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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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 an 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 36 and 61 customers in the United States and generated $468,883 and $528,624 (including $237,551 and
$185,892 from a related party) in net revenues during the years ended December 31, 2021 and 2020, respectively. Net revenues amounted
to $95,893 and $118,217 (including $53,555 and $62,316 from a related party) for the three months ended March 31, 2022 and 2021,
from 18 and 25 customers in the United States, respectively.
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 Health, Inc. (“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 were met and the transfer of shares of Series A Preferred Stock was 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. As the owner of the Series
A Preferred Stock, 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. This has been accounted
for as a reverse acquisition in the accompanying financial statements.
On
June 25, 2021, VisualMED closed the acquisition agreement with 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 operates 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 were subsequently 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 were not convertible 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. Because these shares of Series B Preferred Stock and Series C Preferred Stock are convertible, at the option of the holder,
into a variable number of common shares based solely on a fixed dollar amount (stated value) known at issuance of the shares, they
have been recorded as a long-time liability at the date of issuance in accordance with ASC 480, Distinguishing Liabilities from
Equity.
The
following table represents the Company’s issued shares at March 31, 2022:
Common Shares | |
| 234,953,286 | |
Series A Preference Shares | |
| 1,000 | |
Series B Preference Shares | |
| 14,950 | |
Series C Preference Shares | |
| 225 | |
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 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 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:
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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. |
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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. |
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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;
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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. |
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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. |
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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. |
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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.
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):
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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”
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
The
HTS Group provided products and services to 36 and 61 customers in the United States and generated $468,883 and $528,624 in net revenues
during the years ended December 31, 2021 and 2020, respectively. Included in net revenues were sales made to the former parent and related
entities of $237,551 and $185,892 for the years ended December 31, 2021 and 2020, respectively. Net revenues amounted to $95,893 and
$118,217 for the three months ended March 31, 2022 and 2021 to 18 and 25 customers in the United States, respectively. Included in net
revenues were sales to the former parent and related entities of $53,555 and $62,316 for the three months ended March 31, 2022
and 2021, respectively.
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
As of July 20, 2022, we have five employees,
all 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:
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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; |
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Reducing
health care fraud and abuse; |
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Mandating
industry-wide standards for health care information on electronic billing and other processes; and |
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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:
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The
company has less than $1.07 billion or more of total gross revenue in a consecutive 12-month period; |
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Is
within five years of its original IPO; |
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The
company cannot have issued more than $1 billion in non-convertible bonds within the last three years; and |
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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 the 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:
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the
diversion of management’s time, attention, and resources from managing and marketing our Company; |
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the
failure to retain key acquired personnel or existing personnel who may view the acquisition unfavorably; |
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the
potential loss of clients of acquired businesses; |
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the
need to compensate new employees while they wait for their restrictive covenants with other institutions to expire; |
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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; |
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increased
costs to improve, coordinate, or integrate managerial, operational, financial, and administrative systems; |
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the
potential assumption of liabilities of an acquired business; |
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the
inability to attain the expected synergies with an acquired business; |
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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; |
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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 |
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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 December 31, 2021 or the three months
ended March 31, 2022.
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:
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fluctuations
in the U.S. economy; |
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the
U.S. or global financial markets and the availability, costs, and terms of credit; |
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changes
in laws and regulations; and |
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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 11 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:
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attract,
integrate, retain, and motivate highly qualified professionals; |
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achieve
and maintain adequate utilization and suitable billing rates for our revenue-generating professionals; |
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expand
our existing relationships with our clients and identify new clients in need of our services; |
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successfully
resell product/ engagements and secure new client sales/engagements every year; |
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maintain
and enhance our brand recognition; and |
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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:
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the number and size of client sales/ engagements; |
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the timing of the commencement, completion and termination of engagements, which in many cases is unpredictable; |
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our ability to transition our consultants efficiently from completed engagements to new engagements; |
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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; |
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unanticipated changes in the scope of client engagements; |
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our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and |
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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:
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our clients’ perception of our ability to add value through our products/services; |
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the market demand for the products/services we provide; |
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an increase in the number of sales/engagements in the government sector, which are subject to federal contracting regulations; |
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introduction of new product/services by us or our competitors; |
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our competition and the pricing policies of our competitors; and |
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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:
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the timing and volume of client invoices processed and payments received, which may affect the fees payable to us under certain of our engagements; |
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client decisions regarding renewal or termination of their contracts; |
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the amount and timing of costs related to the development or acquisition of technologies or businesses; and |
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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 are 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.
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:
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fluctuations in the U.S. economy, including economic recessions and the strength and rate of any general economic recoveries; |
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the U.S. financial markets and the availability, costs and terms of credit and credit modifications; |
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business and management crises, including the occurrence of alleged fraudulent or illegal activities and practices; |
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new and complex laws and regulations, repeals of existing laws and regulations or changes of enforcement of laws, rules and regulations; |
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other economic, geographic or political factors; and |
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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 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 accounting principles generally accepted in the United States of America (“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.
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, (iv) failure to protect client information against cyber-attacks and (v) 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 have 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.
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 March 31, 2022, had a working capital deficit and accumulated deficit of $3.1 million and $18.3 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 were issued and outstanding as of each of March
31, 2022 and December 31, 2021. These shares have one vote per share. The issuance of any such shares may result in a reduction of the
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 March 31, 2022 and December 31, 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.
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:
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variations in our operating results; |
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changes in expectations of our future financial performance, including financial estimates by securities analysts and investors; |
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changes in operating and stock price performance of other companies in our industry; |
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additions or departures of key personnel; and |
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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 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
acquisition of an operating company by a non-operating public shell corporation typically results in the owners and management of the
operating company having actual or effective voting and operating control of the combined company. The Securities and Exchange Commission
staff considers a public shell reverse acquisition to be a capital transaction in substance, rather than a business combination. That
is, the transaction is a reverse recapitalization, equivalent to the issuance of stock by the operating company for the net monetary
assets of the shell corporation accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition,
except that no goodwill or other intangible assets are recorded.
The
consolidated financial statements include the accounts of only the HTS Group (the accounting acquirer) prior to June 25, 2021 and InnovaQor
and the Group since the date of acquisition on June 25, 2021, with the transaction being accounted for as a recapitalization of the Group
on June 25, 2021. The consolidated financial statements 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.
The
accompanying condensed consolidated financial statements as of March 31, 2022 and 2021, have been derived from unaudited financial information.
Intercompany accounts and transactions have been eliminated. The accompanying unaudited interim condensed consolidated financial statements
have been prepared on the same basis as the annual audited financial statements and in accordance with U.S. GAAP, for interim financial
information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.
In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of this interim information
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:
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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.
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 March 31, 2022 and 2021 and December 31, 2021 and 2020, 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.
Income
Taxes
The
entities within the Group were included in the consolidated income tax returns of their Parent for the years ended December 31, 2020
and prior. A determination has been made by Parent’s management not to allocate any of the deferred tax assets or liabilities to
the Group as of December 31, 2020 and prior. Accordingly, the Group had not provided for income taxes in the combined financial statements.
The Company since June 25, 2021 uses the liability method of accounting for income taxes. Under the liability method, future tax liabilities
and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial
statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using
enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of
a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs.
