certain
subsidiaries of the Company have guaranteed debt obligations of their former Parent. As part of the transaction with the Company,
the former Parent received a release of guarantees from certain institutional lenders and has been working to settle other debt obligations
where certain subsidiaries of the Company remain a guarantor. In September 2021, the former Parent entered into a settlement agreement,
as more fully disclosed in the Legal Matters below, that is expected to reduce any risk related to previous guarantees that
were provided in that matter. The Company believes that any risk associated with previous guarantees is now minimal and immaterial.
Legal
Matters
From
time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes,
employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course
of business. The Company operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware
that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company’s
condensed consolidated financial position or results of operations. Management, in consultation with legal counsel, has addressed known
assertions and predicted unasserted claims below.
P2P
Staffing Corp. received a judgment against HTS during 2018 in the amount of $58,783
for amounts owed. As of December 31, 2021
and June 30, 2021, $10,464
was outstanding and owed for this judgment and
included in accounts payable at each respective balance sheet date.
Two
former employees of CollabRx, Inc., one of the acquired subsidiaries, filed suits in a California state court against the former Parent,
Rennova, and CollabRx, Inc., in connection with amounts claimed to be owed under their respective employment
agreements with CollabRx, Inc. One former employee received a judgment for approximately $253,000. The other former employee received
a judgment for approximately $173,000.
ClinLab,
Medical Mime and HTS, as well as the former Parent, Rennova and many of its subsidiaries, were defendants in a case filed in Broward
County Circuit Court by TCA Global Credit Master Fund, L.P. The plaintiff alleged a breach by Medytox Solutions, Inc. of its
obligations under a debenture and claimed damages in excess of $2,000,000 plus
interest, costs and fees. The other entities were sued as alleged guarantors of the debenture. In May 2020, the SEC appointed a
Receiver to close down the TCA Global Master Fund, L.P. In September 2021, the parties entered into a settlement agreement with the
Receiver to pay $500,000 as
full and final settlement of all claims in this matter. Subject to Rennova abiding by the terms of the settlement agreement,
InnovaQor does not believe it has any risk or liability in this matter. The Company has not recorded any liability for this
obligation as it expects Rennova to complete payments per its settlement agreement. Regardless of the going concern disclosure in
Rennova’s filings, Rennova has succeeded in securing additional capital when required and has paid $300,000
of the $500,000
settlement at this time.
CTI
Consulting LLC filed suit against Health Technology Solutions, Inc. in September 2021 claiming approximately $45,000
as owed for services provided. The Company
has agreed to pay $5,000 per month until the obligation is satisfied.
Note
13 – Supplemental Disclosure of Cash Flow Information
Schedule
of Supplemental Disclosure of Cash Flow Information
| |
2021 | | |
2020 | |
| |
Six Months Ended December 31, | |
| |
2021 | | |
2020 | |
Cash paid for interest | |
$ | — | | |
$ | — | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
In
September 2021 the Company issued 950 shares of Series B Preferred Stock in payment of its post-closing liability in connection with
the acquisition of the Group on June 25, 2021.
Note
14 – Recent Accounting Pronouncements
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period recognized
in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date
and categorized within Level 3 of the fair value hierarchy. This ASU is effective for the Company for annual and interim periods
beginning after December 31, 2020. Early adoption of this standard is permitted. The adoption of this ASU by the Company did not have
a material impact on its consolidated results of operations, financial position and cash flows.
In
August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this standard, customers
will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The
adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation
costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU is effective for the
Company for annual and interim periods beginning after December 31, 2020. Early adoption of this standard is permitted and may be applied
either prospectively to eligible costs incurred on or after the date of the new guidance or retrospectively. The adoption of this ASU
by the Company did not have a material impact on its consolidated results of operations, financial position and cash flows.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance
simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas
such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of
tax laws or rate changes. This standard is effective for the Company for annual periods beginning after January 1, 2021, including
interim periods within those fiscal years. Early adoption of this standard is permitted, including adoption of all amendments in any
interim period for which financial statements have not yet been issued. The adoption of this ASU by the Company did not have a material
impact on its consolidated results of operations, financial position and cash flows.
Other
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.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
COMBINED
BALANCE SHEETS
| |
December 31, | | |
December 31, | |
| |
2020 | | |
2019 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 31,294 | | |
$ | 16,667 | |
Accounts receivable, net (includes $135,687 and $440,425, respectively, of related
party accounts receivable) | |
| 151,363 | | |
| 482,472 | |
Prepaid expenses and other current assets | |
| 1,717 | | |
| 5,150 | |
Total current assets | |
| 184,374 | | |
| 504,289 | |
| |
| | | |
| | |
Property and equipment, net | |
| 685 | | |
| 3,354 | |
Deposits | |
| — | | |
| 6,029 | |
| |
| | | |
| | |
Total assets | |
$ | 185,059 | | |
$ | 513,672 | |
| |
| | | |
| | |
LIABILITIES AND PARENT’S NET INVESTMENT DEFICIT IN ADVANCED MOLECULAR
AND HEALTH TECHNOLOGY SOLUTIONS GROUP | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable (includes $0 and $106,976, respectively, of related party accounts
payable) | |
$ | 726,220 | | |
$ | 805,652 | |
Accrued expenses | |
| 1,308,283 | | |
| 1,350,106 | |
Current portion of notes payable | |
| 134,118 | | |
| 256,274 | |
Total current liabilities | |
| 2,168,621 | | |
| 2,412,032 | |
| |
| | | |
| | |
Notes Payable – Long term | |
| 103,900 | | |
| — | |
| |
| | | |
| | |
Total Liabilities | |
| 2,272,521 | | |
| 2,412,032 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Parent’s net investment deficit in Advanced Molecular
and Health Technology Solutions Group | |
| (2,087,462 | ) | |
| (1,898,360 | ) |
Total liabilities and Parent’s net investment deficit | |
$ | 185,059 | | |
$ | 513,672 | |
The
accompanying notes are an integral part of these combined financial statements.
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
COMBINED
STATEMENTS OF OPERATIONS
| |
Year Ended December 31, | |
| |
2020 | | |
2019 | |
Net Revenues | |
$ | 528,624 | | |
$ | 1,109,135 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Direct costs of revenue | |
| 5,536 | | |
| 150,205 | |
General and administrative expenses | |
| 1,043,242 | | |
| 1,586,633 | |
Engineering | |
| — | | |
| 26,407 | |
Depreciation | |
| 2,168 | | |
| 2,437 | |
Total operating expenses | |
| 1,050,946 | | |
| 1,765,682 | |
| |
| | | |
| | |
Loss from operations | |
| (522,322 | ) | |
| (656,547 | ) |
| |
| | | |
| | |
Other (expense) income: | |
| | | |
| | |
Other (expense) income, net | |
| 24,668 | | |
| (38,680 | ) |
Interest expense and payroll tax penalties | |
| (108,797 | ) | |
| (24,091 | ) |
Total other (expense) income | |
| (84,129 | ) | |
| (62,771 | ) |
| |
| | | |
| | |
Loss before income taxes | |
| (606,451 | ) | |
| (719,318 | ) |
| |
| | | |
| | |
Provision for income taxes | |
| – | | |
| – | |
| |
| | | |
| | |
Net loss | |
$ | (606,451 | ) | |
$ | (719,318 | ) |
The
accompanying notes are an integral part of these combined financial statements.
