UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☒     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal Year ended December 31, 2019

 

or

 

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________.

 

Commission file number: 000-52765

 

iCoreConnect Inc.

(Exact name of registrant as specified in its charter)

  

Nevada

 

13-4182867

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

13506 Summerport Village Parkway, #160, Windermere, FL 34786

(Address of principal executive offices) (Zip Code)

 

(888) 810-7706

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging Growth Company

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐     No ☒

 

The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, was $9,576,000 assuming that all stockholders, other than executive officers, directors and 10% stockholders of the registrant, are non-affiliates.

 

The number of shares outstanding of the Registrant’s Common Stock as of March 27, 2020: 70,617,339.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

 

 

Table of Contents

 

Item

Page

 

 

 

Part I

 

 

 

Forward-Looking Statements

3

 

1.

Business

4

 

1A.

Risk Factors

7

 

1B.

Unresolved Staff Comments

13

 

2.

Properties

13

 

3.

Legal Proceedings

13

 

4.

Mine Safety Disclosures

13

 

 

 

Part II

 

 

 

 

 

 

5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

14

 

6.

Selected Financial Data

14

 

7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

14

 

7A.

Quantitative and Qualitative Disclosures About Market Risk

21

 

8.

Financial Statements and Supplementary Data

23

 

9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

43

 

9A.

Controls and Procedures

43

 

9B.

Other Information

 

 

 

 

 

 

 

Part III

 

 

 

10.

Directors, Executive Officers and Corporate Governance

45

 

11.

Executive Compensation

45

 

12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 45

 

13.

Certain Relationships and Related Transactions, and Director Independence

 45

 

14.

Principal Accounting Fees and Services

 45

 

 

 

 

 

 

Part IV

 

 

 

 

 

 

15.

Exhibits, Financial Statement Schedules

 

46

 

Signatures

 

47

 

 

 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Report and the documents we have filed with the Securities and Exchange Commission (the “SEC”) that are incorporated by reference herein contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve significant risks and uncertainties. Any statements contained, or incorporated by reference, in this Report that are not statements of historical fact may be forward-looking statements. When we use the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and other similar terms and phrases, including references to assumptions, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements.

 

Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors discussed in the sections entitled “Item 1A. Risk Factors” and under the heading “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements attributable to us are expressly qualified in their entirety by the factors that may cause actual results to differ materially from anticipated results. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date hereof. We undertake no duty or obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in Item 1A of this document as well as in other documents we file from time to time with the SEC for an understanding of the variables that can affect our business and results of operations.

 

 
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PART I

 

Item 1. Business.

 

Overview

 

Company History

 

iCoreConnect Inc., (the “Company”), a Nevada Corporation, builds secure cloud-based HIPAA compliant communications systems, productivity and technology framework software focused on healthcare, although the core technology can be adopted to other vertical markets that require a high degree of secure data communication, such as the legal, financial and education fields.

 

Software Products

 

The Company currently markets eight different customizable secure HIPAA compliant cloud-based software products: iCoreExchange, iCoreCodeGenius, iCoreSecure, iCoreMD, iCoreDental, iCoreMobile, iCoreHuddle and iCoreRx.

 

iCoreExchange – Because of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) regulations, providers and health care professionals are prohibited from electronically exchanging unencrypted personal health information. Given that standard email has been deemed insecure, a huge bottleneck exists in the flow of patient information. Factor in the HIPAA fines that range from $50,000 up to $1,500,000 per violation, HIPAA virtually mandates the need for our iCoreExchange product.

 

iCoreExchange offers hospitals, State Health Information Exchanges (HIE), physician practices, dental practices and other healthcare professionals the extensive functionality needed to transfer patient health information to anyone, anywhere and at any time. iCoreExchange provides a secure, HIPAA compliant email solution using the Direct Protocol that allows doctors to send and receive secure email with attachments to and from other healthcare professionals in the network. iCoreExchange also provides a secure email mechanism to communicate with users outside the exchange e.g. patients and referrals. Users have the ability to build a community, access other communities and increase referrals and collaboration. Users can email standard Office documents, JPEG, PDF as well as files with discrete data, Consolidated Clinical Document Architecture (“CCDA”), which can then be imported and accessed on most Electronic Health Record (EHR) and Practice Management systems in a HIPAA compliant manner.

 

iCoreCodeGenius - In November 2017, we acquired the assets of ICDLogic. ICDLogic created a Coding Software that provides the coding standards for the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD), a medical classification list published by the World Health Organization (WHO). It contains codes for diseases, signs and symptoms, abnormal findings, complaints, social circumstances, and external causes of injury and diseases.

 

We enhanced the ICD Coding Software, rebranded and launched it as iCoreCodeGenius. Users can document any medical condition in 60 seconds or less. It includes a full ICD10 code lookup and guidance, automatic prompting of comorbidities and HCC’s, appropriate reimbursement with a high degree of accuracy, and the ability to reduce or eliminate queries and denials.

 

iCoreSecure – Recent newscasts have been replete with reporting regarding many breaches of consumer personal information. We used our expertise and development capabilities from our HIPAA compliant iCoreExchange and developed iCoreSecure, an encrypted email solution for anyone that needs encrypted email to protect personal and financial data. iCoreSecure solves privacy concerns in the insurance, real estate, financial and many other industry sectors that have a need for secure encrypted email.

 

iCoreMD and iCoreDental – Both are complete EHR/Practice Management software platforms created for the medical and dental communities in response to feedback from doctors and dentists telling us they wanted a cloud-based software that was more flexible than the current medical and dental platforms in the marketplace. The software includes: patient demographics, scheduling, billing, electronic medical records, electronic claims, e-prescriptions, labs, merchant services, and patient reminders along with a complete suite of standard reporting capabilities and data analytics to help run a medical or dental practice.

 

 
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Our cloud-based software was certified in November 2015 by the Office of the National Coordinator for Health Information Technology (ONC), certificate number 150120r0. ONC certification confirms that our software meets all clinical measures, security measures, and interoperability required by the United States government.

 

iCoreMobile, our third complete EHR software platform, was designed and built specifically for mobile medical and dental care centers. In addition to the features included in iCoreMD and iCoreDental, iCoreMobile also includes workflow optimizations and process enhancements to cater to providers in mobile settings. The software utilizes fully customizable patient intake forms to improve workflow. The always connected software ensures that once a patient’s C-CDA import has been accepted, it is immediately available on all mobile workstations. The enhanced reporting system and metrics provides the main office with extensive data analytics of the mobile unit. The customizable nature of the reporting system allows mobile operators to compare the efficiency of their units.

 

iCoreHuddle – In April 2019 the Company acquired technology and certain other assets from ClariCare, Inc. ClariCare created a cloud-based dental analytics and practice management software which empowered dentists to run their practices more efficiently and effectively. The acquisition of ClariCare’s technology is now being marketed and further developed as iCoreHuddle.

 

iCoreHuddle is a revenue optimizer tool that connects to most popular practice management and EHR systems. It provides the practice with a dashboard containing various metrics, analytics, and Key Performance Indicators (“KPIs”). iCoreHuddle provides a daily view of the patient schedules, including their outstanding balances, uncompleted treatment plans, recall information, procedure information and the amount of remaining insurance benefits. The system provides a very powerful tool to instantly reveal the revenue potential of each patient. The software also provides one-click access to the patient’s insurance eligibility, including a detailed benefits and deductibles report. This tool aims to increase the workflow efficiency of the dentist’s practice by reducing the number of required lookups and clicks for each patient.

 

iCoreRx - A fully HIPAA compliant electronic ePrescription software that integrates with popular practice management and EHR systems. It saves time by selecting exact medications at available doses with built-in support from a Lexicomp drug directory and provides full support for EPCS (controlled substances). It protects both the patient and provider by viewing complete medication history. It also speeds up the process by allowing the doctor to create a “favorites” list for commonly used medication sets. iCorePDMP is an add-on for iCoreRx that seamlessly integrates with state databases to automate prescription drug monitoring. Providers in many states are required to check the patient’s Prescription Drug Monitoring Program (PDMP / PMP) history before prescribing controlled substances. This service provides a one-click real-time access to the state databases without the need to manually enter data and provides access to PDMP data, including a patient’s health history. The tool also generates patient risk scores and an interactive visualization of usage patterns to help the prescriber identify potential risk factors. The prescriber can then use this report to make decisions on objective insight into potential drug misuse or abuse which will ultimately lead to improved patient safety and better patient outcomes.