Future income tax assets are recognized to the extent that they are considered more likely than not to be realized. When projected future
taxable income is insufficient to provide for the realization of deferred tax assets, the Company will recognize a valuation allowance.
In
accordance with U.S. GAAP, the Company has determined whether a tax position of the Company is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording
a tax liability that would reduce net assets. The Company has determined that it has not incurred any liability for tax benefits as of
March 31, 2022 and 2021 and December 31, 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:
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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 contract price. |
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Allocate
the transaction price to the performance obligations of the contract. |
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Recognize
revenue when or as you satisfy a performance obligation. |
Convertible
Preferred Stock
The
Company classifies its Series B and Series C Convertible Preferred Stock as liabilities in accordance with ASC 480 Distinguishing
Liabilities from Equity since the preferred stock is convertible, at the option of the holder, into a variable number of shares based
solely on a fixed dollar amount (stated value) known at issuance of the preferred stock.
Basic
and Diluted Net Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with ASC 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 March 31, 2022 and December 31, 2021, there
were approximately 2,590,000,000 and 1,773,000,000 common stock equivalents, respectively, which were antidilutive due to the Company’s
losses.
Recent
Accounting Pronouncements
InnovaQor
reviews all of the Financial Accounting Standards Board’s updates periodically to ensure InnovaQor’s compliance of its accounting
policies and disclosure requirements to the Codification Topics.
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 as of and for the years ended December 31, 2021 and 2020 and the three months
ended March 31, 2022 and 2021.This discussion and analysis should be read in conjunction with our consolidated financial statements appearing
elsewhere in this filing. The following discussion contains forward-looking statements. Our actual results may differ significantly from
the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are
not limited to, those discussed in “Risk Factors” of this filing.
Comparison
of the Years Ended December 31, 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 December 31, 2021 and 2020, which are included herein.
The
following table summarizes the results of our consolidated operations for the years ended December 31, 2021 and 2020:
| |
Year Ended December 31, | | |
| |
| |
2021 | | |
2020 | | |
Change | |
Net revenues | |
$ | 468,883 | | |
$ | 528,624 | | |
$ | -59,741 | |
Operating expenses: | |
| | | |
| | | |
| | |
Direct costs of revenue | |
| 205,649 | | |
| 5,536 | | |
| 200,113 | |
General and administrative expenses | |
| 1,247,687 | | |
| 1,043,242 | | |
| 204,445 | |
Depreciation | |
| 1,185 | | |
| 2,168 | | |
| -983 | |
Loss from operations | |
| (985,638 | ) | |
| (522,322 | ) | |
| -463,316 | |
Other (expense) income | |
| 139,795 | | |
| (84,129 | ) | |
| 223,924 | |
Loss before income taxes | |
| (845,843 | ) | |
| (606,451 | ) | |
| -239,392 | |
Provision for income taxes | |
| — | | |
| — | | |
| — | |
Net loss | |
$ | (845,843 | ) | |
$ | (606,451 | ) | |
$ | -239,392 | |
Net
Revenues
Net
revenues were $468,883 and $528,624 for the years ended December 31, 2021 and 2020, respectively. Revenues went down as a result of customers
leaving due to various reasons such as being acquired or going out of business.
Direct
Costs of Revenue
Direct
costs of revenue increased by $200,113 compared to the year ended December 31, 2020 principally due to increases in payroll and
related expenses.
General
and Administrative Expenses
General
and administrative expenses increased by $204,445 compared to the year ended December 31, 2020 principally due to increases in consulting
expense, payroll and related expenses and professional fees.
Other
Income and Expense
During
the year ended December 31, 2021 we recognized $103,900 of other income for forgiveness of various PPP loans. We had no such transaction
during the year ended December 31, 2020.
Loss
from Operations
Our
operating loss increased by $463,316 for the year ended December 31, 2021, when compared to a loss of $522,322 for the same period a
year ago. The increase was due to the increases in our general and administrative expenses and direct costs of revenue.
Net
Loss
Our
net loss was $845,843 for the year ended December 31, 2021, as compared to a net loss of $606,451 for the year ended December 31, 2020.
The $239,392 increase in net loss was principally due to the increases in our general and administrative expenses and direct costs of
revenue.
Liquidity,
Capital Resources and Acquisition
At
December 31, 2021, we had $46 in cash on hand, a working capital deficit of $2,860,200 and an accumulated deficit of approximately $18.0
million. In addition, we incurred a loss from operations of $985,638 and $522,322 for the years ended December 31, 2021 and 2020, respectively.
For the years ended December 31, 2021 and 2020, we financed our operations with non-interest bearing loans principally from our former
parent company.
InnovaQor
acquired all of the common stock of the HTS Group from Rennova on June 25, 2021. The transaction has been accounted for as a reverse
acquisition in the accompanying financial statements.
A
summary of the Statement of Operations as if the acquisition of the HTS Group had taken place on July 1, 2020 is not presented because
it is not materially different than the actual statement of operations.
The
change in cash used in operations for the years ended December 31, 2021 and 2020 is presented in the following table:
| |
Year Ended December 31, | | |
| |
| |
2021 | | |
2020 | | |
Change | |
| |
| | |
| | |
| |
Net loss | |
$ | (845,843 | ) | |
$ | (606,451 | ) | |
$ | -239,392 | |
Non-cash adjustments to loss | |
| | | |
| | | |
| | |
Accounts receivable | |
| 118,563 | | |
| 331,109 | | |
| -212,546 | |
Accounts payable and accrued expenses | |
| 349,409 | | |
| (121,255 | ) | |
| -470,664 | |
Other | |
| (100,998 | ) | |
| 12,131 | | |
| -113,129 | |
Net cash used in operating activities | |
$ | (478,869 | ) | |
$ | (384,466 | ) | |
$ | -94,403 | |
No
cash was provided by investing activities for the years ended December 31, 2021 or 2020.
Net
cash provided by financing activities amounted to $447,575 and $399,093 for the years ended December 31, 2021 and 2020, respectively.
The principal financing activities were loans from the former parent.
Going
Concern and Liquidity
Under
Accounting Standards Update (“ASU”), 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40),
management of InnovaQor has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability
to meet its future financial obligations as they become due within one year after the date that the financial statements are issued.
As required by Accounting Standard Codification (“ASC”) 205-40, this evaluation shall initially not take into consideration
the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management
has assessed InnovaQor’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.
As
reflected in the consolidated financial statements, InnovaQor had a working capital deficit and an accumulated deficit of approximately
$2.9 million and $18.0 million, respectively, at December 31, 2021. In addition, InnovaQor had a loss from operations of $985,638 and
cash used in operating activities of $478,869 for the year ended December 31, 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, through the acquisition of the HTS Group, InnovaQor will be able to achieve its business plan, raise any additional
capital or secure the additional financing necessary from Rennova or third parties to implement its current operating plan. The ability
of InnovaQor to continue as a going concern is dependent upon its ability to significantly increase its revenues and eventually achieve
profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if InnovaQor
is unable to continue as a going concern.
Other
Matters
Inflation
We
do not believe inflation has a significant effect on InnovaQor’s operations.
