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 medical professional’s
network 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 25 and 36 customers in the United States and generated $343,440 and $468,883 (including $191,517 and
$237,551 from a related party) in net revenues during the years ended December 31, 2022 and 2021, 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 ten behavioral health/substance abuse facilities.
ClinLab,
Inc. (“ClinLab”): ClinLab develops and markets laboratory information management systems to mid-size clinical laboratories.
It currently services eight 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 medical professional’s network 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
Annual Report on Form 10-K contains forward-looking statements. Statements contained herein 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 filing. 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 11, 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-1 Supermajority Voting Preferred
Stock (the “Series A-1 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-1 Preferred Stock was
completed. This transfer resulted in a change of voting control of VisualMED, as the Series A-1 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-1 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 subsidiaries 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, respectively. 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-1 Convertible Redeemable Preferred Stock (the “Series B-1 Preferred Stock”) to Rennova.
The number of shares of Series B-1 Preferred Stock was subject to a post-closing adjustment which resulted in 950 additional shares of
Series B-1 Preferred Stock due Rennova which were issued in September 2021. Each share of Series B-1 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-1 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-1 Preferred Stock) in the common stock of the Company
would exceed 4.99%. The shares of Series B-1 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-1 Preferred Stock. These shares of Series
A-1 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-1 Convertible Redeemable Preferred Stock (the “Series C-1 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 common stock during the 10 trading days immediately prior to the conversion date. Conversion
of the Series C-1 Preferred Stock is also subject to a similar 4.99% beneficial ownership limitation. Shares of the Series B-1 Preferred
Stock and Series C-1 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-1 Preferred Stock. Because these shares of Series B-1 Preferred
Stock and Series C-1 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-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 December 31, 2022:
Common Shares | |
| 244,953,286 | |
Series A-1 Preference Shares | |
| 1,000 | |
Series B-1 Preference Shares | |
| 14,950 | |
Series C-1 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 ten behavioral health/substance abuse facilities.
ClinLab,
Inc. (“ClinLab”): ClinLab develops and markets laboratory information management systems to mid-size clinical laboratories.
It currently services eight 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 medical professional’s network 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
Annual Report on Form 10-K. We have included our website address herein 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 becoming fully reporting
and compliant with the SEC reporting requirements. |
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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 medical professional’s
network communication platform for medical professionals to include a talent search and telehealth solution through corporate partnerships
in the emerging health technology sector.
Existing
products offered by the Company’s subsidiaries are as follows:
“M2Select”
is a custom built, cloud based, electronic health record which meets the needs of substance abuse treatment and behavioral health providers.
M2Select’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. M2Select provides best-in-class patient lifecycle management
for Behavioral Health/Substance Abuse (BH/SA) treatment centers. From pre-admission to billing and aftercare, M2Select 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. This product may also be able to be offered outside of the US market.
“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 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 service 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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Vendor
Management |
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Business
Continuity and Disaster Recovery |
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Security
Services |
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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 and services, i.e. ClinLab, M2Select, Qira, vCIO and Health Technology Solutions.
Sales
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 25 and 36 customers in the United States and generated $343,440 and $468,883 (including $191,517 and
$237,551 from a related party) in net revenues during the years ended December 31, 2022 and 2021, respectively.
InnovaQor
intends to sell its Health Technology Solutions, Medical Mime and ClinLab products and services directly to customers through internal
sales and digital marketing. 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 its 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 March 30, 2023, we have six employees, five 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:
|
● |
the
diversion of management’s time, attention, and resources from managing and marketing our Company; |
|
● |
the
failure to retain key acquired personnel or existing personnel who may view the acquisition unfavorably; |
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● |
the
potential loss of clients of acquired businesses; |
|
● |
the
need to compensate new employees while they wait for their restrictive covenants with other institutions to expire; |
|
● |
the
potential need to raise significant amounts of capital to finance a transaction or the potential issuance of equity securities that
could be dilutive to our existing shareholders; |
|
● |
increased
costs to improve, coordinate, or integrate managerial, operational, financial, and administrative systems; |
|
● |
the
potential assumption of liabilities of an acquired business; |
|
● |
the
inability to attain the expected synergies with an acquired business; |
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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. |
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 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 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; |
|
● |
the
U.S. or global financial markets and the availability, costs, and terms of credit; |
|
● |
changes
in laws and regulations; and |
|
● |
other
economic factors and general business conditions. |
We
are not able to predict the positive or negative effects that future events or changes to the U.S. economy, financial markets, or regulatory
and business environment could have on our operations.