 

IT Services

 

On January 3, 2020, the Company purchased the assets of Computer Plumber, LLC, doing business as TrinIT (“TrinIT”), an IT service company located in the Charlotte, North Carolina area to complement our technology line up.

 

The trend in IT Services companies for over a decade has been to move away from a “Break/Fix '' model to a “Managed Service Provider (MSP)” model with recurring revenue. TrinIT was an early adopter operating in the MSP market.

 

The MSP approach, by using preventative measures, keeps computers and networks up and running while data is accessible and safeguarded. Installation of critical patches and updates to virus protection are automated. Systems are monitored and backed up in real-time. They are fixed or upgraded before they cause a service disruption. A Unified Threat Management solution is deployed to protect against virus, malware, SPAM, phishing and ransomware attacks. Remote technical support is a click away. All support is delivered at a predictable monthly cost.

 

Going forward, by leveraging managed services with our expertise in cloud computing, our customers can easily scale their business without extensive capital investment or disruption in services.

 

 
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The Company is positioned perfectly to address the growing need for managed services:

 

 

·

Our current and future customers need managed IT services, along with cloud computing, storage and HIPAA compliant backup and encryption.

 

·

Managed service providers that can support the migration to cloud computing are in high demand.

 

·

The decision makers for our current technology and those for managed services are, in many cases, the same person or group of people.

 

·

Our management team has decades of experience operating successful IT companies.

 

·

The MSP revenue model matches our SaaS, HaaS, PaaS & IaaS MRR models.

 

In addition to the advantages described regarding the acquisition of TrinIT, we were also looking to strengthen our management team. TrinIT’s founder has become the Vice President of our growing IT services division and will be responsible for the operations and growth of the division.

 

Competition

 

The Company experiences competition from a variety of sources with respect to virtually all of its products and services. The Company knows of no single entity that competes with it across the full range of its products and services; however, each of the lines of business in which the Company is engaged is highly competitive. Competition in the markets served is based on several considerations, which may include price, technology, applications, experience, know-how, reputation, service and distribution. While we believe we offer a unique combination of products and services, a few competitors offer one or more similar products and services in one or more of our niche markets.

 

Competitive Strengths

 

The key advantages of our products and services include:

 

1. Secure, private, scalable and reliable.

 

Our services have been designed to provide our customers with privacy and high levels of performance, reliability and security. We have built, and continue to invest in, a comprehensive security infrastructure, including firewalls, intrusion detection systems, and encryption for transmission over the Internet, which we monitor and test on a regular basis. We have built and maintain a multi-tenant application architecture that has been designed to enable our service to scale securely, reliably and cost effectively. Our multi-tenant application architecture maintains the integrity and separation of customer data while still permitting all customers to use the same application functionality simultaneously.

 

2. Rapid deployment and lower total cost of ownership.

 

Our services can be deployed rapidly since our customers do not have to spend time procuring, installing or maintaining the servers, storage, networking equipment, security products or other hardware and software. We enable customers to achieve up-front savings relative to the traditional enterprise software model. Customers benefit from the predictability of their future costs since they generally pay for the service on a per subscriber basis for the term of the subscription contract.

 

3. High levels of user adoption.

 

We have designed our products and services to be intuitive and easy to use. Our products and services contain many tools and features recognizable to users of popular consumer web services, so users have a more familiar user experience than typical EHR applications. As a result, our users can often use and gain benefit from our solutions with minimal training. We have also designed our products and services to be used on popular mobile devices, making it possible for people to conduct business from their smartphones or tablets.

 

 
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Competitive Strategy

 

Key elements of our strategy include:

 

1. Extending existing service offerings. We offer patient billing, processing and coding functions to meet the needs of customers with differing health care disciplines and have designed our solutions to easily accommodate new features and functionality. We continually look to improve our products and services by adding new features, functions and increased security through our own development, acquisitions and partnerships.

 

2. Expanding existing customer relationships.

 

We see significant opportunity to deepen our relationships with our existing customers. As our customers realize the benefits of our products and services, we aim to provide additional value-added products and services.

 

3. Expanding into new horizontal markets.

 

As part of our growth strategy, we are delivering innovative solutions in new categories, including analytics, claims coding and processing, and electronic prescribing. We drive innovation both organically and through acquisitions.

 

4. Targeting vertical markets.

 

We also provide solutions specifically built for other vertical industries such as financial services, legal and government.

 

5. Extending go to market capabilities.

 

We believe that our offerings provide significant value for businesses of any size. We continue to pursue businesses of all sizes and industries through our direct sales force and partnerships. We plan to increase the number of direct sales professionals we employ, and intend to develop additional distribution channels for our products and services.

 

In addition to the key elements of our business strategy described above, from time to time, we evaluate opportunities to acquire or invest in complementary businesses, services and technologies, and intellectual property rights.

 

EMPLOYEES

 

As of December 31, 2019 and December 31, 2018, the Company had 19 and 17 full-time employees, respectively.

 

AVAILABLE INFORMATION

 

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports are filed with the SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. Such reports and other information that we file with the SEC are available free of charge on our website at http://www.icoreconnect.com/sec-filings when such reports are available on the SEC website. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the foregoing references to the URLs for these websites are intended to be textual references only.

 

Item 1A. Risk Factors.

 

Investing in our common stock involves a high degree of risk. Before purchasing our common stock, you should carefully consider the following risk factors as well as all other information contained in this Report, including our consolidated financial statements and the related notes. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

 

 
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Risks Related To Our Business

 

Our business is difficult to evaluate because we have a limited operating history.

 

Because we have a limited operating and revenue generating history, we do not have significant historical financial information on which to base planned revenues and operating expenses. Revenues for the years ended December 31, 2019 and December 31, 2018, were $1,014,000 and $1,089,000, respectively. We expect to experience fluctuations in future quarterly and annual operating results that may be caused by many factors, including:

 

 

·

merger and acquisition activity;

 

·

our ability to achieve significant sales for our products and services;

 

·

the cost of technology, software and other costs associated with the production and distribution of our products and services:

 

·

the size and rate of growth of the market for Internet products and online content and services;

 

·

the potential introduction by others of products that are competitive with our products;

 

·

the unpredictable nature of online businesses and e-commerce in general; and

 

·

the general economic conditions in the United States and worldwide.

 

Investors should evaluate us considering the delays, expenses, problems and uncertainties frequently encountered by companies developing markets for new products, services and technologies. We may never overcome these obstacles.

 

Under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), we could face potential liability related to the privacy of health information we obtain.

 

Most health care providers, from which we may obtain patient information, are subject to privacy regulations promulgated under the Health Insurance Portability and Accountability Act of 1996, or HIPAA. Although we are not directly regulated by HIPAA, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a health care provider that has not satisfied HIPAA’s disclosure standards. Further, we may face civil liability if our HIPAA compliant system fails to satisfy its disclosure standards. Claims that we have violated individuals’ privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend and could result in adverse publicity that could harm our business.

 

We believe that we meet the HIPAA requirements currently in effect that are applicable to our internal operations and our clients. However, if we are unable to deliver application solutions that achieve or maintain compliance with the applicable HIPAA rules in effect, or as they may be modified or implemented in the future, then customers may move their business to application solution providers whose systems are, or will be, HIPAA compliant. As a result, our business could suffer.

 

If our security measures or those of our third-party data center hosting facilities, cloud computing platform providers, or third-party service partners, are breached, and unauthorized access is obtained to a customer’s data, our data or our IT systems, our services may be perceived as not being secure, customers may curtail or stop using our services, and we may incur significant legal and financial exposure and liabilities.

 

 
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Our services involve the storage and transmission of our customers’ patient’s health and other sensitive data, including personally identifiable information. Security breaches could expose us to a risk of loss of this information, litigation and possible liability. While we have security measures in place, they may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our IT systems, our customers’ data or our data, including our intellectual property and other confidential business information. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data, our data or our IT systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third-party technology providers to access their customer data, and some of our customers may not have adequate security measures in place to protect their data that is stored on our services. Because we do not control our customers or third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing. Malicious third parties may also conduct attacks designed to temporarily deny customers access to our systems and supporting services. Any security breach could result in a loss of confidence in the security of our software, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.