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
COMBINED
STATEMENTS OF CASH FLOWS
| |
Year Ended December 31, | |
| |
2020 | | |
2019 | |
| |
| | |
| |
Cash flows (used in) provided by operating activities: | |
| | | |
| | |
Net loss | |
$ | (606,451 | ) | |
$ | (719,318 | ) |
Adjustments to reconcile net loss to net cash (used in) operations: | |
| | | |
| | |
Depreciation | |
| 2,168 | | |
| 2,437 | |
Non-cash interest | |
| — | | |
| 5,262 | |
Write off of Fixed Assets | |
| 501 | | |
| — | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 331,109 | | |
| (383,512 | ) |
Prepaid expenses and other current assets | |
| 3,433 | | |
| 30,627 | |
Deposits | |
| 6,029 | | |
| — | |
Accounts payable | |
| (79,432 | ) | |
| 24,529 | |
Accrued expenses | |
| (41,823 | ) | |
| 436,942 | |
Net cash (used in) operating activities | |
| (384,466 | ) | |
| (603,030 | ) |
| |
| | | |
| | |
Cash flows provided by investing activities: | |
| | | |
| | |
Net cash provided by investing activities | |
| — | | |
| — | |
| |
| | | |
| | |
Cash flows provided by financing activities: | |
| | | |
| | |
Loans from parent | |
| 417,349 | | |
| 640,716 | |
Payments on notes payable | |
| (122,156 | ) | |
| (27,827 | ) |
Proceeds from Paycheck Protection Program Loans | |
| 103,900 | | |
| — | |
Net cash provided by financing activities | |
| 399,093 | | |
| 612,889 | |
| |
| | | |
| | |
Net increase in cash | |
| 14,627 | | |
| 9,859 | |
| |
| | | |
| | |
Cash at beginning of period | |
| 16,667 | | |
| 6,808 | |
| |
| | | |
| | |
Cash at end of period | |
$ | 31,294 | | |
$ | 16,667 | |
The
accompanying notes are an integral part of these combined financial statements.
NOTES
TO COMBINED FINANCIAL STATEMENTS OF
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
Note
1 – The Proposed Separation and Basis of Presentation
During
2017, Rennova Health, Inc. (“Rennova” or the “Parent”), the Parent of the Advanced Molecular Services Group,
Inc. (“AMSG”) and Health Technology Solutions, Inc. (“HTS”) (collectively, the “Advanced Molecular and
Health Technology Solutions Group,” or the “Group”), announced its intent to separate the Group into one or more separate
public entities with AMSG holding and operating Rennova’s pharmacogenomics business and HTS holding and operating Rennova’s
supportive software solutions business. Pharmacogenomics is the genetic process to understand how an individual’s genetic attributes
affect the likely response to therapeutic drugs. HTS’s supportive software solutions business includes electronic health records,
medical billing services and laboratory information management systems. AMSG is a wholly-owned subsidiary of Rennova that was formed
on May 4, 2017 and HTS is a wholly-owned subsidiary of Rennova that was formed on June 22, 2011.
AMSG’s
financial results include the assets and operations of CollabRx, Inc. and Genomas, Inc. Genomas, Inc. operated a diagnostics lab until
December 31, 2019 and is now focused solely on the technology and platform to interpret diagnostics outcomes and translate these outcomes
into easily usable information. HTS’s financial results include the assets and operations of two other strategic businesses owned
by Rennova: ClinLab, Inc.; and Medical Mime, Inc. HTS’s results do not include Platinum Financial Solutions, LLC. which has been
left with Rennova. AMSG and HTS each operate as separate segments of the Group. After the separation, Rennova will retain full ownership
of its remaining businesses.
On
June 25, 2021 Rennova sold the shares of stock of its subsidiaries, HTS and AMSG to VisualMED Clinical Solutions Corp. (“VisualMED”).
In
consideration for the shares of HTS and AMSG and the elimination of inter-company debt between Rennova and HTS and AMSG, VisualMED
issued to Rennova 14,000 shares of its Series B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”).
The number of shares of Series B Preferred Stock will be subject to a post-closing adjustment. Each share of Series B Preferred Stock
has a stated value of $1,000 and is convertible into that number of shares of VisualMED common stock equal to the product of the stated
value divided by 90% of the average closing price of the VisualMED common stock during the 10 trading days immediately prior to the conversion
date. Conversion of the Series B Preferred Stock, however, is subject to the limitation that no conversion can be made to the extent
the Company’s beneficial interest (as defined pursuant to the terms of the Series B Preferred Stock) in the common stock of VisualMED
would exceed 4.99%. The shares of Series B Preferred Stock may be redeemed by VisualMED upon payment of the stated value of the shares
plus any accrued declared and unpaid dividends.
Basis
of Presentation
The
combined financial statements of the Advanced Molecular and Health Technology Solutions Group 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.
Principles
of Combination
All
intercompany transactions between members of the Group have been eliminated in the combination.
The
combined financial statements include assets and liabilities that are specifically identifiable or otherwise attributable to the Group.
All significant intercompany transactions between the Group and Rennova and its other subsidiaries have been included within the caption
“Parent’s net investment deficit in Advanced Molecular and Health Technology Solutions Group” in the Combined Balance
Sheets and all external debt not directly attributable to the Group has been excluded from the Combined Balance Sheets of the Group.
Cost
Allocations
Historically,
Rennova has charged its operating segments for various corporate costs incurred in the operation of the business. Accordingly, no significant
additional cost allocations were necessary for the preparation of these combined financial statements. The combined financial statements
of the Group may not reflect the actual expenses that would have been incurred and may not reflect the Group’s combined results
of operations, financial position and cash flows had the Group been a standalone company during the periods presented. Actual costs that
would have been incurred if the Group had been a standalone company would depend on multiple factors, including organizational structure,
capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between
the Group and Rennova have been included as related party transactions in these combined financial statements. The total net effect of
these transactions is reflected in the Statements of Combined Cash Flows as a financing activity and in the Combined Balance Sheets as
“Parent’s net investment deficit in the Advanced Molecular and Health Technology Solutions Group.” See Notes 7 and
8.
Comprehensive
Loss
During
the years ended December 31, 2020 and 2019, comprehensive loss was equal to the net loss amounts presented in the accompanying combined
statements of operations.
Going
Concern
Under
Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40)
Accounting Standards Codification (“ASC 205-40”), the Advanced Molecular and Health Technology Solutions Group 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 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 the Group’s ability to continue as a
going concern in accordance with the requirement of ASC 205-40.
The
accompanying combined financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the SEC.
The combined financial statements have been prepared using U.S. GAAP applicable to a going concern that contemplates the realization
of assets and liquidation of liabilities in the normal course of business. The Group has accumulated significant losses and has negative
cash flows from operations and, at December 31, 2020, had a working capital deficit and accumulated deficit of $2.0 million and $17.2
million, respectively. In addition, the Group’s cash position is critically deficient and critical payments are not being made
in the ordinary course of business, all of which raises substantial doubt about the Group’s ability to continue as a going concern.
Management’s plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt
about the Group’s ability to continue as a going concern are as follows:
As
discussed above, during 2017, Rennova announced its intent to separate the Group into one or more separate public entities. The separation
of the Group from Rennova and the distribution of the newly-formed public company stock are 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 ability of each company to attract, retain and incentivize employees; (3) improve access to capital for each business while eliminating
competition for capital; and (4) create a separate equity structure for each company, resulting in an improved understanding of each
business in the capital and investor markets, and a stronger, more focused investor base for each company. Management believes that the
separation will allow each business to more fully realize their value and allow it to use its stock as consideration for acquisitions
and enhance the value of its equity-based compensation programs.
Notwithstanding
the benefits that are expected to result from the separation, the Group will incur substantial costs in connection with the separation
and the transition to being a standalone 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 the Group, tax costs and costs
to separate information systems, among other costs. The cost of performing such functions is anticipated to be higher than the amounts
reflected in the Group’s historical financial statements, which would cause its future profitability to decrease. Accordingly,
the Group will continue to focus on reducing its operating costs and increasing revenues.