Off-Balance
Sheet Arrangements
Under
SEC regulations, we are required to disclose InnovaQor’s off-balance sheet arrangements that have or are reasonably likely to have
a current or future effect on InnovaQor’s financial condition, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. Off-balance sheet arrangements consist of transactions, agreements, or contractual arrangements
to which any entity that is not consolidated with us is a party, under which we have:
|
● |
Any
obligation under certain 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 December 31, 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.
Seasonality
We
do not expect our net revenues to be impacted by seasonal demands for our products and services.
Comparison
of the Three Months ended March 31, 2022 and 2021
The
following summary of our condensed consolidated results of operations should be read in conjunction with our interim consolidated financial
statements for the three months ended March 31, 2022 and 2021, which are included herein.
The
following table summarizes the results of our consolidated operations for the three months ended March 31, 2022 and 2021 (unaudited):
| |
Three Months Ended March 31, | | |
| |
| |
2022 | | |
2021 | | |
Change | |
Net revenues | |
$ | 95,892 | | |
$ | 118,217 | | |
$ | -22,324 | |
Operating expenses: | |
| | | |
| | | |
| | |
Direct costs of revenue | |
| 175,089 | | |
| — | | |
| -175,089 | |
General and administrative expenses | |
| 182,373 | | |
| 284,366 | | |
| -101,993 | |
Depreciation | |
| — | | |
| 237 | | |
| 237 | |
Total operating expenses | |
| 357,422 | | |
| 284,603 | | |
| 72,819 | |
Loss from operations | |
| (261,530 | ) | |
| (166,386 | ) | |
| (95,144 | ) |
Interest expense and payroll tax penalties | |
| (3,154 | ) | |
| (9,577 | ) | |
| 6,423 | |
Loss before income taxes | |
| (264,723 | ) | |
| (175,963 | ) | |
| -88,760 | |
Provision for income taxes | |
| — | | |
| — | | |
| — | |
Net loss | |
$ | (264,723 | ) | |
$ | (175,963 | ) | |
$ | -88,760 | |
Net
Revenues
Net
revenues were $95,893 and $118,217 for the three months ended March 31, 2022 and 2021, respectively. Net revenues went down as a result
of customers leaving due to various reasons such as being acquired and going out of business and we are not marketing as a result of
lack of funds. This period does not include annual renewals that would increase the revenues for the period.
Direct
Costs of Revenue
Direct
costs of revenue increased by $175,089 compared to the three months ended March 31, 2021 principally due to increases in payroll and
related expenses.
General
and Administrative Expenses
General
and administrative expenses decreased by $101,993 compared to the three months ended March 31, 2021 principally due to decreases in payroll
and related expenses and professional fees.
Loss
from Operations
Our
operating loss increased by $95,144 for the three months ended March 31, 2022, when compared to a loss of $166,386 for the same period
a three months ago. The increase was due principally to the increases in our direct cost of revenue expenses.
Net
Loss
Our
net loss was $264,723 for the three months ended March 31, 2022, as compared to a net loss of $175,963 for the three months ended March
31, 2021. The $88,760 increase in net loss was principally due to the increases in our direct cost of revenue expenses.
Liquidity,
Capital Resources and Acquisition
At
March 31, 2022, we had $1,040 in cash on hand, a working capital deficit of $3,109,673 and an accumulated deficit of approximately $18.3
million. In addition, we incurred a loss from operations of $261,569 and $166,386 for the three months ended March 31, 2022 and 2021,
respectively. For the three months ended March 31, 2022 and 2021, we financed our operations with non-interest bearing loans principally
from our former parent company.
As
of July 1, 2022, the outstanding loan from Rennova to the Company totaled $803,415.70. The Company signed a promissory note, dated
July 1, 2022, in favor of Rennova that provided that the Company will pay Rennova $883,757.27 on December 31, 2022. That amount
represented a 10% original issue discount above the loan amount outstanding on July 1, 2022.
InnovaQor
acquired all of the common stock of the HTS Group from Rennova on June 25, 2021. The transaction has been accounted for as a reverse
acquisition in the accompanying financial statements.
Going
Concern
The
Company has incurred net losses of $18,274,873 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 March 31, 2022, we had $1,040 in cash and
we owed $12,421,713 for various liabilities. We are pursuing various financing alternatives to address the payment of outstanding liabilities
and to support 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.
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 March 31, 2022 and December 31, 2021, on an historical basis. In addition,
it is not indicative of our future capitalization. This table should be read in conjunction with InnovaQor’s financial statements
and notes thereto included elsewhere in this registration statement.
The
following table sets forth our cash and capitalization as of March 31, 2022 and December 31, 2021:
| |
March 31,
2022 | | |
December 31,
2021 | |
Cash | |
$ | 1,040 | | |
$ | 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 | |
| 5,857,658 | | |
| 5,857,658 | |
Total capitalization | |
$ | 5,882,193 | | |
$ | 5,881,199 | |
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 March 31, 2022, 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 (4) | |
| - | | |
| - | | |
| - | |
| |
| |
| | | |
| | | |
| | |
| |
Justin Doherty | |
| - | | |
| - | | |
| - | |
| |
| |
| | | |
| | | |
| | |
| |
Gerard Dab (5) | |
| - | | |
| - | | |
| - | |
| |
| |
| | | |
| | | |
| | |
| |
All Directors and Executive Officers as a Group (3 persons) | |
| - | (6) | |
| - | % | |
| - | % |
| |
| |
| | | |
| | | |
| | |
| |
Michel Dab (7) | |
| 27,785,000 | | |
| 11.8 | % | |
| 5.8 | % |
| |
| |
| | | |
| | | |
| | |
| |
Ithaca Scientific Ventures (8) | |
| 22,000,000 | | |
| 9.4 | % | |
| 4.6 | % |
| |
| |
| | | |
| | | |
| | |
| |
Real Gauthier (9) | |
| 18,300,000 | | |
| 7.8 | % | |
| 3.8 | % |
(1) |
Based
on 234,953,286 shares of Common Stock issued and outstanding as of March 31, 2022, 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) |
Sharon
Hollis owns 25 shares of Series C Preferred Stock. The Series C Preferred Stock has no voting rights but is convertible into Common
Stock under certain circumstances. As of March 31, 2022, the Series C Preferred Stock was not convertible without the consent of
Epizon, as the holder of the Series A Preferred Stock. If it were convertible, the shares held by Ms. Hollis would, as of March 31,
2022, be convertible into 4,660,700 shares of Common Stock. |
|
|
(4) |
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. As of March 31, 2022, the Series B Preferred Stock was not 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 March 31, 2022, 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). |
(5) |
Gerard
Dab owns 200 shares of Series C Preferred Stock. The Series C Preferred Stock has no voting rights but is convertible into Common
Stock under certain circumstances. As of March 31, 2022, the Series C Preferred Stock was not 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 March 31, 2022,
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). |
|
|
(6) |
Includes
Ms. Hollis and Messrs. Doherty and Dab. Ms. Hollis and Mr. Dab also own 25 and 200 shares of Series C Preferred Stock, respectively,
as described in the above footnotes. |
|
|
(7) |
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. |
|
|
(8) |
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 Ithaca Scientific Ventures and Dr. McHarg similarly disclaim any beneficial interest in any securities owned by Mr. Dab. |
|
|
(9) |
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 | |
54 | |
Director, Chairman |
Sharon L. Hollis | |
45 | |
Director, President, CEO |
Gerard Dab | |
74 | |
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 until the end of 2018 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 years ended December 31, 2021 and 2020. The Company did not have any other executive
officers during the years ended December 31, 2021 and 2020. Prior to July 6, 2021, Mr. Dab performed the duties of both the principal
executive officer and the principal financial officer.