 

Our ability to deliver our software is dependent on the development and maintenance of the infrastructure of the Internet by third parties.

 

The Internet’s infrastructure is comprised of many different networks and services that are highly fragmented and distributed by design. This infrastructure is run by a series of independent third-party organizations that work together to provide the infrastructure and supporting services of the Internet under the governance of the Internet Corporation for Assigned Numbers and Names (ICANN) and the Internet Assigned Numbers Authority (IANA), now under the stewardship of ICANN.

 

Even though the Internet has never experienced an outage, some providers to portions of its infrastructure have experienced outages and other delays as a result of damages, denial of service attacks or related cyber incidents, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage or result in fragmentation of the Internet, resulting in multiple separate Internets. These scenarios are not under our control and could reduce the availability of the Internet to us or our customers for delivery of our Internet-based services. Any resulting interruptions in our services or the ability of our customers to access our services could result in a loss of potential or existing customers and harm our business.

 

Our business may not succeed if we are unable to keep pace with rapid technological changes.

 

Our services and products are impacted by rapidly changing technology, evolving industry standards, emerging competition and frequent new use, software and other product introductions. There can be no assurance that we can successfully identify new business opportunities or develop and bring new services or products to market in a timely and cost-effective manner, or those services, products or technologies developed by others will not render our services or products non-competitive or obsolete. In addition, there can be no assurance that our services, products or enhancements will achieve or sustain market acceptance or be able to address compatibility, interoperability or other issues raised by technological changes or new industry standards.

 

If we suffer system failures or overloading of computer systems, our business and prospects could be harmed. The success of our online offerings is highly dependent on the efficient and uninterrupted operation of our computer and communications hardware systems. Fire, floods, earthquakes, power fluctuations, telecommunications failures, hardware “crashes,” software failures caused by “bugs” or other causes, and similar events could damage or cause interruptions in our systems. Computer viruses, electronic break-ins or other similar disruptive problems could also adversely affect our websites. If our systems, or the systems of any of the websites on which we advertise or with which we have material marketing agreements, are affected by any of these occurrences, our business, results of operations and financial condition could be materially and adversely affected.

 

The establishment of our brand is important to our future success.

 

Establishing and maintaining a brand name and recognition is critical for attracting and expanding our client base. The promotion and enhancement of our name depends on the effectiveness of our marketing and advertising efforts and on our success in continuing to provide high-quality services, neither of which can be assured. If our brand marketing efforts are unsuccessful, our business could fail.

 

 
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Our business could suffer if we are unable to protect our intellectual property rights or are liable for infringing the intellectual property rights of others.

 

We have certain trademarks, trade dress, trade secrets and other similar intellectual property which are significant to our success, and we rely upon related law, trade secret protection, and other confidentiality and license agreements with our employees, strategic partners, and others to protect our proprietary rights to the extent such protection is available and enforceable. Such protection has only limited effectiveness. The development of the Internet has also increased the ease with which third parties can distribute our copyrighted material without our authorization.

 

We may seek to pursue the registration of trademarks, trade dress and trade secrets in the United States and, based upon anticipated use, in certain other countries. We may not be entitled to the benefits of any such registration for an extended period due to the cost and delay in effecting such registration. In addition, effective trademark and trade secret protection may not be available in every country in which our products are available. We expect that we may license, in the future, elements of our trademarks, trade dress and other similar proprietary rights to third parties. Further, we may be subject to claims in the ordinary course of our business, including claims of alleged infringement of the trademarks and intellectual property rights of third parties by us and our licensees.

 

Other parties may assert claims of infringement of intellectual property or other proprietary rights against us. These claims, even if without merit, could require us to expend significant financial and managerial resources. Furthermore, if claims like this were successful, we might be required to change our trademarks, alter our content or pay financial damages, any of which could substantially increase our operating expenses. We also may be required to obtain licenses from others to refine, develop, market and deliver new services. We may be unable to obtain any needed license on commercially reasonable terms or at all, and rights granted under any licenses may not be valid and enforceable.

 

Our financial statements are prepared assuming we are a going concern. We require substantial additional capital to continue as a going concern which if not obtained could result in a need to curtail or cease operations.

 

As a result of our current lack of financial liquidity, our auditors’ report for our 2019 financial statements, which are included as part of this report, contains a statement concerning our ability to continue as a “going concern.” Our lack of sufficient liquidity could make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain and our public stock price generally.

 

Our continuation as a “going concern” is dependent upon, among other things, achieving positive cash flow from operations and, if necessary, augmenting such cash flow using external resources to satisfy our cash needs. Our plans to achieve positive cash flow primarily include engaging in offerings of securities. Additional potential sources of funds include negotiating up-front and milestone payments on our current and potential future products or royalties from sales of our products that secure regulatory approval and any milestone payments associated with such approved products. These cash sources could, potentially, be supplemented by financing or other strategic agreements. However, we may be unable to achieve these goals or obtain required funding on commercially reasonable terms, or at all, and therefore may be unable to continue as a going concern.

 

Our success will be limited if we are unable to attract, retain and motivate highly skilled personnel.

 

Our future success will depend on our ability to attract, retain and motivate highly skilled programming, management, sales and other key personnel. Competition for such personnel is intense in the Internet industry, and we may be unable to successfully attract, integrate or retain sufficiently qualified personnel. In addition, our ability to generate revenues relates directly to our personnel in terms of both the numbers and expertise of the personnel we have available to work on our projects. Moreover, competition for qualified employees may require us to increase our cash or equity compensation, which may have an adverse effect on earnings.

 

We are also dependent on the services of our executive officers and key consultants and independent agents. There can be no assurance, however, that we can obtain executives of comparable expertise and commitment in the event of death, or that our business would not suffer material adverse effects as the result of a death, disability or voluntary departure of any such executive officer. Further, the loss of the services of any one or more of our key employees or consultants could have a materially adverse effect on our business and our financial condition. In addition, we will also need to attract and retain other highly skilled technical and managerial personnel for whom competition is intense. If we are unable to do so, our business, results of operations and financial condition could be materially adversely affected.

 

 
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Any system failure or slowdown could significantly harm our reputation and damage our business.

 

System failures would harm our reputation and reduce our attractiveness to customers. In addition, the users of the services we maintain for our customers depend on Internet service providers, online service providers and other web site operators for access to our web sites. Some of these providers and operators have experienced significant outages in the past, and they could experience outages, delays and other difficulties due to system failures unrelated to our systems.

 

We compete in a highly competitive market and many of our competitors have greater financial resources and established relationships with major corporate customers.

 

Our future profitability depends on our ability to compete successfully by continuing to differentiate our products and services from the products and services of our competitors. If one or more of our competitors begins to offer integrated, Internet Based, HIPAA Compliant healthcare information collaboration solutions, there may be a material adverse effect on our business, financial condition or operating results. We believe that our ability to compete successfully depends on a number of factors, including:

 

 

·

our ability to produce products that are superior in quality to that of our competitors and get those products and services to market first;

 

·

our ability to deliver our products and services at a price that remains competitive with that of our competitors;

 

·

our ability to respond promptly and effectively to the challenges of technological change, evolving standards, and our competitors’ innovations;

 

·

the scope of our products and services and the rate at which we and our competitors introduce them;

 

·

customer service and satisfaction; and

 

·

industry and general economic trends.

 

Regulatory developments in the future related to the Internet could create a legal uncertainty; such developments could materially harm our business.

 

We are not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally, and there are currently few laws or regulations directly applicable to the access of or commerce on the Internet. However, it is possible that a number of laws and regulations will be adopted with respect to the Internet, covering issues such as user privacy, pricing, characteristics, e-mail marketing and quality of products and services. Such laws and regulations could dampen the growth and use of the Internet generally and decrease the acceptance of the Internet as a communication and commercial medium, and could thereby have a material adverse effect on our business, results of operations and financial condition.

 

We may be required to issue more shares of Common Stock upon the exercise of outstanding warrants, as part of raising additional capital, resulting in dilution of the ownership of our existing stockholders.

 

The exercise of outstanding warrants could result in substantial numbers of additional shares of Common Stock being issued, which will dilute existing stockholders’ potential ownership interests and may cause our stock price to decline.

 

As of December 31, 2019, we had outstanding warrants to purchase an aggregate of 11,627,980 shares of Common Stock. During the terms of the warrants, the holders thereof are given an opportunity to benefit from a rise in the market price of the Common Stock, with a resultant dilution of the interests of existing stockholders. The existence of these warrants could make it more difficult for us to obtain additional financing while such securities are outstanding.