There
can be no assurance that the Group will be able to achieve its business plan, raise any additional capital or secure the additional financing
necessary to implement its current operating plan. The ability of the Group to continue as a going concern is dependent upon its ability
to significantly reduce its operating costs, increase its revenues and eventually regain profitable operations. The accompanying combined
financial statements do not include any adjustments that might be necessary if the Group is unable to continue as a going concern.
Note
2 – Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant areas of estimation include the impairment
of assets and rates for depreciation and amortization, accrued and contingent liabilities, and future income tax obligations (benefits),
among other items. Actual results could differ from those estimates and would impact future results of operations and cash flows.
Cash
and Cash Equivalents
The
Group considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
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:
●
The parties have approved the contract either in writing; orally by acknowledgement; or implicitly, based on customary business practices.
●
Each party’s rights and the contract’s payment terms are identified.
●
The contract has commercial substance.
●
Collection is probable.
The
Group reported net revenues of $.5 million and $1.1 million for the years ended December 31, 2020 and 2019, respectively, which was net
of bad debt expense and (recoveries)/(reductions) to revenues of $16,165 and ($16,209) for the years ended December 31, 2020 and 2019,
respectively.
Allowance
for Doubtful Accounts Policy
Accounts
receivable are reported at realizable value, net of allowances for doubtful accounts, which are estimated and recorded in the period
that the Group deems the receivable to be uncollectable. The Group has a standardized approach to estimate and review the collectability
of its receivables based on a number of factors, including the period they have been outstanding. Historical collection is an integral
part of the estimation process related to the allowance for doubtful accounts. In addition, the Group regularly assesses the state of
its billing operations in order to identify issues that may impact the collectability of these receivables or reserve estimates. Receivables
deemed to be uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries
of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. Revisions to the allowances for
doubtful accounts estimates are recorded as an adjustment to the provision for bad debts.
Impairment
or Disposal of Long-Lived Assets
The
Group 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 December 31, 2020 and 2019, the majority of the Group’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.
Fair
Value of Financial Instruments
In
accordance with ASC 820, “Fair Value Measurements and Disclosures,” the Group 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 Group 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
Group 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 Group’s own assumptions. |
The
estimated fair value of financial instruments is determined by the Group using available market information and valuation methodologies
considered to be appropriate. At December 31, 2020 and 2019, the carrying value of the Group’s accounts receivable, accounts payable,
accrued expenses and notes payable approximate their fair values due to their short-term nature. The Group had no level 1, 2 or 3 assets
or liabilities at December 31, 2020 and 2019. For the years ended December 31, 2020 and 2019, there were no realized and unrealized gains
on instruments valued using fair value evaluation methods.
Income
Taxes
The
entities within the Group were included in the consolidated income tax returns of Parent for the years ended December 31, 2020 and 2019
and 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 2019. Accordingly, the Group has not provided for income taxes in the combined financial statements. Subsequent
to the separation, which is more fully discussed in Note 1, the Group will begin to recognize income taxes as appropriate based upon
its new ownership structure. The Group will use 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 Group will recognize a valuation
allowance.
In
accordance with U.S. GAAP, the Group will be required to determine whether a tax position of the Group 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 Group recording a tax liability that would reduce net assets. The Group determined that it has not incurred any liability for
tax benefits as of December 31, 2020 and 2019. State income taxes will also be due on any income generated in the future.
Segment
Information
In
accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,”
the Group is required to report financial and descriptive information about its reportable operating segments. The Group has two operating
segments as of December 31, 2020: Advanced Molecular Solutions, and Health Technology Solutions. Segment information is presented in
Note 10.
Note
3 – Accounts Receivable
Accounts
receivable at December 31, 2020 and 2019 consisted of the following:
| |
Year Ended December 31, | |
| |
2020 | | |
2019 | |
Accounts receivable –third parties | |
$ | 17,072 | | |
$ | 44,627 | |
Accounts receivable – related parties | |
| 135,687 | | |
| 440,425 | |
Less: | |
| | | |
| | |
Allowance for discounts | |
| (1,396 | ) | |
| (2,580 | ) |
| |
| | | |
| | |
Accounts receivable, net | |
$ | 151,363 | | |
$ | 482,472 | |
For
the years ended December 31, 2020 and 2019, bad debt expense (recovery), which has been deducted from revenues, was $16,165 and ($16,209),
respectively.
Note
4 – Property and Equipment
Property
and equipment at December 31, 2020 and 2019 consisted of the following:
| |
December 31, | | |
December 31, | |
| |
2020 | | |
2019 | |
| |
| | |
| |
Software | |
$ | 1,435,875 | | |
$ | 1,507,055 | |
Furniture | |
| 8,227 | | |
| 8,633 | |
Office equipment | |
| 24,883 | | |
| 24,883 | |
Computer equipment | |
| 330,179 | | |
| 330,274 | |
| |
| 1,799,164 | | |
| 1,870,845 | |
Less accumulated depreciation | |
| (1,798,479 | ) | |
| (1,867,491 | ) |
Property and equipment, net | |
$ | 685 | | |
$ | 3,354 | |
Depreciation
expense on property and equipment was $2,168 and $2,437 for the years ended December 31, 2020 and 2019, respectively. Management periodically
reviews the valuation of long-lived assets, including property and equipment, for potential impairment. Management did not recognize
any impairment of these assets during the years ended December 31, 2020 and 2019.
Note
5 – Accrued Expenses
Accrued
expenses at December 31, 2020 and 2019 consisted of the following:
| |
December 31, | | |
December 31, | |
| |
2020 | | |
2019 | |
| |
| | |
| |
Accrued payroll and related liabilities | |
$ | 1,173,889 | | |
$ | 1,082,278 | |
Accrued legal | |
| 37,997 | | |
| 37,997 | |
Accrued interest | |
| 681 | | |
| 66,435 | |
Deferred revenue and customer deposits | |
| 19,530 | | |
| 37,757 | |
Other accrued expenses | |
| 76,186 | | |
| 125,639 | |
Accrued expenses | |
$ | 1,308,283 | | |
$ | 1,350,106 | |
Note
6 – Notes Payable
The
carrying amount of notes payable as of December 31, 2020 and 2019 was as follows:
| |
December 31, | |
| |
2020 | | |
2019 | |
Note payable with Phenomas LLC of due in monthly payments of varying amounts. Amounts
due included penalty interest on late payments accrued at the rate of 10% per annum and late payment fees of 5%. | |
$ | — | | |
$ | 63,654 | |
| |
| | | |
| | |
Note payable with Wells Fargo Bank N.A. under a previously issued $100,000 credit line bearing interest
at 8.75% per annum and due in monthly installments of principal and interest. The line is closed for further borrowings. | |
| — | | |
| 58,502 | |
| |
| | | |
| | |
Note payable with the Department of Economic and Community Development in the original amount of
$147,372 due in monthly payments of principal and interest totaling $2,132 beginning January 1, 2017 with a final payment due on
October 1, 2022. Non-interest bearing. Payments were not made in 2020 nor 2019. | |
| 134,118 | | |
| 134,118 | |
| |
| | | |
| | |
Paycheck Protection Program Loans (PPP Loans), A portion of the PPP Loans
and accrued interest are forgivable as long as the Group uses the loan proceeds for eligible purposes, including payroll, benefits,
rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the Group terminates employees
or reduces salaries. No collateral or guarantees were provided in connection with the PPP Loans. The unforgiven portion of the PPP
Loans are payable over two years at an interest rate of 1.0% per annum, with a deferral of payments for the first sixteen months.