Changes
in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations and financial conditions.
We
are subject to income and other taxes in the U.S. at the state and federal level. Changes in applicable U.S. state or federal tax
laws and regulations, or their interpretation and application, could materially affect our tax expense and profitability. The
Company has not filed its federal tax returns for more than 10 years. The Company does not anticipate material adjustments of its
tax liabilities when such returns are filed, but there is no guarantee that such filings will not have a material adverse
effect.
Acquisition
of the HTS Group has presented and will continue to present management with new challenges that did not exist under the umbrella of its former parent.
Under
the former parent, management had the support of an experienced financial team, HR support and support for SEC filings. This support
system does not currently exist in the current company and new challenges are presenting themselves every day. The immature knowledge
and experience in these areas are likely to take longer to complete actions and will take management’s attention away from the
day to day operations where it is needed to improve revenues.
If
we are unable to manage fluctuations in our business successfully, we may not be able to achieve profitability.
To
successfully manage growth, we must periodically adjust and strengthen our operating, financial, accounting, and other systems, procedures,
and controls, which could increase our costs and may adversely affect our gross profits and our ability to achieve profitability if we
do not generate increased revenues to offset the costs. As a public company, our information and control systems must enable us to prepare
accurate and timely financial information and other required disclosures. If we discover deficiencies in our existing information and
control systems that impede our ability to satisfy our reporting requirements, we must successfully implement improvements to those systems
in an efficient and timely manner.
The
nature of our services and the general economic environment make it difficult to predict our future operating results. To achieve profitability,
we must:
|
● |
attract,
integrate, retain, and motivate highly qualified professionals; |
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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 products/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; |
|
● |
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; |
|
● |
the
hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop
in our utilization rate; |
|
● |
unanticipated
changes in the scope of client engagements; |
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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:
|
● |
our
clients’ perception of our ability to add value through our products/services; |
|
● |
the
market demand for the products/services we provide; |
|
● |
an
increase in the number of sales/engagements in the government sector, which are subject to federal contracting regulations; |
|
● |
introduction
of new products/services by us or our competitors; |
|
● |
our
competition and the pricing policies of our competitors; and |
|
● |
current
economic conditions. |
If
we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants,
our financial results could materially suffer. In addition, our consultants may need to perform services at the physical locations of
our clients. If there are natural disasters, disruptions to travel and transportation or problems with communications systems, our ability
to perform services for, and interact with, our clients at their physical locations may be negatively impacted which could have an adverse
effect on our business and results of operations.
It
is likely that our quarterly results of operations may fluctuate in the future as a result of certain factors, some of which may be outside
of our control.
A
key element of our strategy is to market our products and services directly to certain specific organizations, such as health systems
and hospitals, and to increase the number of our products and services utilized by existing clients. The sales cycle for some of our
products and services is often lengthy and may involve significant commitment of client personnel. As a consequence, the commencement
date of a client engagement often cannot be accurately forecasted. Certain of our client contracts contain terms that result in revenue
that is deferred and cannot be recognized until the occurrence of certain events. As a result, the period of time between contract signing
and recognition of associated revenue may be lengthy, and we are not able to predict with certainty the period in which revenue will
be recognized.
Certain
of our contracts provide that some portion or all of our fees are at risk if our services do not result in the achievement of certain
performance targets. To the extent that any revenue is contingent upon the achievement of a performance target, we only recognize revenue
upon client confirmation that the performance targets have been achieved. If a client fails to provide such confirmation in a timely
manner, our ability to recognize revenue will be delayed.