 

 
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We are vulnerable to changes in general economic conditions.

 

We are affected by certain economic factors that are beyond our control, including changes in the overall economic environment.

 

Legal proceedings could lead to unexpected losses.

 

From time to time during the normal course of carrying on our business, we may be a party to various legal proceedings through private actions, class actions, administrative proceedings, regulatory actions or other litigations or proceedings. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. In the event that management determines that the likelihood of an adverse judgment in a pending litigation is probable and that the exposure can be reasonably estimated, appropriate reserves are recorded at that time pursuant to the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 450, “Contingencies.” The final outcome of any litigation could adversely affect operating results if the actual settlement amount exceeds established reserves and insurance coverage.

 

We have identified a significant deficiency in internal control over financial reporting, if we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

 

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial fraud.

 

In the course of completing its assessment of internal control over financial reporting as of December 31, 2019, management did not identify any material weaknesses but did identify a significant deficiency in the number of personnel available to serve the Company’s accounting function; specifically management believes that we may not be able to adequately segregate responsibility over financial transaction processing and reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting. Although we are unable to remediate this significant deficiency with current personnel, we are mitigating its potential impact, primarily through greater involvement of senior management in the review and monitoring of financial transaction processing and reporting.

 

In addition, management’s assessment of internal controls over financial reporting may identify additional weaknesses and conditions that need to be addressed or other potential matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

 

We may engage in merger and acquisition activity from time to time and may not achieve the contemplated benefits from such activity.

 

Achieving the contemplated benefits from such activity may be subject to a number of significant challenges and uncertainties, including integration issues, coordination between geographically separate organizations, and competitive factors in the marketplace. We could also encounter unforeseen transaction and integration-related costs or other circumstances such as unforeseen liabilities or other issues. Any of these circumstances could result in increased costs, decreased revenue, decreased synergies and the diversion of management time and attention. If we are unable to achieve our objectives within the anticipated time frame, or at all, the expected benefits may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on our business, financial condition and results of operations, or cash flows. Any of these risks could harm our business. In addition, to facilitate these acquisitions or investments, we may seek additional equity or debt financing, which may not be available on terms favorable to us or at all, which may affect our ability to complete subsequent acquisitions or investments, and which may affect the risks of owning our common stock.

 

 
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A system failure or breach of system or network security could delay or interrupt services to our customers or subject us to significant liability.

 

We have implemented security measures such as firewalls, virus protection, intrusion detection and access controls to address the risk of computer viruses and unauthorized access. However, there can be no assurances that any of these efforts will be adequate to prevent a system failure, accident or security breach, any of which could result in a material disruption to our business. In addition, substantial costs may be incurred to remedy the damages caused by any such disruptions.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

The Company operates from its 4,100 square foot office located in Winter Garden, Florida. The office space is leased by the Company through October 31, 2020 and the Company has an option to renew the lease for a period of one year.

 

Item 3. Legal Proceedings.

 

We are not currently party to any material legal proceedings. However, the Company from time to time, may be party to various litigation, claims and disputes, arising in the ordinary course of business. We believe that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal proceedings that may arise.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

 
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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

(a) Market Information

 

Our common stock is quoted on OTC Link (previously “Pink Sheets”) operated by OTC Markets Group Inc. (“OTC Link”), and was eligible for the “piggyback” exception of Exchange Act Rule 15c2-11(f)(3) under the symbol “ICCT”.

 

(b) Holders.

 

As of March 27, 2020, there were 394 holders of record of our common stock, with 70,617,339 shares of our common stock issued and outstanding.

 

(c) Stock Options and Warrants

 

We have issued warrants in connection with issuing common stock and raising bridge loan debt financing all of which have a termination date no later than December 31, 2020. We have also issued stock options to employees and executives. (See Note 4 in the accompanying financial statements).

 

(d) Dividends.

 

We have not declared or paid dividends on our common stock since our formation, and we do not anticipate paying dividends in the foreseeable future.

 

(e) Sale of Unregistered Securities

 

Information with respect to sales of unregistered shares of the Common Stock of the Company during the fiscal year ended December 31, 2019 and 2018 is set forth in the Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2019 and 2018, contained in Item 8. Financial Statements and Supplementary Data. All such sales were to accredited investors and were made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended. The proceeds were used by the Company for working capital purposes.

 

Item 6. Selected Financial Data (in thousands except per share data)

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements included elsewhere in this annual report. This discussion contains forward-looking statements, which are based on our assumptions about the future of our business. Our actual results will likely differ materially from those contained in the forward-looking statements. Please read “Cautionary Note Regarding Forward-Looking Statements” included at the beginning of this annual report for additional information.

 

 
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About the Company

 

iCoreConnect Inc., (the “Company”), a Nevada Corporation, builds secure cloud-based HIPAA compliant communications systems, productivity and technology framework software focused on healthcare, although the core technology can be adopted to other vertical markets that require a high degree of secure data communication, such as the legal, financial and education fields.

 

During the year ended December 31, 2019, and shortly thereafter, we expanded our suite of software products, acquired new technology and expanded our offerings to include managed IT services, including HIPAA compliant backup and storage.

 

In April 2019 the Company acquired technology and certain other assets from ClariCare, Inc. ClariCare had created a cloud-based dental analytics and practice management software which empowers dentists to manage their practices more efficiently. The acquisition of ClariCare’s technology is now being developed by the Company and rebranded as iCoreHuddle. iCoreHuddle is a revenue optimizer tool that connects to many popular practice management and EHR systems. It provides the practice with a dashboard containing various metrics, analytics, and key performance indicators. iCoreHuddle provides a daily view of the patient schedules, their outstanding balances, open treatment plans, recall information, procedure information and the amount of remaining insurance benefits available. The software provides a dashboard to easily view the revenue potential of each patient as well as one-click access to the patient’s insurance eligibility including a detailed benefits and deductibles report. The software increases the workflow efficiency of the practice with a user-friendly dashboard that the allows the practice to make informed real-time decisions on a host of data points.

 

During 2019 we developed our newest product iCoreRx, a fully HIPAA compliant electronic ePrescription software that integrates with popular practice management and EHR systems. The software can also be a stand-alone product. The software is cloud based allowing providers flexibility and freedom to access the software anytime or anywhere they have an internet connection. There is a built in Lexicomp directory that provides clear, concise, point-of-care drug information including dosing, warning and precautions, as well as clinical content. iCoreRx provides a doctor’s “favorites” list, drug interactions, and drug allergy interactions. Within the software we provide a medication and drug history giving the doctor a more complete picture of a patient’s medication history for better informed, efficient and safer care decisions.

 

iCorePDMP - is an add-on to our iCoreRx software that seamlessly integrates with state databases to automate prescription drug monitoring. Providers in many states are required to check the patient’s Prescription Drug Monitoring Program (PDMP / PMP) history before prescribing controlled substances. This service provides a one-click real-time access to the state databases without the need to manually enter data and provides access to PDMP data including a patient’s health history. The state PDMP sites provide Narx Scores and an interactive visualization of usage patterns to help the prescriber identify potential risk factors.

 

iCoreRx software has been selected by the North Carolina Dental Society, Texas Dental Association Perks Program, and Virginia Dental Services Corporation as their preferred choice of software for electronic prescribing.

 

Software products

 

The Company currently markets eight different customizable secure HIPAA compliant cloud-based software products: iCoreExchange, iCoreCodeGenius, iCoreSecure, iCoreMD, iCoreDental, iCoreMobile, iCoreHuddle and iCoreRx.

 

IT Services

 

On January 3, 2020, the Company purchased the assets of Computer Plumber, LLC, doing business as TrinIT (“TrinIT”), an IT service company located in the Charlotte, North Carolina area to complement our technology line up.

 

The trend in IT Services companies for over a decade has been to move away from a “Break/Fix '' model to a “Managed Service Provider (MSP)” model with recurring revenue. TrinIT was an early adopter operating in the MSP market.

 

The MSP approach, by using preventative measures, keeps computers and networks up and running while data is accessible and safeguarded. Installation of critical patches and updates to virus protection are automated. Systems are monitored and backed up in real-time. They are fixed or upgraded before they cause a service disruption. A Unified Threat Management solution is deployed to protect against virus, malware, SPAM, phishing and ransomware attacks. Remote technical support is a click away. All support is delivered at a predictable monthly cost.