Beginning sixteen months from the dates of issuance, the Group is required (if not forgiven) to make monthly payments of principal
and interest to the lenders. The Group intends to use all of the proceeds for purposes consistent with the PPP. While the Group currently
believes that its use of the loan proceeds will meet the conditions for forgiveness of the loans, it cannot assure you that it will
not take actions that could cause the Group to be ineligible for forgiveness of the loans, in whole or in part. | |
| 103,900 | | |
| — | |
| |
| | | |
| | |
Less current portion | |
| 134,118 | | |
| (256,274 | ) |
Notes payable, long term, net of current portion | |
$ | 103,900 | | |
$ | — | |
Note
7 – Loans from Parent and Other Related Party Transactions
To
fund its operations, the Group has relied on non-interest bearing loans from Rennova. Loans from Parent totaled $14.9 million and $14.5
million as of December 31, 2020 and 2019, respectively. Loans from Parent are reflected in the Combined Balance Sheets in the caption,
“Parent’s net investment deficit in Advanced Molecular and Health Technology Solutions Group.” See Note 8.
In connection with the separation, the loans from Parent will be settled with preferred shares of the public company. The separation
is more fully discussed in Note 1. The specific number of preferred shares has not yet been determined.
Intercompany
Revenue
Included
in net revenues for the years ended December 31, 2020 and 2019 was $185,892 and $419,445, respectively, of intercompany revenue with
Rennova.
The
Group has incurred certain costs that have been allocated from Rennova. Included in the Combined Statements of Operations are the following
allocated costs:
| |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| |
2020 | | |
2019 | |
| |
| | |
| |
Health insurance | |
$ | 2,825 | | |
$ | 15,117 | |
Rent and utilities | |
| 27,343 | | |
| 28,885 | |
Total allocated costs | |
$ | 30,168 | | |
$ | 44,002 | |
Note
8 – Parent Net Investment Deficit in Advanced Molecular and Health Technology Solutions Group
The
following analyzes Parent’s net investment deficit in the businesses comprising the Advanced Molecular and Health Technology Solutions
Group for the years ended December 31, 2020 and 2019:
| |
Paid-in Capital | | |
Loans from Parent | | |
Accumulated Deficit | | |
Total Parent Net Investment Deficit | |
Balance at December 31, 2018 | |
$ | 153,187 | | |
$ | 13,865,593 | | |
$ | (15,838,538 | ) | |
$ | (1,819,758 | ) |
Borrowings from Parent | |
| – | | |
| 640,716 | | |
| – | | |
| 640,716 | |
Net loss | |
| – | | |
| – | | |
| (719,318 | ) | |
| (719,318 | ) |
Balance at December 31, 2019 | |
$ | 153,187 | | |
$ | 14,506,309 | | |
$ | (16,557,856 | ) | |
$ | (1,898,360 | ) |
Borrowings from Parent | |
| – | | |
| 417,349 | | |
| – | | |
| 417,349 | |
Net loss | |
| – | | |
| – | | |
| (606,451 | ) | |
| (606,451 | ) |
Balance at December 31, 2020 | |
$ | 153,187 | | |
$ | 14,923,658 | | |
$ | (17,164,307 | ) | |
$ | (2,087,462 | ) |
Note
9 – Commitments and Contingencies
Concentration
of Credit Risk - Credit risk with respect to accounts receivable is generally low due to the nature of the customers comprising
the customer base and the significant related party component. The Group does not require collateral or other security to support customer
receivables. However, the Group continually monitors and evaluates its client acceptance and collection procedures to minimize potential
credit risks associated with its accounts receivable and establishes an allowance for uncollectible accounts and, as a consequence, believes
that its accounts receivable credit risk exposure beyond such allowance is not material to the financial statements.
The
Group maintains its cash balances in high-credit-quality financial institutions. The Group’s cash balances may, at times, exceed
the deposit insurance limits provided by the Federal Deposit Insurance Corp.
Guarantees
Certain
entities of the Group have cross guaranteed debt obligations of Parent. As part of the transaction with the Group Rennova will seek to
remove all entities where ownership has transferred to the public company. Until complete Rennova will be responsible to warranty to
the public company that no liability from these entities under these cross guarantees will be material or be a responsibility of the
public company at any time in the future
Legal
Matters
From
time to time, the Group may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes,
employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course
of business. The Group operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware
that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Group’s
financial position or results of operations. Management, in consultation with legal counsel, has addressed known assertions and predicted
unasserted claims below.
P2P
Staffing Corp. received a judgment against HTS during 2018 in the amount of $58,783 for amounts owed. As of December 31, 2020 and 2019,
$10,464 and $11,049, respectively, was outstanding and owed for this judgment and included in accounts payable at each respective balance
sheet date.
Two
former employees of CollabRx, Inc. filed suits in a California state court against the Parent and CollabRx in connection with amounts
claimed to be owed under their respective employment agreements with CollabRx. One former employee received a judgment against the Parent
and CollabRx in October 2018 for approximately $253,000. The other former employee received a judgment against the Parent and CollabRx
in December 2018 for approximately $173,000. While the Parent has accrued these amounts claimed, it is considering its options to refute
these matters and believes the claims against the Parent to be frivolous and outside of entitlement and contractual agreements.
Clinlab,
Medical Mime and HTS, as well as the Parent and many of its subsidiaries, are defendants in a case filed in Broward County Circuit
Court by TCA Global Credit Master Fund, L.P. The plaintiff alleges a breach by Medytox Solutions, Inc. of its obligations under a
debenture and claims damages of approximately $2,030,000 plus interest, costs and fees. The Parent and the other subsidiaries are
sued as alleged guarantors of the debenture. The complaint was filed on August 1, 2018. The Parent has recorded the principal
balance and interest owed under the debenture agreement for the period ended June 30, 2020. The Parent and all defendants have filed
a motion to dismiss the complaint, but have not recorded any potential liability related to any further damages. In May 2020, the
SEC appointed a Receiver to close down the TCA Global Credit Master Fund, L.P. over allegations of accounting fraud. The amount
recorded by the Parent as being owed to TCA was based on TCA’s application of prior payments made by the Parent. The Parent
believes that prior payments of principal and interest may have been applied to unenforceable investment banking and other fees and
charges. It is the Parent’s and all other defendants’ position that the amount owed to TCA is less than what has been
recorded by the Parent.
In
June 2018, a court in Middlesex County, Massachusetts granted Techlogix Inc. a judgment against HTS and the Parent for $71,723 in connection
with a contract for software development and related services. The Parent made the final payment to satisfy this judgment in September
2020.
Note
10 – Segment Reporting
Operating
segments are defined under U.S. GAAP as components of an enterprise for which discrete financial information is available and are evaluated
regularly by the enterprise’s chief operating decision maker in determining how to allocate resources and assess performance. The
Group operates in two reportable business segments:
|
● |
Advanced
Molecular Solutions, which specializes in the interpretation of diagnostic results for cancer and pharmacogenomics into easily
usable information and |
|
|
|
|
● |
Health
Technology Solutions, which focuses on supportive software solutions, including electronic health records, medical billing services
and laboratory information management systems. |
Selected
financial information for the Group’s operating segments is as follows:
| |
Year Ended December 31, | |
| |
2020 | | |
2019 | |
Net revenues | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | — | | |
$ | 63,436 | |
Health Technology Solutions | |
| 528,624 | | |
| 1,046,699 | |
| |
$ | 528,624 | | |
$ | 1,109,135 | |
Loss from operations | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | (195,194 | ) | |
$ | (261,873 | ) |
Health Technology Solutions | |
| (327,128 | ) | |
| (394,674 | ) |
| |
$ | (522,322 | ) | |
$ | (656,547 | ) |
Depreciation | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | − | | |
$ | − | |
Health Technology Solutions | |
| 2,168 | | |
| 2,437 | |
| |
$ | 2,168 | | |
$ | 2,437 | |
Capital expenditures | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | − | | |
$ | − | |
Health Technology Solutions | |
| − | | |
| – | |
| |
$ | − | | |
$ | − | |
| |
December 31, | | |
December 31, | |
| |
2020 | | |
2019 | |
Total assets | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | 91 | | |
$ | 452 | |
Health Technology Solutions | |
| 184,968 | | |
| 513,220 | |
| |
$ | 185,059 | | |
$ | 513,672 | |
Note
11 – Supplemental Disclosure of Cash Flow Information
| |
Year Ended December 31, | |
| |
2020 | | |
2019 | |
Cash paid for interest | |
$ | 174,551 | | |
$ | 3,708 | |
Cash paid for income taxes | |
$ | − | | |
$ | − | |
There
were no non-cash investing and financing activities during the years ended December 31, 2020 and 2019.