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 (1) | |
2021 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 500,000 | | |
$ | 500,000 | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
2020 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sharon Hollis, CEO (3) | |
2021 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
|
(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 an 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. |
|
(3) |
Ms.
Hollis became Chief Executive Officer of the Company on July 6, 2021. |
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table provides information regarding outstanding equity awards held by the named executive officers at December 31, 2021 and
2020:
Name | |
| Number of shares underlying unexercised options exercisable | | |
| Number of shares underlying unexercised options un-exercisable | | |
| 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 | |
| — | | |
| — | | |
| — | | |
$ | — | | |
| — | | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Sharon Hollis | |
| — | | |
| — | | |
| — | | |
$ | — | | |
| — | | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
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. This agreement has been renewed for another year. 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 years ended December 31, 2021 and 2020:
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) | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Justin Doherty (2) | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
|
(1) |
Mr.
Lombardo resigned as a Director in connection with the acquisition of the Group on June 25, 2021. |
|
(2) |
Mr.
Doherty was elected to the Board of Directors on July 6, 2021. |
Item
7. Certain Relationships and Related Transactions, and Director Independence.
Mr.
Dab, the former CEO of InnovaQor, paid certain of the disbursements on behalf of the Company for the years ended December 31, 2021 and
2020. The cash disbursements amounted to $24,993 and $7,670 for the years ended December 31, 2021 and 2020, respectively,
and are included in the accompanying Statements of Operations as operating expenses.
In
addition, during the year ended December 31, 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 $84,100. The Company
entered into a promissory note in the amount of $92,510, representing a 10% original issue discount. The loan is due on September 6,
2022; provided that, 50% is due if the Company receives $500,000 of financing and 100% is due if the Company receives $1,000,000
of financing. In addition, the Company issued Ms. Hollis 25 shares of Series C Preferred Stock on March 31, 2022 in connection with the
loan.
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 $58,784 plus accrued interest and court costs for amounts
owed. As of March 31, 2022 and December 31, 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, which Rennova has paid in full. 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 of approximately $2,030,000 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, which amount has now been paid as of April 2022.
CTI
Consulting LLC filed suit against HTS 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.
On
June 14, 2018, Techlogix, Inc. obtained a judgment in the Massachusetts Superior Court for Middlesex County in the amount of $71,223
against HTS and Rennova. This amount was paid by Rennova and a Satisfaction of Judgement was filed by Techlogix, Inc. on December 8,
2020.
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
July __, 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 | |
$ | 0.0069 | | |
$ | 0.0027 | |
September
30, 2022 (through July __, 2022) | |
$ | | | |
$ | | |
Record
Holders
There
were 78 holders of record as of May 31, 2022. 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.
On
March 31, 2022, the Company issued 25 shares of Series C Preferred Stock to Sharon Hollis in connection with a loan she made to 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.
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 each of March
31, 2022 and December 31, 2021. These shares have one 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 March 31, 2022 and December 31, 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 March 31, 2022 and December 31, 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 was not
convertible 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. Because these
shares are convertible, at the option of the holder, into a variable of common shares based solely on a fixed dollar amount (stated
value) known at issuance of the shares, they have been recorded as a long-term liability at the date of issuance in accordance with
ASC 480, Distinguishing Liabilities from Equity.
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 225 and
200 were issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. 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 was not convertible 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. Because these shares are convertible, at the option of the holder, into a variable of common shares
based solely on a fixed dollar amount (stated value) known at issuance of the shares, they have been recorded as a long-term liability
at the date of issuance in accordance with ASC 480, Distinguishing Liabilities from Equity.
The
following table represents the Company’s issued shares at March 31, 2022:
Common Shares | |
| 234,953,286 | |
Series A Preference Shares | |
| 1,000 | |
Series B Preference Shares | |
| 14,950 | |
Series C Preference Shares | |
| 225 | |
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. As the owner of the Series A Preferred Stock, 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. |
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|
|
|
(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. |
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(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 |
|
|
|
21 |
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Subsidiaries of the Registrant |
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.
|
InnovaQor,
Inc. |
|
|
|
|
By: |
/s/
Sharon L. Hollis |
|
Name: |
Sharon L. Hollis |
|
Title: |
President, CEO and Director |
Date:
July 29, 2022
INNOVAQOR,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
Index
to Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of InnovaQor, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of InnovaQor, Inc. (the Company) as of December 31, 2021 and 2020, and the related statements
of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 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 December 31, 2021 and 2020, and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted
in the United States of America.
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
2 to the financial statements, the Company has accumulated significant losses and has negative cash flows from operations and, at December
31, 2021, had a $2.9 million working capital deficit and $18 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 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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.
/s/
Haynie & Company
Haynie
& Company
Salt
Lake City, Utah
July
29, 2022
PCAOB
#457
We
have served as the Company’s auditor since 2021
INNOVAQOR,
INC.
CONSOLIDATED
BALANCE SHEETS
The
accompanying notes are an integral part of these consolidated financial statements.
INNOVAQOR,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
The
accompanying notes are an integral part of these consolidated financial statements.
INNOVAQOR,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
The
accompanying notes are an integral part of these consolidated financial statements.
INNOVAQOR,
INC.
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 involved 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.
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 was a wholly-owned subsidiary of Rennova that was formed
on May 4, 2017 and HTS was 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 formerly
owned by Rennova: ClinLab, Inc. and Medical Mime, Inc.
On
June 25, 2021, Rennova sold all the shares of stock of its subsidiaries, HTS and AMSG, to InnovaQor in a transaction that has been accounted
for as a reverse acquisition with the Group being the accounting acquirer.
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 fair market value of the 14,950
shares was $9,086,396,
as described below.
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. Because these shares are convertible, at the option of the holder, into a variable number of common shares based
solely on a fixed dollar amount (stated value) known at issuance of the shares, they have been recorded as a long-term liability at the
date of issuance in accordance with ASC 480, Distinguishing Liabilities from Equity.
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 (“Epizon”), a Nassau, Bahamas, based management consulting company. Seamus
Lagan, the Chief Executive Officer of Rennova, the company we ultimately completed a transaction with, is also the managing director
of Epizon. The conditions of the Epizon agreement to which Mr. Dab was a party were met and the transfer of shares of Series A Preferred
Stock to Epizon was completed. The terms of the agreement between Mr. Dab and Epizon had certain conditions including a condition that
if within 120 days after a transaction was completed by VisualMED, there were not a dispute or efforts to unwind the transaction, then
Mr. Dab would deliver the shares of Series A Preferred Stock owned by him to Epizon. Epizon, as the owner of the Series A Preferred Stock,
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 Mr. Dab in exchange for $200,000 owed
to him. The shares had a fair market value of $122,000 at
the date of issuance, as described below. Because these shares are convertible, at the option of the holder, into a variable
number of common shares based solely on a fixed dollar amount (stated value) known at issuance of the shares, they have been
recorded as a long-term liability at the date of issuance in accordance with ASC 480, Distinguishing Liabilities from
Equity.