 

Going forward, by leveraging managed services with our expertise in cloud computing, our customers can easily scale their business without extensive capital investment or disruption in services.

 

 
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The Company is positioned perfectly to address the growing need for managed services:

 

 

·

Our current and future customers need managed IT services, along with cloud computing, storage and HIPAA compliant backup and encryption.

 

·

Managed service providers that can support the migration to cloud computing are in high demand.

 

·

The decision makers for our current technology and those for managed services are, in many cases, the same person or group of people.

 

·

Our management team has decades of experience operating successful IT companies.

 

·

The MSP revenue model matches our SaaS, HaaS, PaaS & IaaS MRR models.

 

In addition to the advantages described regarding the acquisition of TrinIT, we were also looking to strengthen our management team. TrinIT’s founder has become the Vice President of our growing IT services division and will be responsible for the operations and growth of the division.

 

Financing

 

We are currently funding our business capital requirements through revenues from product sales and consulting services, sales of our common stock and debt arrangements. While we intend to seek additional funding, if revenue increases to a point where we are able to sustain ourselves and increase our budget to match our growth needs, we may significantly reduce the amount of investment capital we seek. The amount of funds raised and revenue generated, if any, will determine how aggressively we can grow and what additional projects we will be able to undertake. No assurance can be given that we will be able to raise additional capital when needed or at all, or that such capital, if available, will be on terms acceptable to us. If we are unable to, or do not raise additional capital in the near future or if our revenue does not begin to grow as we expect, we will have to curtail our spending and downsize our operations.

 

The Company had a revolving line of credit agreement in the amount of $500,000 which had an outstanding balance of $498,000 as of June 30, 2019. All outstanding principal and interest under the line of credit was due and payable on July 15, 2019. In August 2019 the counterparty to the line of credit agreement sold its interest in the line to a limited liability company (LLC) of which at least one shareholder of the Company was a member. In September 2019 the amount owing to the LLC was paid in full and the Company was released of all of its obligations under the line of credit.

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve months after issuance and received $75,000 net of closing fees. Interest at 10% per annum is not due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into common stock of the Company ("Common Stock"). The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%) determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

In December 2019 the Company signed a $45,000 convertible promissory note payable to a different finance company due twelve (12) months after issuance and received $40,000 net of closing fees. Interest at 10% per annum is not due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into common stock of the Company ("Common Stock"). The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%) determined on the basis of the lowest traded price for the Common Stock during the prior twenty (20) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

During the year ended December 31, 2019, the Company issued 12,435,759 shares of common stock for cash and conversion of notes payable proceeds totaling $3,217,000.

 

 
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Critical Accounting Policies and Estimates

 

Our discussion and analysis of financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with generally accepted accounting principles as recognized in the United States of America. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 

Revenue Recognition

 

We have 3 primary sources of revenue as of December 31, 2019:

 

1. Electronic Health Records (EHR/Practice Management) software

 

2. Encrypted and HIPAA Compliant Secure email

 

3. ICD Coding Software

 

1) Revenue from EHR software licensing arrangements include private cloud hosting services provided to clients that have purchased a perpetual or specific term license to our EHR software solution and who have contracted with us to host the software. These arrangements provide the client with a contractual right to take possession of the software at any time during the private cloud hosting period without significant penalty and it is feasible for the client to either use the software on its own equipment or to contract with an unrelated third party to host the software. Private cloud hosting services are not deemed to be essential to the functionality of the software. The Company recognizes revenue from the sale or licensing of its EHR software at the time the customer has access to use the software, with deferral of revenues associated with the cloud hosting and post contract support performance objectives, allocated based on relative fair values.

 

The Company defers revenue from the sale of its EHR software products associated with cloud hosting and post contract support performance objectives over the term of the license agreement. Cloud hosting performance objective revenues are deferred based on forecasted cloud storage costs, encrypted secure email performance objective revenues are deferred based on the forecasted sales price of those services to other customers of the Company and customer support performance objective revenues are deferred based on forecasted customer support costs based on Company experience.

 

2) Encrypted HIPAA compliant secure email services are provided on an annual subscription basis using the software as a service (“SaaS”) model with revenues recognized ratably over the contract term.

 

3) ICD Coding Software provides the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD), a medical classification list by the World Health Organization (WHO). It contains codes for diseases, signs and symptoms, abnormal findings, complaints, social circumstances, and external causes of injury or diseases. ICD coding services are provided on a subscription basis using the software as a service (“SaaS”) model with revenues recognized ratably over the contract term. The length of the contract period varies from monthly to multiyear.

 

On January 3, 2020, the Company purchased the assets of Computer Plumber, LLC, doing business as TrinIT (“TrinIT”), an IT service company located in the Charlotte, North Carolina area to complement our technology line up.

 

TrinIT generates revenue primarily from their: 1) monthly recurring “Managed Service Provider (MSP)” model, 2) periodic sale and installation of IT related hardware, and 3) ad hoc customer IT projects. The MSP model revenue is recognized monthly on a recurring basis while the revenue relating to IT hardware and ad hoc customer IT projects is recognized when the services are performed. (See Note 13 in the accompanying notes to the Financial Statements).

 

 
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Software Development Capitalization and Amortization

 

We account for software development costs, including costs to develop software products or the software component of products to be marketed to external users.

 

In accordance with ASC 985-730, Computer Software Research and Development, research and planning phase costs are expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs are capitalized.

 

We have determined that technological feasibility for our products to be marketed to external users was reached before the release of those products and, as a result, the development costs and related acquisition costs after the establishment of technological feasibility were capitalized as incurred. Capitalized costs for software to be marketed to external users are amortized based on current and projected future revenue for each product with an annual minimum equal to the straight line amortization of the costs over three years.

 

Income Taxes

 

The Company follows the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between the financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. Valuation allowances are established when it is necessary to reduce deferred income tax assets to the amount, if any, expected to be realized in future years.

 

ASC 740, Accounting for Income taxes (‘ASC 740’), requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion more likely than not will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative loss experience and expectations of future taxable income by taxing jurisdictions, the carry-forwarding periods available to us for tax reporting purposes and other relevant factors.

 

Stock Based Compensation

 

The Company estimates the fair value of each option award on the date of grant using a Black-Scholes option pricing model that uses the following assumptions. The Company estimates the fair value of its shares of restricted common stock using the closing stock price of its common stock on the date of the award. The Company estimates the volatility of its common stock at the date of grant based on its historical stock prices. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. The Company uses the risk-free interest rate of the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. The Company has never paid cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.

 

Impairment of Long-Lived Assets

 

We review long-lived assets for impairment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with recently adopted accounting practices. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by reducing the carrying amount of the asset by the amount by which its carrying amount exceeds its fair value.

 

 
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Results of Operations

 

The following table sets forth our selected financial data for the periods indicated below and the percentage dollar increase (decrease) of such items from period to period:

  

 

 

Year

 

 

Year

 

 

2019

 

 

 

Ended

 

 

Ended

 

 

Compared to

 

 

 

December 31,

 

 

December 31,

 

 

2018

 

 

 

2019

 

 

2018

 

 

% Incr/(Decr)

 

Revenues

 

$ 1,014,000

 

 

$ 1,089,000

 

 

 

-7

Cost of sales

 

 

305,000

 

 

 

449,000

 

 

 

-32

Gross profit

 

 

709,000

 

 

 

640,000

 

 

 

11 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

3,434,000

 

 

 

3,451,000

 

 

 

0 %

Depreciation and amortization

 

 

655,000

 

 

 

407,000

 

 

 

61 %

Total operating expenses

 

 

4,089,000

 

 

 

3,858,000

 

 

 

6 %

Loss from operations

 

 

(3,380,000 )

 

 

(3,218,000 )

 

 

5 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(236,000 )

 

 

(232,000 )

 

 

2 %

Other (expense) income

 

 

(64,000 )

 

 

(1,740,000 )

 

 

-96

Gain on cacellation of debt

 

 

697,000

 

 

 

-

 

 

 

-

 

Total other

 

 

397,000

 

 

 

(1,972,000 )

 

 

-120

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (2,983,000 )

 

$ (5,190,000 )

 

 

-43

 

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

 

Revenues. Net revenues of $1,014,000 for the 2019 period decreased $75,000 or 7% compared to $1,089,000 for the 2018 period. The decrease between periods was primarily due to a $162,000 decrease in one-time EHR software revenues somewhat offset by a $104,000 increase in recurring SaaS revenues.