Note
12 – Recent Accounting Pronouncements
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period recognized
in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date
and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for the Group for annual and interim periods beginning
on December 31, 2020. Early adoption of this standard is permitted. The Group does not expect the adoption of this ASU to have a material
impact on its results of operations, financial position and cash flows.
In
August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this standard, customers
will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The
adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation
costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU will be effective for the Group
for annual and interim periods beginning on December 31, 2020. Early adoption of this standard is permitted and may be applied either
prospectively to eligible costs incurred on or after the date of the new guidance or retrospectively. The Group does not expect the adoption
of this ASU to have a material impact on its results of operations, financial position and cash flows.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance
simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas
such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of
tax laws or rate changes. This standard will be effective for the Group for annual periods beginning on January 1, 2021, including interim
periods within those fiscal years. Early adoption of this standard is permitted, including adoption of all amendments in any interim
period for which financial statements have not yet been issued. The Group is evaluating the impact of adopting this new accounting guidance
on its combined financial statements.
Other
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 Group’s combined financial
statements.
Note
13 – Subsequent Events
Impact
of the Pandemic
A
novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization on March 11, 2020.
We have been closely monitoring the COVID-19 pandemic and its impact on our operations and we have taken steps intended to minimize the
risk to our employees and customers. If the COVID-19 pandemic continues for a further extended period, we may incur significant losses
and financial assistance may be required. Going forward, the Group is unable to determine the extent to which the COVID-19 pandemic will
affect its business. The nature and effect of the COVID-19 pandemic on our balance sheet and results of operations will depend on the
severity and length of the pandemic in our service areas; government activities to mitigate the pandemic’s effect; regulatory changes
in response to the pandemic; and potential government assistance that may be provided.
On
June 25, 2021 Rennova sold the shares of stock of its subsidiaries, HTS and AMSG to VisualMED Clinical Solutions Corporation (“VisualMED”).
On
July 22, 2021, Evolve Bank and Trust Company and
the Small Business Administration, forgave $103,900 Paycheck Protection Program Loans (PPP Loans) and related interest.
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
COMBINED
BALANCE SHEETS
| |
June 30, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 46 | | |
$ | 31,294 | |
Accounts receivable, net (includes $0 and $135,687, respectively, of related
party accounts receivable) | |
| 34,591 | | |
| 151,363 | |
Prepaid expenses and other current assets | |
| 858 | | |
| 1,717 | |
Total current assets | |
| 35,495 | | |
| 184,374 | |
| |
| | | |
| | |
Property and equipment, net | |
| 711 | | |
| 685 | |
| |
| | | |
| | |
Total assets | |
$ | 36,206 | | |
$ | 185,059 | |
| |
| | | |
| | |
LIABILITIES AND PARENT’S NET INVESTMENT DEFICIT IN ADVANCED MOLECULAR
AND HEALTH TECHNOLOGY SOLUTIONS GROUP | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 766,343 | | |
$ | 726,220 | |
Accrued expenses | |
| 1,379,922 | | |
| 1,308,283 | |
Current portion of notes payable | |
| 134,118 | | |
| 134,118 | |
Total current liabilities | |
| 2,280,383 | | |
| 2,168,621 | |
| |
| | | |
| | |
Notes Payable – Long term | |
| 164,301 | | |
| 103,900 | |
| |
| | | |
| | |
Total Liabilities | |
| 2,444,684 | | |
| 2,272,521 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Parent’s net investment deficit in Advanced Molecular and Health Technology
Solutions Group | |
| (2,408,478 | ) | |
| (2,087,462 | ) |
Total liabilities and Parent’s net investment deficit | |
$ | 36,206 | | |
$ | 185,059 | |
The
accompanying notes are an integral part of these combined financial statements.
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
COMBINED
STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
Six Months Ended June 30, | |
| |
2021 | | |
2020 | |
Net Revenues | |
$ | 216,941 | | |
$ | 251,944 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Direct costs of revenue | |
| 2,386 | | |
| 756 | |
General and administrative expenses | |
| 551,203 | | |
| 251,009 | |
Depreciation | |
| – | | |
| 713 | |
Total operating expenses | |
| 553,589 | | |
| 252,478 | |
| |
| | | |
| | |
Loss from operations | |
| (336,648 | ) | |
| (534 | ) |
| |
| | | |
| | |
Other (expense) income: | |
| | | |
| | |
Other (expense) income, net | |
| – | | |
| 24,668 | |
Interest expense and payroll tax penalties | |
| (9,577 | ) | |
| (76,271 | ) |
Total other (expense) income | |
| (9,577 | ) | |
| (51,603 | ) |
| |
| | | |
| | |
Loss before income taxes | |
| (346,225 | ) | |
| (52,137 | ) |
| |
| | | |
| | |
Provision for income taxes | |
| – | | |
| – | |
| |
| | | |
| | |
Net loss | |
$ | (346,225 | ) | |
$ | (52,137 | ) |
The
accompanying notes are an integral part of these combined financial statements.
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
COMBINED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Six Months Ended June 30, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Cash flows (used in) operating activities: | |
| | | |
| | |
Net loss | |
$ | (346,225 | ) | |
$ | (52,137 | ) |
Adjustments to reconcile net loss to net cash (used in) operations: | |
| | | |
| | |
Depreciation | |
| — | | |
| 713 | |
Gain on Settlement of Debt | |
| — | | |
| (23,654 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 116,772 | | |
| 305,328 | |
Prepaid expenses and other current assets | |
| 859 | | |
| 1,717 | |
Deposits | |
| — | | |
| 6,029 | |
Deferred Revenue | |
| 24,384 | | |
| — | |
Accounts payable | |
| 40,098 | | |
| (315,280 | ) |
Accrued expenses | |
| 47,254 | | |
| (54,084 | ) |
Net cash (used in) operating activities | |
| (116,858 | ) | |
| (131,368 | ) |
| |
| | | |
| | |
Cash flows provided by investing activities: | |
| | | |
| | |
Net cash provided by investing activities | |
| — | | |
| — | |
| |
| | | |
| | |
Cash flows provided by financing activities: | |
| | | |
| | |
Loans from parent | |
| 25,209 | | |
| 135,951 | |
Loans Transferred to parent | |
| — | | |
| (98,502 | ) |
Proceeds from Paycheck Protection Program Loans | |
| 60,401 | | |
| 103,900 | |
Net cash provided by financing activities | |
| 85,610 | | |
| 141,349 | |
| |
| | | |
| | |
Net increase in cash | |
| (31,248 | ) | |
| 9,981 | |
| |
| | | |
| | |
Cash at beginning of period | |
| 31,294 | | |
| 16,667 | |
| |
| | | |
| | |
Cash at end of period | |
$ | 46 | | |
$ | 26,648 | |
The
accompanying notes are an integral part of these combined financial statements.
NOTES
TO COMBINED FINANCIAL STATEMENTS OF
ADVANCED
MOLECULAR AND HEALTH TECHNOLOGY SOLUTIONS GROUP
Note
1 – The Proposed Separation and Basis of Presentation
During
2017, Rennova Health, Inc. (“Rennova” or the “Parent”), the Parent of Advanced Molecular Services Group, Inc.