The
fair market value of all of the above shares of Series B and Series C Preferred Stock is based on the Option Price Method (the
“OPM”). The OPM treats common and preferred interests as call options on the equity value of the subject company, with exercise
prices based on the liquidation preference of the preferred interests and participation thresholds for subordinated classes. The Black-Scholes
model was used to price the call options. The assumptions used were: risk free rate of 0.84%,
volatility of 250.0%,
and exit period of 5
years. Lastly, a discount rate of 35%
was applied due to the lack of marketability
of the InnovaQor preferred stock and the underlying liquidity of InnovaQor’s common stock.
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.
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 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
acquisition of an operating company by a non-operating public shell corporation typically results in the owners and management of the
operating company having actual or effective voting and operating control of the combined company. The Securities and Exchange Commission
staff considers a public shell reverse acquisition to be a capital transaction in substance, rather than a business combination. That
is, the transaction is a reverse recapitalization, equivalent to the issuance of stock by the operating company for the net monetary
assets of the shell corporation accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition,
except that no goodwill or other intangible assets are recorded.
The
consolidated financial statements include the accounts of only the HTS Group (the accounting acquirer) prior to June 25, 2021 and InnovaQor
and the Group since the date of acquisition on June 25, 2021, with the transaction being accounted for as a recapitalization of the Group
on June 25, 2021. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and require management to make certain judgments, estimates, and assumptions. These
may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates upon subsequent resolution of identified matters.
Comprehensive
Loss
During
the years 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 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 December 31, 2021, had a working capital deficit and accumulated deficit of $2.9 million and $18.0
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, 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 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.
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 Company deems the receivable to be uncollectable. The Company 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 Company 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.
Revenue
Recognition
We
recognize revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers
(Topic 606),” including subsequently issued updates. This series of comprehensive guidance has replaced all existing revenue recognition
guidance. There is a five-step approach outlined in the standard. In determining revenue, we first identify the contract according to
the scope of ASU Topic 606 with the following criteria:
|
● |
Identify the contract(s) with a customer. |
|
● |
Identify the performance obligations in the contract. |
|
● |
Determine the transaction price. |
|
● |
Allocate the transaction price to the performance obligations
in the contract. |
|
● |
Recognize revenue when or as you satisfy a performance
obligation. |
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 11 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 hourly 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 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:
|
● |
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 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 December
31, 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 its Parent for the years ended December 31, 2020 and
prior. A determination has been made by Parent’s management not to allocate any of the deferred tax assets or liabilities to the
Group as of December 31, 2020 and prior. Accordingly, the Group had not provided for income taxes in the combined financial statements.
The Company since June 25, 2021 uses the liability method of accounting for income taxes. Under the liability method, future tax liabilities
and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial
statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using
enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of
a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs.
Future income tax assets are recognized to the extent that they are considered more likely than not to be realized. When projected future
taxable income is insufficient to provide for the realization of deferred tax assets, the Company will recognize a valuation allowance.
In
accordance with U.S. GAAP, the Company has determined whether a tax position of the Company is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording
a tax liability that would reduce net assets. The Company has determined that it has not incurred any liability for tax benefits as of
December 31, 2021 and 2020. State income taxes will also be due on any income generated in the future.
Convertible
Preferred Stock
The
Company classifies its Series B and Series C Convertible Preferred Stock as liabilities in accordance with ASC 480 Distinguishing
Liabilities from Equity since the preferred stock is convertible, at the option of the holder, into a variable number of shares based
solely on a fixed dollar amount (stated value) known at issuance of the preferred stock.
Basic
and Diluted Net Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with ASC Topic 260, “Earnings per Share” which requires presentation
of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income
(loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury
stock method, and convertible preferred stock, using the if-converted method. As of December 31, 2021 and 2020, there were approximately
1,773,000,000 and 0, respectively, common stock equivalents which where antidilutive due to the Company’s losses. These common
stock equivalents are in connection with the convertible preferred stock.
Note
3 – Acquisition
The
Company acquired all the common stock of the HTS Group from Rennova on June 25, 2021 in exchange for Preferred Series A, B and C stock
with a fair market value of $9,195,692. This acquisition has been accounted for as a reverse acquisition with the HTS Group being the
accounting acquiror with the excess fair value of the purchase price over net asset fair value acquired treated as a reduction of additional
paid in capital on the date of acquisition.
A
summary of that purchase price is a s follows:
Schedule
of Purchase Price
Fair Value of Preferred Series A Stock | |
$ | 100 | |
Fair Value of Preferred Series B Stock | |
$ | 9,086,396 | |
Fair Value of Preferred Series C Stock | |
$ | 122,000 | |
Other | |
$ | (12,804 | ) |
Total | |
$ | 9,195,692 | |
On
the date of acquisition, InnovaQor had no assets and total liabilities of $500,035,
of which $500,000
was converted to equity in connection with the
acquisition.
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
| |
Years Ended | |
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Net revenues | |
$ | 468,883 | | |
$ | 528,624 | |
Operating expenses: | |
| | | |
| | |
Direct costs of revenue | |
| 205,649 | | |
| 5,536 | |
General and administrative expenses | |
| 1,755,455 | | |
| 1,061,155 | |
Depreciation | |
| 1,185 | | |
| 2,168 | |
Total operating expenses | |
| 1,962,289 | | |
| 1,068,859 | |
| |
| | | |
| | |
Loss from operations | |
| (1,493,406 | ) | |
| (540,235 | ) |
Other (expense) income | |
| 139,795 | | |
| (84,129 | ) |
Loss before income taxes | |
| ) | |
| ) |
Provision for income taxes | |
| - | | |
| - | |
Net loss | |
$ | (1,353,611 | ) | |
$ | (624,364 | ) |
Note
4 – Accounts Receivable
Accounts
receivable at December 31, 2021 and 2020 consisted of the following:
Schedule of Accounts Receivable
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Accounts receivable (including related party of $21,852 and $135,687 at December 31, 2021 and 2020, respectively) | |
$ | 32,800 | | |
$ | 152,759 | |
Less: | |
| | | |
| | |
Allowance for discounts | |
| — | | |
| (1,396 | ) |
Accounts receivable, net | |
$ | 32,800 | | |
$ | 151,363 | |
For
the years ended December 31, 2021 and 2020, bad debt expense was $6,554 and $16,165, respectively.
Note
5 – Property and Equipment
Property
and equipment at December 31, 2021 and 2020 consisted of the following:
Summary
of Property and Equipment
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Software | |
$ | 1,435,875 | | |
$ | 1,435,875 | |
Furniture | |
| 8,227 | | |
| 8,227 | |
Office equipment | |
| 30,931 | | |
| 24,883 | |
Computer equipment | |
| 324,131 | | |
| 330,179 | |
| |
| 1,799,164 | | |
| 1,799,164 | |
Less accumulated depreciation | |
| (1,799,164 | ) | |
| (1,798,479 | ) |
Property and equipment, net | |
$ | — | | |
$ | 685 | |
Depreciation
expense on property and equipment was $1,185 and $2,168 for the years 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 – Accrued Expenses
Accrued
expenses at December 31, 2021 and 2020 consisted of the following:
Schedule
of Accrued Expenses
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Accrued payroll and related liabilities | |
$ | 1,263,539 | | |
$ | 1,173,889 | |
Accrued legal | |
| 37,997 | | |
| 37,997 | |
Accrued interest | |
| 17,494 | | |
| 681 | |
Deferred revenue and customer deposits | |
| 24,471 | | |
| 19,530 | |
Other accrued expenses | |
| 103,221 | | |
| 76,186 | |
Accrued expenses | |
$ | 1,446,722 | | |
$ | 1,308,283 | |
Accrued
payroll and related liabilities at December 31, 2021 and 2020 included approximately $1.1 million and $1.1 million, respectively, of
accrued past due payroll taxes, related penalties and interest.