 

Cost of sales. Cost of sales of $305,000 for the 2019 period decreased $144,000 or 32% when compared to $449,000 for the 2018 period. The decrease between periods was primarily due to a $24,000 one-time expense being recorded during the 2018 period, and a $94,000 reduction in IT development wages during the 2019 period.

 

Selling, general and administrative expenses. Selling, general and administrative expenses of $3,434,000 for the 2019 period decreased $17,000 or 0% when compared to $3,451,000 for the 2018 period. The slight difference was primarily due to a $133,000 reduction in employee salaries and stock compensation expense for the 2019 period offset by a $176,000 increase in consulting fees for the 2019 period.

 

Depreciation and amortization expenses. Depreciation and amortization expenses of $655,000 for the 2019 period increased $248,000 or 61% compared to $407,000 for the 2018 period. The increase between periods was primarily due to $22,000 in increased quarterly amortization with respect to the ICD Logic acquisition to reflect a change to three (3) years of remaining useful life from the previous six (6) years starting in 2Q 2019. We also effectively doubled our Acquired Technology assets with the acquisition of technology from ClariCare during the 2Q of 2019 (as previously discussed in (“Nature of Operations”), thus resulting in a quarterly increase in amortization expense of $54,000 starting in 2Q 2019.

 

 
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Interest expense. Interest expense of $236,000 for the 2019 period increased $4,000 or 2% when compared to $232,000 for the 2018 period. The slight difference was primarily due to a $60,000 increase stemming from late fees assessed upon paying off our line of credit facility during 3Q 2019 (see “Credit Facilities” for further discussion) partially offset by an $11,000 decrease in quarterly interest expense resulting from the 4Q 2018 payoff of a Stockholder Convertible note.

 

Other (expense) income. Other expense of $64,000 for the 2019 period decreased $1,676,000 or 96% when compared to $1,740,000 for the 2018 period. The decrease was primarily due to $1,740,000 being recorded to reflect the acquisition of Electro-Fish Media Inc. in January 2018. (See Note 12 in the accompanying notes to the Financial Statements).

 

Gain on cancellation of debt. Gain on cancellation of debt increased $697,000 for the 2019 period when compared to $0 for the 2018 period. The increase between periods was due to debt being cancelled during the second half of 2019.

 

LIQUIDITY AND CAPITAL

 

The following table sets forth our selected financial data for the periods indicated below and the percentage dollar increase (decrease) of such items from period to period:

 

 

 

December 31,

 

 

December 31,

 

 

 

Balance Sheet Data

 

2019

 

 

2018

 

 

% Incr/(Decr)

 

Total current assets

 

$ 554,000

 

 

$ 234,000

 

 

 

137 %

Total current liabilities

 

 

1,936,000

 

 

 

2,523,000

 

 

 

-23

Working capital (deficit)

 

 

(1,382,000 )

 

 

(2,289,000 )

 

 

-40

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

 

108,000

 

 

 

115,000

 

 

 

-6

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

58,546,699

 

 

 

44,622,040

 

 

 

 

 

 

The following table summarizes the impact of operating, investing and financing activities on our cash flows for the years ended December 31, 2019 and 2018.

 

 

 

2019

 

 

2018

 

Net cash used in operating activities

 

$ (1,667,000 )

 

$ (1,969,000 )

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(473,000 )

 

 

(342,000 )

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

2,584,000

 

 

 

2,260,000

 

 

 

 

 

 

 

 

 

 

Net Increase / (Decrease) in cash

 

 

444,000

 

 

 

(51,000 )

Cash and cash equivalents at the beginning of the year

 

 

1,000

 

 

 

52,000

 

Cash and cash equivalents at the end of the year

 

$ 445,000

 

 

$ 1,000

 

 

The primary factors that influence our liquidity include, but are not limited to, the amount and timing of our revenues, cash collections from our clients, investments in research and development, and ongoing capital raise efforts.

 

 
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Operating Activities: Net cash required by operating activities for the year ended December 31, 2019 decreased by $302,000 to $1,667,000 compared to $1,969,000 utilized in the 2018 period. The decrease in cash utilized by operating activities compared to the 2018 period was attributable to a $214,000 increase in net loss and non-cash adjustments to net loss combined with an $516,000 increase in the cash impact of changes in operating assets and liabilities during the 2019 period. Future spending on operating activities is expected to be funded by the revenues realized by the Company and the sale of additional shares of common stock.

 

Investing Activities: Net cash used by investing activities for the year ended December 31, 2019 increased by $131,000 to $473,000 compared to $342,000 utilized in the 2018 period. The increase in cash utilized by investing activities was primarily due to an increase of $86,000 in capitalized software development costs and $50,000 paid as part of the consideration to acquire technology from ClariCare. Future spending on investing activities is expected to be funded by the sale of additional shares of common stock.

 

Financing Activities: Net cash provided by financing activities of $2,584,000 for the year ended December 31, 2019 was $324,000 more than the $2,260,000 for the year ended 2018, primarily due to the $498,000 line of credit debt being paid off in 3Q 2019 (see “Credit Facilities” below for further discussion) offset by $548,000 more cash being raised from the issuance of common stock during the 2019 period.

 

Credit Facilities

 

The Company had a revolving line of credit agreement in the amount of $500,000 which had an outstanding balance of $498,000 as of June 30, 2019. All outstanding principal and interest under the line of credit was due and payable on July 15, 2019. In August 2019 the counterparty to the line of credit agreement sold its interest in the line to a limited liability company (LLC) of which at least one stockholder of the Company was a member. In September 2019 the amount owing to the LLC was paid in full and the Company was released of all of its obligations under the line of credit.

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve months after issuance and received $75,000 net of closing fees. Interest at 10% per annum is not due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into common stock of the Company ("Common Stock"). The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

In December 2019 the Company signed a $45,000 convertible promissory note payable to a different finance company due twelve (12) months after issuance and received $40,000 net of closing fees. Interest at 10% per annum is not due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into common stock of the Company ("Common Stock"). The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the lowest traded price for the Common Stock during the prior twenty (20) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable as a smaller reporting company, as defined by § 229.10(f)(1), is not required to provide the information required by Item 305 of Reg S-K.

 

 
21

 

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Page

 

 

 

 

 

FINANCIAL STATEMENTS – AS OF DECEMBER 31, 2019 AND 2018

 

 

 

(all amounts are rounded to the nearest thousand except share amounts)

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

23

 

CONSOLIDATED BALANCE SHEETS

 

 

24

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

25

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

 

 

26

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

27

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

28-42  

 

 
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Item 8. Financial Statements and Supplementary Data.

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of iCoreConnect, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of iCoreConnect, Inc. (the “Company”) as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years ended December 31, 2019 and 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Substantial Doubt about the Company's Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s evaluations of the events and conditions and management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board of the United States of America (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

We have served as the Company’s auditors since 2017.

 

/s/ Cherry Bekaert LLP

 

Tampa, Florida

 

March 27, 2020

 

 
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iCoreConnect Inc.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2019 AND 2018

 

 

 

 

 

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$ 445,000

 

 

$ 1,000

 

Accounts receivable, net of allowance for doubtful accounts

 

 

101,000

 

 

 

224,000

 

Prepaid expenses

 

 

8,000

 

 

 

9,000

 

Total current assets

 

 

554,000

 

 

 

234,000

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

6,000

 

 

 

11,000

 

Right of use lease asset - operating

 

 

53,000

 

 

 

-

 

Software development costs, net

 

 

625,000

 

 

 

535,000

 

Acquired technology, net

 

 

891,000

 

 

 

539,000

 

Goodwill and intangible assets, net

 

 

393,000

 

 

 

416,000

 

Total long-term assets

 

 

1,968,000

 

 

 

1,501,000

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 2,522,000

 

 

$ 1,735,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 1,001,000

 

 

$ 664,000

 

Line of credit

 

 

-

 

 

 

498,000

 

Operating lease liability, current portion

 

 

55,000

 

 

 

-

 

Current maturities of long-term debt

 

 

880,000

 

 

 

1,361,000

 

Total current liabilities

 

 

1,936,000

 

 

 