(“AMSG”) and Health Technology Solutions, Inc. (“HTS”) (collectively, the “Advanced Molecular and Health
Technology Solutions Group,” or the “Group”), announced its intent to separate the Group into one or more separate
public entities with AMSG holding and operating Rennova’s pharmacogenomics business and HTS holding and operating Rennova’s
supportive software solutions business. Pharmacogenomics is the genetic process to understand how an individual’s genetic attributes
affect the likely response to therapeutic drugs. HTS’s supportive software solutions business includes electronic health records,
medical billing services and laboratory information management systems. AMSG is a wholly-owned subsidiary of Rennova that was formed
on May 4, 2017 and HTS is a wholly-owned subsidiary of Rennova that was formed on June 22, 2011.
AMSG’s
financial results include the assets and operations of CollabRx, Inc. and Genomas, Inc. Genomas, Inc. operated a diagnostics lab until
December 31, 2019 and is now focused solely on the technology and platform to interpret diagnostics outcomes and translate these outcomes
into easily usable information. HTS’s financial results include the assets and operations of two other strategic businesses owned
by Rennova: ClinLab, Inc.; and Medical Mime, Inc. HTS’s results do not include Platinum Financial Solutions, LLC, which has been
left with Rennova. AMSG and HTS each operate as separate segments of the Group. After the separation, Rennova will retain full ownership
of its remaining businesses.
On
June 25, 2021 Rennova sold the shares of stock of its subsidiaries, HTS and AMSG to VisualMED Clinical Solutions Corporation (“VisualMED”).
In
consideration for the shares of HTS and AMSG and the elimination of inter-company debt between Rennova and HTS and AMSG, VisualMED issued
Rennova 14,000 shares of its Series B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”). The number
of shares of Series B Preferred Stock will be subject to a post-closing adjustment. Each share of Series B Preferred Stock has a stated
value of $1,000 and is convertible into that number of shares of VisualMED common stock equal to the product of the stated value divided
by 90% of the average closing price of the VisualMED common stock during the 10 trading days immediately prior to the conversion date.
Conversion of the Series B Preferred Stock, however, is subject to the limitation that no conversion can be made to the extent the Company’s
beneficial interest (as defined pursuant to the terms of the Series B Preferred Stock) in the common stock of VisualMED would exceed
4.99%. The shares of Series B Preferred Stock may be redeemed by VisualMED upon payment of the stated value of the shares plus any accrued
declared and unpaid dividends.
Basis
of Presentation
The
combined financial statements of the Advanced Molecular and Health Technology Solutions Group 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 unaudited interim combined financial statements have been prepared on the same basis as the annual audited financial statements
and in accordance with accounting principles generally accepted in the United States (“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.
Principles
of Combination
All
intercompany transactions between members of the Group have been eliminated in the combination.
The
combined financial statements include assets and liabilities that are specifically identifiable or otherwise attributable to the Group.
All significant intercompany transactions between the Group and Rennova and its other subsidiaries have been included within the caption
“Parent’s net investment deficit in Advanced Molecular and Health Technology Solutions Group” in the Combined Balance
Sheets and all external debt not directly attributable to the Group has been excluded from the Combined Balance Sheets of the Group.
Cost
Allocations
Historically,
Rennova has charged its operating segments for various corporate costs incurred in the operation of the business. Accordingly, no significant
additional cost allocations were necessary for the preparation of these combined financial statements. The combined financial statements
of the Group may not reflect the actual expenses that would have been incurred and may not reflect the Group’s combined results
of operations, financial position and cash flows had the Group been a standalone company during the periods presented. Actual costs that
would have been incurred if the Group had been a standalone company would depend on multiple factors, including organizational structure,
capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between
the Group and Rennova have been included as related party transactions in these combined financial statements. The total net effect of
these transactions is reflected in the Statements of Combined Cash Flows as a financing activity and in the Combined Balance Sheets as
“Parent’s net investment deficit in the Advanced Molecular and Health Technology Solutions Group.” See Notes 7 and
8.
Comprehensive
Loss
During
the periods ended June 30, 2021 and 2020, comprehensive loss was equal to the net loss amounts presented in the accompanying combined
statements of operations.
Going
Concern
Under
Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) Accounting
Standards Codification (“ASC 205-40”), the Advanced Molecular and Health Technology Solutions Group 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 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 the Group’s ability to continue as a going concern in accordance with
the requirement of ASC 205-40.
The
accompanying combined financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the SEC.
The combined financial statements have been prepared using U.S. GAAP applicable to a going concern that contemplates the realization
of assets and liquidation of liabilities in the normal course of business. The Group has accumulated significant losses and has negative
cash flows from operations and, at June 30, 2021, had a working capital deficit and accumulated deficit of $2.2 million and $17.5 million,
respectively. In addition, the Group’s cash position is critically deficient and critical payments are not being made in the ordinary
course of business, all of which raises substantial doubt about the Group’s ability to continue as a going concern. Management’s
plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Group’s
ability to continue as a going concern are as follows:
As
discussed above, during 2017, Rennova announced its intent to separate the Group into one or more separate public entities. The separation
of the Group from Rennova and the distribution of the newly-formed public company stock are 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 ability of each company to attract, retain and incentivize employees; (3) improve access to capital for each business while eliminating
competition for capital; and (4) create a separate equity structure for each company, resulting in an improved understanding of each
business in the capital and investor markets, and a stronger, more focused investor base for each company. Management believes that the
separation will allow each business to more fully realize their value and allow it to use its stock as consideration for acquisitions
and enhance the value of its equity-based compensation programs.
Notwithstanding
the benefits that are expected to result from the separation, the Group will incur substantial costs in connection with the separation
and the transition to being a standalone 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 the Group, tax costs and costs
to separate information systems, among other costs. The cost of performing such functions is anticipated to be higher than the amounts
reflected in the Group’s historical financial statements, which would cause its future profitability to decrease. Accordingly,
the Group will continue to focus on reducing its operating costs and increasing revenues.
There
can be no assurance that the Group will be able to achieve its business plan, raise any additional capital or secure the additional financing
necessary to implement its current operating plan. The ability of the Group to continue as a going concern is dependent upon its ability
to significantly reduce its operating costs, increase its revenues and eventually regain profitable operations. The accompanying combined
financial statements do not include any adjustments that might be necessary if the Group is unable to continue as a going concern.
Note
2 – Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant areas of estimation include the impairment
of assets and rates for depreciation and amortization, accrued and contingent liabilities, and future income tax obligations (benefits),
among other items. Actual results could differ from those estimates and would impact future results of operations and cash flows.
Cash
and Cash Equivalents
The
Group considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
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:
●
The parties have approved the contract either in writing; orally by acknowledgement; or implicitly, based on customary business practices.
●
Each party’s rights and the contract’s payment terms are identified.
●
The contract has commercial substance.
●
Collection is probable.
The
Group reported net revenues of $0.2 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively, which was
net of bad debt expense and (recoveries)/(reductions) to revenues of $4,279 and ($1,181) for the six months ended June 30, 2021 and 2020,
respectively.
Allowance
for Doubtful Accounts Policy
Accounts
receivable are reported at realizable value, net of allowances for doubtful accounts, which are estimated and recorded in the period
that the Group deems the receivable to be uncollectable. The Group has a standardized approach to estimate and review the collectability
of its receivables based on a number of factors, including the period they have been outstanding. Historical collection is an integral
part of the estimation process related to the allowance for doubtful accounts. In addition, the Group regularly assesses the state of
its billing operations in order to identify issues that may impact the collectability of these receivables or reserve estimates. Receivables
deemed to be uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries
of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. Revisions to the allowances for
doubtful accounts estimates are recorded as an adjustment to the provision for bad debts.
Impairment
or Disposal of Long-Lived Assets
The
Group 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 June 30, 2021 and December 31, 2020, the majority of the Group’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.