Fee
discounts, pressure to not increase or even decrease our rates, and less advantageous contract terms could result in the loss of clients,
lower revenues and operating income, higher costs, and less profitable engagements. More discounts or write-offs than we expect in any
period would have a negative impact on our results of operations.
Other
fluctuations in our quarterly results of operations may be due to a number of other factors, some of which are not within our control,
including:
|
● |
the
timing and volume of client invoices processed and payments received, which may affect the fees payable to us under certain of our
engagements; |
|
● |
client
decisions regarding renewal or termination of their contracts; |
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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; |
|
● |
the
U.S. financial markets and the availability, costs and terms of credit and credit modifications; |
|
● |
business
and management crises, including the occurrence of alleged fraudulent or illegal activities and practices; |
|
● |
new
and complex laws and regulations, repeals of existing laws and regulations or changes of enforcement of laws, rules and regulations; |
|
● |
other
economic, geographic or political factors; and |
|
● |
general
business conditions. |
We
are not able to predict the positive or negative effects that future events or changes to the U.S. economy will have on our business.
Fluctuations, changes and disruptions in financial, credit, mergers and acquisitions and other markets, political instability and general
business factors could impact various 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.
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.
Reliance
on related party
We
rely heavily on Rennova, the former owner of our subsidiaries, for our current revenues and for the provision of loans necessary for
us to operate our business until we secure our own capital. A loss of the contracts for service with Rennova or a loss of financial
support would have a material adverse effect on our operations and business.
Going
Concern Risk Factor
Although
our financial statements have been prepared on a going concern basis, we have accumulated significant losses and have negative cash flows
from operations that could adversely affect our ability to secure additional capital to fund our operations or limit our ability to react
to changes in the economy or our industry. These or additional risks or uncertainties not presently known to us, or that we currently
deem immaterial, raise substantial doubt about our ability to continue as a going concern.
Under
Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) Accounting
Standards Codification (“ASC 205-40”), InnovaQor has the responsibility to evaluate whether conditions and/or events raise
substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the
financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential
mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed
InnovaQor’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.
The
accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the SEC.
The consolidated financial statements have been prepared using U.S. GAAP applicable to a going concern that contemplates the realization
of assets and liquidation of liabilities in the normal course of business. InnovaQor has accumulated significant losses and has negative
cash flows from operations and, at December 31, 2022, had a working capital deficit and accumulated deficit of $4.4 million and $19.6
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 244,953,286 were issued and outstanding as of December
31, 2022. 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 Board of Directors and stockholders have approved an increase to 2,000,000,000
authorized shares of common stock but a certificate of amendment has not been filed with the Secretary of State of the State of
Nevada.
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-1 Preferred Stock.
InnovaQor
has authorized 1,000 shares of $0.0001 par value (stated value $10) Series A-1 Supermajority Voting Preferred Stock of which 1,000 were
issued and outstanding as of December 31, 2022. So long as one share of Series A-1 Preferred Stock is outstanding, the outstanding shares
of the Series A-1 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, incur substantially higher costs to obtain coverage or determine not to obtain such 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.
Risks
Related to Our Organization and Structure
Our
holding company structure makes us dependent on our subsidiaries for our cash flow and could serve to subordinate the rights of our shareholders
to the rights of creditors of our subsidiaries, in the event of an insolvency or liquidation of any such subsidiary.
Our
Company acts as a holding company and, accordingly, substantially all of our operations are conducted through our subsidiaries. Such
subsidiaries are separate and distinct legal entities. As a result, substantially all of our cash flow will depend upon the earnings
of our subsidiaries. In addition, we will depend on the distribution of earnings, loans or other payments by our subsidiaries. No subsidiary
will have any obligation to provide our Company with funds for our payment obligations. If there is an insolvency, liquidation or other
reorganization of any of our subsidiaries, our shareholders will have no right to proceed against their assets. Creditors of those subsidiaries
will be entitled to payment in full from the sale or other disposal of the assets of those subsidiaries before our Company, as a shareholder,
would be entitled to receive any distribution from that sale or disposal.
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.