Note
7 – Notes Payable
The
carrying amount of notes payable as of December 31, 2021 and 2020 was as follows:
Schedule
of Notes Payable
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
| |
| 134,153 | | |
| 134,118 | |
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 | | |
$ | 134,118 | |
| |
| | | |
| | |
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 | | |
| 103,900 | |
| |
| 194,554 | | |
| 238,018 | |
Less current portion | |
| 134,153 | | |
| 134,118 | |
Notes payable, long term, net of current portion | |
$ | 60,401 | | |
$ | 103,900 | |
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
8 – Loans from Parent and Other Related Party Transactions
To
fund the Company’s operations for the years ended December 31, 2021 and 2020, the former Parent advanced funds and paid expenses
of InnovaQor and the Group in the amount of $374,473 and $417,349, respectively, which is shown in the accompanying Consolidated Balance
Sheets as Due to Former Parent as of December 31, 2021 and in Parent Net Investment Deficit in Advanced Molecular and Health Technology
Solutions Group as of December 31, 2020.
Related
Party Revenue
Included
in net revenues for the years ended December 31, 2021 and 2020 is $237,551 and $185,892, respectively, of revenue with Rennova (the former
parent).
The
Group has incurred certain costs that have been allocated from Rennova. Included in the Consolidated Statements of Operations are the
following allocated costs:
Schedule
of Allocated Costs
| |
Year Ended December 31, | | |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Health insurance | |
$ | 16,169 | | |
$ | 2,825 | |
Rent and utilities | |
| 83,429 | | |
| 27,343 | |
Total allocated costs | |
$ | 99,598 | | |
$ | 30,168 | |
Note
9 – Preferred Stock and Stockholders’ Deficit
Common
Stock
The
Company 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. These shares have one 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
were issued and outstanding as of December 31, 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
were issued and outstanding as of December 31,
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 was not convertible 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. Because these shares
are convertible, at the option of the holder, into a variable number of common shares based solely on a fixed dollar amount (stated value)
known at issuance of the shares, they have been recorded as a long-term liability at the date of issuance in accordance with ASC 480,
Distinguishing Liabilities from Equity.
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. 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 was not convertible 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. Because these shares
are convertible, at the option of the holder, into a variable number of common shares based solely on a fixed dollar amount (stated value)
known at issuance of the shares, they have been recorded as a long-term liability at the date of issuance in accordance with ASC 480,
Distinguishing Liabilities from Equity.
Note
10 – Revenue
The
Company had net revenue for the years ended December 31, 2021 and 2020 as follows:
Schedule
of Net Revenue
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Dashboards | |
$ | 69,258 | | |
$ | — | |
IT Managed Services | |
| 102,960 | | |
| — | |
Software and Interfaces | |
| 58,599 | | |
| 15,015 | |
Support and Maintenance | |
| 95,355 | | |
| 299,082 | |
vCIO Services | |
| 65,313 | | |
| — | |
Software Licenses Fees | |
| 74,618 | | |
| 204,124 | |
Other | |
| 2,780 | | |
| 10,403 | |
Total Net Revenue | |
$ | 468,883 | | |
$ | 528,624 | |
Generally,
work is billed monthly by the hour at agreed upon hourly 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 – Other Related Party Transactions
Mr.
Dab, the former CEO of InnovaQor, paid some of the disbursements on behalf of the Company for the years ended December 31, 2021 and 2020.
The disbursements amounted to $24,993 and $7,670, respectively, and are shown in the accompanying Consolidated Statements of Operations.
In
the years ended December 31, 2021 and 2020, the former Parent advanced funds and paid expenses of InnovaQor and the Group in the amount
of $374,473 and $417,349, respectively, which is shown in the accompanying Consolidated Balance Sheets as Due to Former Parent as of
December 31, 2021 and in Parent Net Investment Deficit in Advanced Molecular and Health Technology Solutions Group as of December 31,
2020.
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. This agreement has been renewed for another year. 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
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. 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 $58,784 plus accrued interest and court costs for amounts
owed. As of December 31, 2021 and 2020, $10,464 was outstanding and owed for this judgment and included in accounts payable in the accompanying
Consolidated Balance Sheets.
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, which Rennova has paid in full. 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 of approximately $2,030,000 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 Credit 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, which amount has now been paid as of April 2022.
CTI
Consulting LLC filed suit against HTS 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.
On
June 14, 2018, Techlogix, Inc. obtained a judgment in the Massachusetts Superior Court for Middlesex County in the amount of $71,223
against HTS and Rennova. This amount was paid by Rennova and a Satisfaction of Judgement was filed by Techlogix, Inc. on December 8,
2020.
Note
13 – Supplemental Disclosure of Cash Flow Information
Schedule of Supplemental Disclosure of Cash Flow Information
| |
Years ended December 31, | |
| |
2021 | | |
2020 | |
Cash paid for interest | |
$ | 1,066 | | |
$ | 174,551 | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Series C Prefered Stock issued in connection with acquisition | |
$ | 122,000 | | |
| — | |
Series B Prefered Stock issued in connection with acquisition | |
$ | 9,086,396 | | |
| — | |
Note
14 – Recent Accounting Pronouncements
All
recent accounting standards issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s consolidated financial
statements.
INNOVAQOR,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INNOVAQOR,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INNOVAQOR,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INNOVAQOR,
INC.
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 involved 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.
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 was a wholly-owned subsidiary of Rennova that was formed
on May 4, 2017 and HTS was 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 was left
with Rennova. After the separation, Rennova retained full ownership of its remaining businesses.
On
June 25, 2021, Rennova sold all the shares of stock of its subsidiaries, HTS and AMSG, to InnovaQor in a transaction that has been accounted
for as a reverse acquisition with the Group being the accounting acquirer.
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 fair market value of the 14,950
shares was $9,086,396,
as described below. 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. Because these
shares are convertible, at the option of the holder, into a variable number of common shares based solely on a fixed dollar amount (stated
value) known at issuance of the shares, they have been recorded as a long-term liability at the date of issuance in accordance with ASC
480, Distinguishing Liabilities from Equity.
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 (“Epizon”), a Nassau, Bahamas, based management consulting company. Seamus
Lagan, the Chief Executive Officer of Rennova, the company we ultimately completed a transaction with, is also the managing director
of Epizon. The conditions of the Epizon agreement to which Mr. Dab was a party were met and the transfer of shares of Series A Preferred
Stock to Epizon was completed. The terms of the agreement between Mr. Dab and Epizon had certain conditions including a condition that
if within 120 days after a transaction was completed by VisualMED, there were not any dispute or efforts to unwind the transaction, then
Mr. Dab would deliver the shares of Series A Preferred Stock owned by him to Epizon. Epizon, as the owner of the Series A Preferred Stock,
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 Mr. Dab in exchange for $200,000
owed to him. The shares had a fair market value
of $122,000
at the date of issuance, as described below.