2,523,000

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

13,000

 

 

 

55,000

 

Deferred revenue

 

 

108,000

 

 

 

115,000

 

Total long-term liabilities

 

 

121,000

 

 

 

170,000

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

2,057,000

 

 

 

2,693,000

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, Undesignated par value $0.001; Authorized 10,000,000 shares; none issued or outstanding

 

 

-

 

 

 

-

 

Common stock par value $0.001; 600,000,000 shares authorized; Issued and Outstanding: 67,476,089 as of December 31, 2019 and 50,864,131 as of December 31, 2018

 

 

67,000

 

 

 

51,000

 

Additional paid-in-capital

 

 

74,738,000

 

 

 

70,335,000

 

Accumulated deficit

 

 

(74,340,000 )

 

 

(71,344,000 )

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

 

 

465,000

 

 

 

(958,000 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

$ 2,522,000

 

 

$ 1,735,000

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
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iCoreConnect Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

 

 

 

 

 

 

2019

 

 

2018

 

Revenue

 

$ 1,014,000

 

 

$ 1,089,000

 

Cost of sales

 

 

305,000

 

 

 

449,000

 

Gross profit

 

 

709,000

 

 

 

640,000

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

3,434,000

 

 

 

3,451,000

 

Depreciation and amortization

 

 

655,000

 

 

 

407,000

 

Total operating expenses

 

 

4,089,000

 

 

 

3,858,000

 

Loss from operations

 

 

(3,380,000 )

 

 

(3,218,000 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(236,000 )

 

 

(232,000 )

Other (expense) income

 

 

(64,000 )

 

 

(1,740,000 )

Gain on cancellation of debt

 

 

697,000

 

 

 

-

 

Total other income (expense)

 

 

397,000

 

 

 

(1,972,000 )

 

 

 

 

 

 

 

 

 

Net loss

 

$ (2,983,000 )

 

$ (5,190,000 )

 

 

 

 

 

 

 

 

 

Net loss per share available to common stockholders, basic and diluted

 

$ (0.05 )

 

$ (0.12 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

 

58,546,699

 

 

 

44,622,040

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
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iCoreConnect Inc.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common stock

 

 

Paid In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balances at January 1, 2018

 

 

34,318,198

 

 

$ 34,000

 

 

$ 64,856,000

 

 

$ (66,154,000 )

 

$ (1,264,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

9,265,801

 

 

 

10,000

 

 

 

2,639,000

 

 

 

-

 

 

 

2,649,000

 

Stock issued for acquisition of Electro-Fish Media (Note 12)

 

 

3,400,000

 

 

 

3,000

 

 

 

1,697,000

 

 

 

-

 

 

 

1,700,000

 

Stock issued for services

 

 

340,525

 

 

 

-

 

 

 

204,000

 

 

 

-

 

 

 

204,000

 

Stock compensation expense

 

 

3,539,607

 

 

 

4,000

 

 

 

939,000

 

 

 

-

 

 

 

943,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,190,000 )

 

 

(5,190,000 )

Balances at December 31, 2018

 

 

50,864,131

 

 

$ 51,000

 

 

$ 70,335,000

 

 

$ (71,344,000 )

 

$ (958,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative adjustment for the adoption of a new accounting pronouncement (Note 3)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,000 )

 

 

(13,000 )

Stock issued for cash and conversion of notes payable

 

 

12,435,759

 

 

 

12,000

 

 

 

3,205,000

 

 

 

-

 

 

 

3,217,000

 

Stock issued for services

 

 

66,666

 

 

 

-

 

 

 

17,000

 

 

 

-

 

 

 

17,000

 

Stock compensation expense

 

 

1,808,526

 

 

 

2,000

 

 

 

608,000

 

 

 

-

 

 

 

610,000

 

Stock issued for acquisition of technology (Note 12)

 

 

2,301,007

 

 

 

2,000

 

 

 

573,000

 

 

 

-

 

 

 

575,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,983,000 )

 

 

(2,983,000 )

Balances at December 31, 2019

 

 

67,476,089

 

 

$ 67,000

 

 

$ 74,738,000

 

 

$ (74,340,000 )

 

$ 465,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
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iCoreConnect Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

 

 

 

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITTIES:

 

 

 

 

 

 

Net loss

 

$ (2,983,000 )

 

$ (5,190,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

5,000

 

 

 

5,000

 

Amortization expense

 

 

650,000

 

 

 

402,000

 

Gain on cancellation of liabilities

 

 

(697,000 )

 

 

-

 

Stock issued for services

 

 

17,000

 

 

 

-

 

Change in allowance for doubtful accounts

 

 

5,000

 

 

 

7,000

 

Stock compensation expense

 

 

610,000

 

 

 

2,847,000

 

Decrease (increase) in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

118,000

 

 

 

(110,000 )

Prepaid expenses

 

 

1,000

 

 

 

8,000

 

Right of use asset, net of lease liability

 

 

(11,000 )

 

 

-

 

Accounts payable and accrued expenses

 

 

625,000

 

 

 

33,000

 

Deferred revenue

 

 

(7,000 )

 

 

29,000

 

NET CASH USED IN OPERATING ACTIVITIES

 

 

(1,667,000 )

 

 

(1,969,000 )

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property & equipment

 

 

-

 

 

 

(5,000 )

Amount paid for acquisition of ClariCare software

 

 

(50,000 )

 

 

-

 

Amounts paid for capitalized software development costs

 

 

(423,000 )

 

 

(337,000 )

NET CASH USED IN INVESTING ACTIVITIES

 

 

(473,000 )

 

 

(342,000 )

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITES

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

123,000

 

 

 

-

 

Payments on debt

 

 

(736,000 )

 

 

(389,000 )

Proceeds from issuance of common stock

 

 

3,197,000

 

 

 

2,649,000

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

2,584,000

 

 

 

2,260,000

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

444,000

 

 

 

(51,000 )

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR

 

 

1,000

 

 

 

52,000

 

CASH AND CASH EQUIVALENTS AT END OF THE YEAR

 

$ 445,000

 

 

$ 1,000

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$ 195,000

 

 

$ 226,000

 

Stock issued for acquisition of technology

 

$ 575,000

 

 

$ -

 

Stock issued for conversion of notes payable

 

$ 20,000

 

 

$ -

 

Issuance of promissory note for settlement of bonus payable

 

$ 75,000

 

 

$ -

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
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Notes to Consolidated Financial Statements

(All amounts rounded to the nearest thousand except share amounts)

 

1. NATURE OF OPERATIONS

 

iCoreConnect Inc., (the “Company”), a Nevada Corporation, builds secure cloud-based HIPAA compliant communications systems, productivity and technology framework software focused on healthcare, although the core technology can be adopted to other vertical markets that require a high degree of secure data communication, such as the legal, financial and education fields.

 

In April 2019 the Company acquired technology and certain other assets from ClariCare, Inc. ClariCare created a cloud-based dental analytics and practice management software which empowers dentists to manage their practices more efficiently. The acquisition of ClariCare’s technology is now being developed by the Company and rebranded as iCoreHuddle.

 

On January 3, 2020, the Company purchased the assets of Computer Plumber, LLC, doing business as TrinIT (“TrinIT”), an IT service company located in the Charlotte, North Carolina area to complement our technology line up.

 

2. GOING CONCERN

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the year ended December 31, 2019, the Company generated an operating loss of $3,380,000. In addition, the Company has an accumulated deficit, total stockholders’ equity and net working capital deficit of $74,340,000, $465,000 and $1,382,000 at December 31, 2019, respectively. The Company’s activities were primarily financed through private placements of equity securities. The Company intends to raise additional capital through the issuance of debt or equity securities to fund its operations. The Company is reliant on future fundraising to finance operations in the near future. The financing may not be available on terms satisfactory to the Company, if at all. In light of these matters, there is substantial doubt that the Company will be able to continue as a going concern.

 

Currently, management intends to develop a significantly improved healthcare communications system and intends to develop alliances with strategic partners to generate revenues that will sustain the Company. While management believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. Management’s ability to continue as a going concern is ultimately dependent upon its ability to continually increase the Company’s customer base and realize increased revenues from signed contracts. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting

 

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”). Significant accounting principles followed by the Company and the methods of applying those principles, which materially affect the determination of financial position, results of operations and cash flows are summarized below.

 

Cash and Cash Equivalents

 

The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at United States banks are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit.