Fair
Value of Financial Instruments
In
accordance with ASC 820, “Fair Value Measurements and Disclosures,” the Group 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 Group 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
Group 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 Group’s own assumptions. |
The
estimated fair value of financial instruments is determined by the Group using available market information and valuation methodologies
considered to be appropriate. At June 30, 2021 and December 31, 2020, the carrying value of the Group’s accounts receivable, accounts
payable, accrued expenses and notes payable approximate their fair values due to their short-term nature. The Group had no level 1, 2
or 3 assets or liabilities at June 30, 2021 and December 31, 2020. For the six months ended June 30, 2021 and 2020, there were no realized
and unrealized gains on instruments valued using fair value evaluation methods.
Income
Taxes
The
entities within the Group were included in the consolidated income tax returns of Parent for the six months ended June 30, 2021 and the
year ended December 31, 2020 and 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 June 30, 2021 and December 31, 2020. Accordingly, the Group has not provided for income taxes in the
combined financial statements. Subsequent to the separation, which is more fully discussed in Note 1, the Group will begin to recognize
income taxes as appropriate based upon its new ownership structure. The Group will use 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 Group will recognize a valuation allowance.
In
accordance with U.S. GAAP, the Group will be required to determine whether a tax position of the Group 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 Group recording a tax liability that would reduce net assets. The Group determined that it has not incurred any liability for
tax benefits as of June 30, 2021 and December 31, 2020. State income taxes will also be due on any income generated in the future.
Segment
Information
In
accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,”
the Group is required to report financial and descriptive information about its reportable operating segments. The Group has two operating
segments as of June 30, 2021: Advanced Molecular Solutions, and Health Technology Solutions. Segment information is presented in Note
10.
Note
3 – Accounts Receivable
Accounts
receivable at June 30, 2021 and December 31,2020 consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2021 | | |
2020 | |
Accounts receivable –third parties | |
$ | 35,466 | | |
$ | 17,072 | |
Accounts receivable – related parties | |
| — | | |
| 135,687 | |
Less: | |
| | | |
| | |
Allowance for discounts | |
| (875 | ) | |
| (1,396 | ) |
| |
| | | |
| | |
Accounts receivable, net | |
$ | 34,591 | | |
$ | 151,363 | |
For
the six months ended June 30, 2021 and 2020, bad debt expense (recovery), which has been deducted from revenues, was $4,279 and ($1,181),
respectively.
Note
4 – Property and Equipment
Property
and equipment at June 30, 2021 and December 31, 2020 consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Software | |
$ | 1,435,875 | | |
$ | 1,435,875 | |
Furniture | |
| 8,227 | | |
| 8,227 | |
Office equipment | |
| 24,883 | | |
| 24,883 | |
Computer equipment | |
| 330,179 | | |
| 330,179 | |
| |
| 1,799,164 | | |
| 1,799,164 | |
Less accumulated depreciation | |
| (1,798,453 | ) | |
| (1,798,479 | ) |
Property and equipment, net | |
$ | 711 | | |
$ | 685 | |
Depreciation
expense on property and equipment was zero and $713 for the six months ended June 30, 2021 and 2020, respectively. Management periodically
reviews the valuation of long-lived assets, including property and equipment, for potential impairment. Management did not recognize
any impairment of these assets during the six months ended June 30, 2021 and 2020.
Note
5 – Accrued Expenses
Accrued
expenses at June 30, 2021 and December 31, 2020 consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Accrued payroll and related liabilities | |
$ | 1,221,131 | | |
$ | 1,173,889 | |
Accrued legal | |
| 37,997 | | |
| 37,997 | |
Accrued interest | |
| 1,224 | | |
| 681 | |
Deferred revenue and customer deposits | |
| 43,914 | | |
| 19,530 | |
Other accrued expenses | |
| 75,656 | | |
| 76,186 | |
Accrued expenses | |
$ | 1,379,922 | | |
$ | 1,308,283 | |
Note
6 – Notes Payable
The
carrying amount of notes payable as of June 30, 2021 and December 31, 2020 was as follows:
| |
June 30, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Note payable with the Department of Economic and Community Development in the original
amount of $147,372 due in monthly payments of principal and interest totaling $2,132 beginning January 1, 2017 with a final payment
due on October 1, 2022. Non-interest bearing. Payments were not made in 2021 or 2020. | |
$ | 134,118 | | |
$ | 134,118 | |
| |
| | | |
| | |
Paycheck Protection Program Loans (PPP Loans), A portion of the PPP Loans
and accrued interest are forgivable as long as the Group uses the loan proceeds for eligible purposes, including payroll, benefits,
rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the Group terminates employees
or reduces salaries. No collateral or guarantees were provided in connection with the PPP Loans. The unforgiven portion of the PPP
Loans are payable over two years at an interest rate of 1.0% per annum, with a deferral of payments for the first sixteen months.
Beginning sixteen months from the dates of issuance, the Group is required (if not forgiven) to make monthly payments of principal
and interest to the lenders. The Group intends to use all of the proceeds for purposes consistent with the PPP. While the Group currently
believes that its use of the loan proceeds will meet the conditions for forgiveness of the loans, it cannot assure you that it will
not take actions that could cause the Group to be ineligible for forgiveness of the loans, in whole or in part. | |
| 164,301 | | |
$ | 103,900 | |
| |
| 298,419 | | |
| 238,018 | |
Less current portion | |
| 134,118 | | |
| 134,118 | |
Notes payable, long term, net of current portion | |
$ | 164,301 | | |
$ | 103,900 | |
Note
7 – Loans from Parent and Other Related Party Transactions
To
fund its operations, the Group has relied on non-interest bearing loans from Rennova. Loans from Parent totaled $15.0 million and $14.9
million as of June 30, 2021 and December 31, 2020, respectively. Loans from Parent are reflected in the Combined Balance Sheets in the
caption, “Parent’s net investment deficit in Advanced Molecular and Health Technology Solutions Group.” See Note 8.
In connection with the separation, the loans from Parent will be settled with preferred shares of the public company. The separation
is more fully discussed in Note 1. The specific number of preferred shares has not yet been determined.
Intercompany
Revenue
Included
in net revenues for the six months ended June 30, 2021 and 2020 was $124,632 and $39,000, respectively, of intercompany revenue with
Rennova.
The
Group has incurred certain costs that have been allocated from Rennova. Included in the Combined Statements of Operations are the following
allocated costs:
| |
Six Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Health insurance | |
$ | 11,130 | | |
$ | (347 | ) |
Rent and utilities | |
| 40,136 | | |
| 19,567 | |
Total allocated costs | |
$ | 51,266 | | |
$ | 19,220 | |
Note
8 – Parent Net Investment Deficit in Advanced Molecular and Health Technology Solutions Group
The
following analyzes Parent’s net investment deficit in the businesses comprising the Advanced Molecular and Health Technology Solutions
Group for the six months ended June 30, 2021 and 2020:
| |
Paid-in Capital | | |
Loans from Parent | | |
Accumulated Deficit | | |
Total Parent Net Investment Deficit | |
Balance at December 31, 2019 | |
$ | 153,187 | | |
$ | 14,506,309 | | |
$ | (16,557,856 | ) | |
$ | (1,898,360 | ) |
Borrowings from Parent | |
| − | | |
| 135,
951 | | |
| − | | |
| 135,951 | |
Net loss | |
| – | | |
| – | | |
| (52,137 | ) | |
| (52,137 | ) |
Balance at June 30, 2020 | |
$ | 153,187 | | |
$ | 14,642,260 | | |
$ | (16,609,993 | ) | |
$ | (1,814,546 | ) |
| |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2020 | |
$ | 153,187 | | |
$ | 14,923,658 | | |
$ | (17,164,307 | ) | |
$ | (2,087,462 | ) |
Borrowings from Parent | |
| − | | |
| 25,209 | | |
| − | | |
| 25,
209 | |
Net loss | |
| – | | |
| – | | |
| (346,225 | ) | |
| (346,225 | ) |
Balance at June 30, 2021 | |
$ | 153,187 | | |
$ | 14,948,867 | | |
$ | (17,510,532 | ) | |
$ | (2,408,478 | ) |
Note
9 – Commitments and Contingencies
Concentration
of Credit Risk - Credit risk with respect to accounts receivable is generally low due to the nature of the customers comprising
the customer base and the significant related party component. The Group does not require collateral or other security to support customer
receivables. However, the Group continually monitors and evaluates its client acceptance and collection procedures to minimize potential
credit risks associated with its accounts receivable and establishes an allowance for uncollectible accounts and, as a consequence, believes
that its accounts receivable credit risk exposure beyond such allowance is not material to the financial statements.