Because these shares are convertible, at the option of the holder, into a variable number of common shares based solely on a fixed
dollar amount (stated value) known at issuance of the shares, they have been recorded as a long-term liability at the date of issuance
in accordance with ASC 480, Distinguishing Liabilities from Equity.
The
fair market value of all of the above shares of Series B and Series C Preferred Stock is based on the Option Price Method
(the “OPM”). The OPM treats common and preferred interests as call options on the equity value of the subject company,
with exercise prices based on the liquidation preference of the preferred interests and participation thresholds for subordinated
classes. The Black-Scholes model was used to price the call options. The assumptions used were: risk free rate of 0.84%,
volatility of 250.0%,
and exit period of 5 years.
Lastly, a discount rate of 35%
was applied due to the lack of marketability of the InnovaQor preferred stock and the underlying liquidity of InnovaQor’s
common stock.
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.
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 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
acquisition of an operating company by a non-operating public shell corporation typically results in the owners and management of the
operating company having actual or effective voting and operating control of the combined company. The Securities and Exchange Commission
staff considers a public shell reverse acquisition to be a capital transaction in substance, rather than a business combination. That
is, the transaction is a reverse recapitalization, equivalent to the issuance of stock by the operating company for the net monetary
assets of the shell corporation accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition,
except that no goodwill or other intangible assets are recorded.
The
condensed consolidated financial statements include the accounts of only the HTS Group (the accounting acquirer) prior to June 25, 2021
and InnovaQor and the Group since the date of acquisition on June 25, 2021, with the transaction being accounted for as a recapitalization
of the Group on June 25, 2021. The condensed consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and require management to make certain judgments, estimates,
and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates upon subsequent resolution of identified matters.
The
accompanying condensed consolidated financial statements as of March 31, 2022 and 2021, have been derived from unaudited financial information.
Intercompany accounts and transactions have been eliminated. The accompanying unaudited interim condensed consolidated financial statements
have been prepared on the same basis as the annual audited financial statements and in accordance with U.S. GAAP, for interim financial
information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.
In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of this interim information.
Comprehensive
Loss
During
the three months ended March 31, 2022 and 2021, 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 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 March 31, 2022, had a working capital deficit and accumulated deficit of $3.1 million and $18.3 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.
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 Company deems the receivable to be uncollectable. The Company 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 Company 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.
Revenue
Recognition
We
recognize revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers
(Topic 606),” including subsequently issued updates. This series of comprehensive guidance has replaced all existing revenue recognition
guidance. There is a five-step approach outlined in the standard. In determining revenue, we first identify the contract according to
the scope of ASU Topic 606 with the following criteria:
|
● |
Identify the contract(s) with a customer. |
|
● |
Identify the performance obligations in the contract. |
|
● |
Determine the transaction price. |
|
● |
Allocate the transaction price to the performance obligations
in the contract. |
|
● |
Recognize revenue when or as you satisfy a performance
obligation. |
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 11 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 hourly 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 March 31, 2022 and 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 March 31, 2022 and December 31, 2021, the carrying value of the Company’s accounts receivable,
accounts payable, accrued expenses and notes payable, approximate their fair values due to their short-term nature. For the three months
ended March 31, 2022 and 2021, 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 its Parent for the years ended December 31, 2020 and
prior. A determination has been made by Parent’s management not to allocate any of the deferred tax assets or liabilities to the
Group as of December 31, 2020 and prior. Accordingly, the Group had not provided for income taxes in the combined financial statements.
The Company since June 25, 2021 uses the liability method of accounting for income taxes. Under the liability method, future tax liabilities
and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial
statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using
enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of
a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs.
Future income tax assets are recognized to the extent that they are considered more likely than not to be realized. When projected future
taxable income is insufficient to provide for the realization of deferred tax assets, the Company will recognize a valuation allowance.
In
accordance with U.S. GAAP, the Company has determined whether a tax position of the Company is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording
a tax liability that would reduce net assets. The Company has determined that it has not incurred any liability for tax benefits as of
March 31, 2022 and 2021. State income taxes will also be due on any income generated in the future.
Convertible
Preferred Stock
The
Company classifies its Series B and Series C Convertible Preferred Stock as liabilities in accordance with ASC 480 Distinguishing
Liabilities from Equity since the preferred stock is convertible, at the option of the holder, into a variable number of shares based
solely on a fixed dollar amount (stated value) known at issuance of the preferred stock.
Basic
and Diluted Net Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with ASC Topic 260, “Earnings per Share” which requires presentation
of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income
(loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury
stock method, and convertible preferred stock, using the if-converted method. As of March 31, 2022, there were approximately 2,590,000,000
common stock equivalents which where antidilutive due to the Company’s losses.
Note
3 – Acquisition
The
Company acquired all the common stock of the HTS Group from Rennova on June 25, 2021 in exchange for Preferred Series A, B and C stock
with a fair market value of $9,195,692. This acquisition has been accounted for as a reverse acquisition with the HTS Group being the
accounting acquiror with the excess fair value of the purchase price over net asset fair value acquired treated as a reduction of additional
paid in capital on the date of acquisition.
A
summary of that purchase price is a s follows;
Schedule of Purchase Price
Fair Value of Preferred Series A Stock | |
$ | 100 | |
Fair Value of Preferred Series B Stock | |
$ | 9,086,396 | |
Fair Value of Preferred Series C Stock | |
$ | 122,000 | |
Other | |
$ | (12,804 | ) |
Total | |
$ | 9,195,692 | |
On
the date of acquisition, InnovaQor had no assets and total liabilities of $500,035,
of which $500,000
was converted to equity in connection with the
acquisition.
Unaudited
summary Statements of Operations for the three months ended March 31, 2021, as if the acquisition had taken place on January
1, 2021, are not materially different than those statements presented herein.
Note
4 – Accounts Receivable
Accounts
receivable at March 31, 2022 and December 31, 2021 consisted of the following:
Schedule
of Accounts Receivable
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Accounts receivable (including related party of $16,023 and $21,852 at March 31, 2022 and December 31, 2021, respectively) | |
$ | 26,953 | | |
$ | 32,800 | |
Accounts receivable | |
| 26,953 | | |
| 32,800 | |
Less: | |
| | | |
| | |
Allowance for discounts | |
| — | | |
| — | |
Accounts receivable, net | |
$ | 26,953 | | |
$ | 32,800 | |
For
the three months ended March 31, 2022 and 2021, bad debt expense (recovery), was $0 and $0, respectively.
Note
5 – Property and Equipment
Property
and equipment at March 31, 2022 and December 31, 2021 consisted of the following:
Summary
of Property and Equipment
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Software | |
$ | 1,435,875 | | |
$ | 1,435,875 | |
Furniture | |
| 8,227 | | |
| 8,227 | |
Office equipment | |
| 30,931 | | |
| 30,931 | |
Computer equipment | |
| 324,131 | | |
| 324,131 | |
| |
| 1,799,164 | | |
| 1,799,164 | |
Less accumulated depreciation | |
| (1,799,164 | ) | |
| (1,799,164 | ) |
Property and equipment, net | |
$ | — | | |
$ | — | |
Depreciation
expense on property and equipment was $0 and $237 for the three months ended March 31, 2022 and 2021, respectively. Management periodically
reviews the valuation of long-lived assets, including property and equipment, for potential impairment.
Note
6 – Accrued Expenses
Accrued
expenses at March 31, 2022 and December 31, 2021 consisted of the following:
Schedule
of Accrued Expenses
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Accrued payroll and related liabilities | |
$ | 1,363,567 | | |
$ | 1,263,539 | |
Accrued legal | |
| 37,997 | | |
| 37,997 | |
Accrued interest | |
| 412 | | |
| 17,494 | |
Deferred revenue and customer deposits | |
| 23,532 | | |
| 24,471 | |
Other accrued expenses | |
| 58,120 | | |
| 103,221 | |
Accrued expenses | |
$ | 1,483,628 | | |
$ | 1,446,722 | |
Note
7 – Notes Payable
The
carrying amount of notes payable as of March 31, 2022 and December 31, 2021 was as follows:
Schedule
of Notes Payable
| |
March 31, | | |
December 31, | |
| |
2022 | | |
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 2022 or 2021. | |
$ | 134,153 | | |
$ | 134,153 | |
| |
| | | |
| | |
Loan from Company’s CEO, due September 6, 2022. Original issue discount of $8,410; 25 shares of Series C Preferred Stock issued in connection with the loan; unamortized debt discount of $20,506 at March 31, 2022 | |
| 72,004 | | |
| - | |
| |
| | | |
| | |
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 | | |
| 60,401 | |
| |
| 266,558 | | |
| 194,554 | |
Less current portion | |
| 206,157 | | |
| 134,153 | |
Notes payable, long term, net of current portion | |
$ | 60,401 | | |
$ | 60,401 | |
Note
8 – Loans from Parent and Other Related Party Transactions
To
fund the Company’s operations for the three months ended March 31, 2022 and 2021, the former Parent advanced funds and paid expenses
of InnovaQor and the Group in the amount of $127,164
and $89,518,
respectively. The amount for the three months ended March 31, 2022 is included in Due to Former Parent in the accompanying Condensed
Consolidated Balance Sheet.
During the three months ended March 31, 2022,
Ms. Hollis, the Chief Executive Officer of the Company, loaned the Company $84,100. The Company entered into a promissory note in the
amount of $92,510, representing a 10% original issue discount. The loan is due on September 6, 2022; provided that, 50% is due
if the Company receives $500,000 of financing and 100% is due if the Company receives $1,000,000 of financing. In addition, the Company
issued Ms. Hollis 25 shares of Series C Preferred Stock on March 31, 2022 in connection with the loan. These shares of Series C Preferred
Stock were valued at $15,250 using the Option Price Method and the some assumptions as used to value the prior issuance of Series C Preferred
Stock.
The
above amounts are not indicative of what third parties would have agreed to.
Related
Parties Revenue
Included
in net revenues for the three months ended March 31, 2022 and 2021 is $53,555
and $89,518,
respectively, of intercompany revenue with Rennova (the former parent).
The
Group has incurred certain costs that have been allocated from Rennova. Included in the Condensed Consolidated Statements of Operations
are the following allocated costs:
Schedule of Allocated Costs
| |
Three Months Ended March 31, | | |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Health insurance | |
$ | — | | |
$ | 7,119 | |
Rent and utilities | |
| 28,711 | | |
| 20,012 | |
Total allocated costs | |
$ | 28,711 | | |
$ | 27,131 | |
Note
9 – Preferred Stock and Stockholders’ Deficit
Common
Stock
The
Company has authorized 325,000,000 shares of $0.0001 par value Common Stock of which 234,953,286 were issued and outstanding as of March
31, 2022 and December 31, 2021. These shares have one 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
were issued and outstanding as of March 31, 2022 and December 31, 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
were issued and outstanding as of March 31, 2022
and December 31, 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 was not convertible 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. Because these shares
are convertible, at the option of the holder, into a variable number of common shares based solely on a fixed dollar amount (stated value)
known at issuance of the shares, they have been recorded as a long-term liability at the date of issuance in accordance with ASC 480,
Distinguishing Liabilities from Equity.
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 225
and 200
were issued and outstanding as of March 31, 2022
and December 31, 2021, respectively. 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 was not convertible 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. Because these shares
are convertible, at the option of the holder, into a variable number of common shares based solely on a fixed dollar amount (stated value)
known at issuance of the shares, they have been recorded as a long-term liability at the date of issuance in accordance with ASC 480,
Distinguishing Liabilities from Equity.
Note
10 – Revenue
The
Company had net revenue for the three months ended March 31, 2022 and 2021 as follows:
Schedule
of Net Revenue
| |
March 31, | | |
March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Dashboards | |
$ | 13,623 | | |
$ | 14,076 | |
IT Managed Services | |
| 25,740 | | |
| 25,741 | |
Software and Interfaces | |
| — | | |
| 8,640 | |
Support and Maintenance | |
| 25,840 | | |
| 22,034 | |
vCIO Services | |
| 14,191 | | |
| 22,500 | |
Software Licenses Fees | |
| 15,497 | | |
| 25,127 | |
Other | |
| 1,002 | | |
| 99 | |
Total Net Revenue | |
$ | 95,893 | | |
$ | 118,217 | |
Generally,
work is billed monthly by the hour at agreed upon hourly 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 – 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. This agreement has been renewed for another year. 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. 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 $58,784 plus accrued interest and court costs for amounts
owed. As of each of March 31, 2022 and December 31, 2021, $10,464 was outstanding and owed for this judgment and included in accounts
payable in the accompanying Condensed Consolidated Balance Sheets.
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, which Rennova has paid in full. 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 $2,030,000 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 Credit 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, which amount has now been paid as of April 2022.
CTI
Consulting LLC filed suit against HTS 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.
On
June 14, 2018, Techlogix, Inc. obtained a judgment in the Massachusetts Superior Court for Middlesex County in the amount of $71,223
against HTS and Rennova. This amount was paid by Rennova and a Satisfaction of Judgement was filed by Techlogix, Inc. on December 8,
2020.
Note
12 – Supplemental Disclosure of Cash Flow Information
Schedule of Supplemental Disclosure of Cash Flow Information
| |
| | | |
| | |
| |
Three Months Ended
March 31, | |
| |
2022 | | |
2021 | |
Cash paid for interest | |
$ | 3,182 | | |
$ | 10,005 | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Series C Preferred Stock issued
in connection with debt | |
$ | 15,250 | | |
$ | — | |
Note
13 – Recent Accounting Pronouncements
All
recent accounting standards issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s consolidated financial
statements.
Note
14 – Subsequent Events
As
of July 1, 2022, the outstanding loan from Rennova to the Company totaled $803,415.70. The Company signed a promissory note, dated
July 1, 2022, in favor of Rennova that provided that the Company will pay Rennova $883,757.27 on December 31, 2022. That amount
represented a 10% original issue discount above the loan amount outstanding on July 1, 2022.