The
Group maintains its cash balances in high-credit-quality financial institutions. The Group’s cash balances may, at times, exceed
the deposit insurance limits provided by the Federal Deposit Insurance Corp.
Guarantees
Certain
entities of the Group have cross guaranteed debt obligations of Parent. As part of the transaction with the Group Rennova will seek to
remove all entities where ownership has transferred to the public company. Until complete Rennova will be responsible to warranty to
the public company that no liability from these entities under these cross guarantees will be material or be a responsibility of the
public company at any time in the future
Legal
Matters
From
time to time, the Group may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes,
employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course
of business. The Group operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware
that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Group’s
financial position or results of operations. Management, in consultation with legal counsel, has addressed known assertions and predicted
unasserted claims below.
P2P
Staffing Corp. received a judgment against HTS during 2018 in the amount of $58,783 for amounts owed. As of June 30, 2021 and December
31, 2020, $10,464 was outstanding and owed for this judgment and included in accounts payable at each respective balance sheet date.
Two
former employees of CollabRx, Inc. filed suits in a California state court against the Parent and CollabRx in connection with amounts
claimed to be owed under their respective employment agreements with CollabRx. One former employee received a judgment against the Parent
and CollabRx in October 2018 for approximately $253,000. The other former employee received a judgment against the Parent and CollabRx
in December 2018 for approximately $173,000. While the Parent has accrued these amounts claimed, it is considering its options to refute
these matters and believes the claims against the Parent to be frivolous and outside of entitlement and contractual agreements.
Clinlab,
Medical Mime and HTS, as well as the Parent and many of its subsidiaries, are defendants in a case filed in Broward County Circuit
Court by TCA Global Credit Master Fund, L.P. The plaintiff alleges a breach by Medytox Solutions, Inc. of its obligations under a
debenture and claims damages of approximately $2,030,000 plus interest, costs and fees. The Parent and the other subsidiaries are
sued as alleged guarantors of the debenture. The complaint was filed on August 1, 2018. The Parent has recorded the principal
balance and interest owed under the debenture agreement for the period ended June 30, 2020. The Parent and all defendants have filed
a motion to dismiss the complaint, but have not recorded any potential liability related to any further damages. In May 2020, the
SEC appointed a Receiver to close down the TCA Global Credit Master Fund, L.P. over allegations of accounting fraud. The amount
recorded by the Parent as being owed to TCA was based on TCA’s application of prior payments made by the Parent. The Parent
believes that prior payments of principal and interest may have been applied to unenforceable investment banking and other fees and
charges. It is the Parent’s and all other defendants’ position that the amount owed to TCA is less than what has been
recorded by the Parent.
In
June 2018, a court in Middlesex County, Massachusetts granted Techlogix Inc. a judgment against HTS and the Parent for $71,723 in connection
with a contract for software development and related services. The Parent made the final payment to satisfy this judgment in September
2020.
Note
10 – Segment Reporting
Operating
segments are defined under U.S. GAAP as components of an enterprise for which discrete financial information is available and are evaluated
regularly by the enterprise’s chief operating decision maker in determining how to allocate resources and assess performance. The
Group operates in two reportable business segments:
● |
Advanced
Molecular Solutions, which specializes in the interpretation of diagnostic results for cancer and pharmacogenomics into easily
usable information and |
|
|
● |
Health
Technology Solutions, which focuses on supportive software solutions, including electronic health records, medical billing services
and laboratory information management systems. |
Selected
financial information for the Group’s operating segments is as follows:
| |
Six Months Ended June 30, | |
| |
2021 | | |
2020 | |
Net revenues | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | — | | |
$ | — | |
Health Technology Solutions | |
| 216,941 | | |
| 251,944 | |
| |
$ | 216,941 | | |
$ | 251,944 | |
Income (Loss) from operations | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | (10,775 | ) | |
$ | (15,654 | ) |
Health Technology Solutions | |
| (325,873 | ) | |
| 15,120 | ) |
| |
$ | (336,648 | ) | |
$ | (534 | ) |
Depreciation | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | − | | |
$ | − | |
Health Technology Solutions | |
| — | | |
| 713 | |
| |
$ | — | | |
$ | 713 | |
Capital expenditures | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | − | | |
$ | − | |
Health Technology Solutions | |
| − | | |
| – | |
| |
$ | − | | |
$ | − | |
| |
June 30, | | |
December 31, | |
| |
2021 | | |
2020 | |
Total assets | |
| | | |
| | |
Advanced Molecular Solutions | |
$ | 46 | | |
$ | 91 | |
Health Technology Solutions | |
| 36,160 | | |
| 184,968 | |
| |
$ | 36,206 | | |
$ | 185,059 | |
Note
11 – Supplemental Disclosure of Cash Flow Information
| |
Six Months Ended June 30, | |
| |
2021 | | |
2020 | |
Cash paid for interest | |
$ | 9,034 | | |
$ | 76,108 | |
Cash paid for income taxes | |
$ | − | | |
$ | − | |
There
were no non-cash investing and financing activities during the six months ended June 30, 2021 and 2020.
Note
12 – Recent Accounting Pronouncements
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period recognized
in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date
and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for the Group for annual and interim periods beginning
on December 31, 2020. Early adoption of this standard is permitted. The adoption of this ASU did not have a material impact on its results
of operations, financial position and cash flows.
In
August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this standard, customers
will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The
adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation
costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU will be effective for the Group
for annual and interim periods beginning on December 31, 2020. Early adoption of this standard is permitted and may be applied either
prospectively to eligible costs incurred on or after the date of the new guidance or retrospectively. The adoption of this ASU did not
have a material impact on its results of operations, financial position and cash flows.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance
simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas
such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of
tax laws or rate changes. This standard will be effective for the Group for annual periods beginning on January 1, 2021, including interim
periods within those fiscal years. Early adoption of this standard is permitted, including adoption of all amendments in any interim
period for which financial statements have not yet been issued. The adoption of this ASU did not have a material impact on its results
of operations, financial position and cash flows.
Other
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 Group’s combined financial
statements.
Note
13 – Subsequent Events
Impact
of the Pandemic
A
novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization on March 11, 2020.
We have been closely monitoring the COVID-19 pandemic and its impact on our operations and we have taken steps intended to minimize the
risk to our employees and customers. If the COVID-19 pandemic continues for a further extended period, we may incur significant losses
and financial assistance may be required. Going forward, the Group is unable to determine the extent to which the COVID-19 pandemic will
affect its business. The nature and effect of the COVID-19 pandemic on our balance sheet and results of operations will depend on the
severity and length of the pandemic in our service areas; government activities to mitigate the pandemic’s effect; regulatory changes
in response to the pandemic; and potential government assistance that may be provided.
On
July 22, 2021, Evolve Bank and Trust Company and the Small Business Administration, forgave $40,900 Paycheck Protection Program Loans
(PPP Loans) and related interest.