 

 
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Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are customer obligations due under normal trade terms. We maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of certain customers to make required future payments on amounts due us. Management determines the adequacy of this allowance by periodically evaluating the aging and past due nature of individual customer accounts receivable balances and considering the customer’s current financial situation as well as the existing industry economic conditions and other relevant factors that would be useful in assessing the risk of collectability. If the future financial condition of our customers were to deteriorate, resulting in their inability to make specific required payments, additions to the allowance for doubtful accounts may be required. In addition, if the financial condition of our customers improves and collections of amounts outstanding commence or are reasonably assured, then we may reverse previously established allowances for doubtful accounts. The Company has estimated and recorded an allowance for doubtful accounts of $17,000 and $12,000 as of December 31, 2019 and 2018, respectively.

 

Property, Equipment and Depreciation

 

Property, equipment, and leasehold improvements are recorded at their historical cost. Depreciation and amortization have been determined using the straight line method over the estimated useful lives of the assets which are computers and office equipment (3 years) and for office furniture and fixtures (7 years). The cost of repairs and maintenance is charged to operations in the period incurred.

 

Software Development Costs and Acquired Software

 

The Company accounts for software development costs, including costs to develop software products or the software component of products to be sold to external users. In accordance with ASC 985-730, Computer Software Research and Development, research and planning phase costs are expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs are capitalized.

 

We have determined that technological feasibility for our products to be marketed to external users was reached before the release of those products. As a result, the development costs and related acquisition costs after the establishment of technological feasibility were capitalized as incurred. Capitalized costs for software to be sold to external users and software acquired in a business combination are amortized based on current and projected future revenue for each product with an annual minimum equal to the straight line amortization over three years.

 

Impairment of Long Lived Assets

 

Long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount that the carrying amount of the asset exceeds the fair value of the asset.

 

Goodwill

 

Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value of the net assets acquired. Goodwill is reviewed for impairment annually or when events or circumstances indicate that the carrying value of the reporting unit may exceed its fair value. If the carrying value of a reporting unit exceeds the fair value, an impairment loss will be recognized. The Company did not recognize any impairment charges for each of the years ended December 31, 2019 and 2018.

 

 
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Revenue Recognition

 

We have 3 primary sources of revenue as of December 31, 2019:

 

1. Electronic Health Records (EHR/Practice Management) software

 

2. Encrypted and HIPAA Compliant Secure email

 

3. ICD Coding Software

 

1) Revenue from EHR software licensing arrangements include private cloud hosting services provided to clients that have purchased a perpetual or specific term license to our EHR software solution and who have contracted with us to host the software. These arrangements provide the client with a contractual right to take possession of the software at any time during the private cloud hosting period without significant penalty and it is feasible for the client to either use the software on its own equipment or to contract with an unrelated third party to host the software. Private cloud hosting services are not deemed to be essential to the functionality of the software. The Company recognizes revenue from the sale or licensing of its EHR software at the time the customer has access to use the software, with deferral of revenues associated with the cloud hosting and post contract support performance objectives, allocated based on relative fair values.

 

The Company defers revenue from the sale of its EHR software products associated with cloud hosting and post contract support performance objectives over the term of the license agreement. Cloud hosting performance objective revenues are deferred based on forecasted cloud storage costs, encrypted secure email performance revenues are deferred based on the forecasted sales price of those services to other customers of the Company and customer support performance revenues are deferred based on forecasted customer support costs based on Company experience.

 

2) Encrypted HIPAA compliant secure email services are provided on an annual subscription basis using the software as a service (“SaaS”) model with revenues recognized ratably over the contract term.

 

3) ICD Coding Software provides the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD), a medical classification list by the World Health Organization (WHO). It contains codes for diseases, signs and symptoms, abnormal findings, complaints, social circumstances, and external causes of injury or diseases. ICD coding services are provided on a subscription basis using the software as a service (“SaaS”) model with revenues recognized ratably over the contract term. The length of the contract period varies from monthly to multiyear.

 

On January 3, 2020, the Company purchased the assets of Computer Plumber, LLC, doing business as TrinIT (“TrinIT”), an IT service company located in the Charlotte, North Carolina area to complement our technology line up. TrinIT generates revenue primarily from their: 1) monthly recurring “Managed Service Provider (MSP)” model, 2) periodic sale and installation of IT related hardware, and 3) ad hoc customer IT projects. The MSP model revenue is recognized monthly on a recurring basis while the revenue relating to IT hardware and ad hoc customer IT projects is recognized when the services are performed. (See Note 13).

 

Advertising Costs

 

Advertising costs are reported in general and administrative expenses and include advertising, marketing and promotional programs and are charged as expenses in the year in which incurred. Advertising costs were $34,000 and $47,000 for the years ended December 31, 2019 and 2018, respectively.

 

Accounting for Derivative Instruments

 

The Company accounts for derivative instruments in accordance with ASC 815, which requires additional disclosures about the Company’s objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for, and how the derivative instruments and related hedging items affect the financial statements.

 

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt and preferred stock instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results.

 

Freestanding warrants issued by the Company in connection with the issuance or sale of debt and equity instruments are considered to be derivative instruments. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability.

 

 
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Income Taxes

 

The Company follows the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between the financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. Valuation allowances are established when it is necessary to reduce deferred income tax assets to the amount, if any, expected to be realized in future years.

 

ASC 740, Accounting for Income taxes (“ASC 740”), requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion more likely than not will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative loss experience and expectations of future taxable income by taxing jurisdictions, the carry forwarding periods available to us for tax reporting purposes and other relevant factors.

 

The Company has not recognized a liability for uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits or penalties has not been provided since there has been no unrecognized benefit or penalty. If there were an unrecognized tax benefit or penalty, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company files U.S. Federal income tax returns and various returns in state jurisdictions. The Company's open tax years subject to examination by the Internal Revenue Service and the state Departments of Revenue generally remain open for three years from the date of filing.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and to the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

 

Net Loss Per Share

 

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding for the period. Diluted net loss per share reflects the potential dilution of securities by adding other Common Stock equivalents, including stock options, shares issuable on exercise of warrants, convertible preferred stock and convertible notes in the weighted average number of common shares outstanding for a period, if dilutive. Common stock equivalents that are anti-dilutive were excluded from the computation of diluted earnings per share which consisted of all outstanding common stock options and warrants.

 

Stock-Based Compensation

 

The Company uses the fair value method to account for the granting of options to purchase shares of its stock whereby all awards are recorded at fair value on the date of the grant. Share based awards with a performance condition are measured based on the probable outcome of that performance condition during the requisite service period. Such an award with a performance condition is accrued if it is probable that a performance condition will be achieved. Compensation costs for stock-based payments that do not include performance conditions are recognized on a straight-line basis. The fair value of all share purchase options is expensed over their requisite service period with a corresponding increase to additional capital surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional capital surplus, is recorded as an increase to share capital.

 

The Company estimates the fair value of each option award on the date of grant using a Black-Scholes option pricing model that uses the assumptions noted in the table below. The Company estimates the fair value of its common stock using the closing stock price of its common stock on the option grant date. The Company estimates the volatility of its common stock at the date of grant based on its historical stock prices. The Company determines the expected life based on the “simplified” method as allowed by SAB 107. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. The fair value of shares of restricted stock issued are determined by the Company based on the estimated fair value of the Company’s common stock.

 

 
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The Company issued options to purchase 135,000 shares of common stock to certain employees of the Company during the year ended December 31, 2019 and options to purchase 1,300,000 shares of common stock during the year ended December 31, 2018. The Company used the following assumptions for options granted during the years ended December 31, 2019 and 2018:

 

 

 

December 31,

 

 

December 31,

 

Equity Incentive Plan Assumptions

 

2019

 

 

2018

 

 

 

 

 

 

Expected Term (years)

 

2 years

 

 

2 years

 

Weighted average volatility

 

 

100 %

 

 

100 %

Weighted average risk free rate

 

 

2.76 %

 

 

2.76 %

Expected dividends

 

$ 0

 

 

$ 0  

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee, in most leases, to initially recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The guidance requires adoption using a modified retrospective transition approach with either 1) periods prior to the adoption date being recast or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. The Company adopted this standard on January 1, 2019 using the cumulative-effect adjustment method and elected certain practical expedients allowed under the standard. As a result of the adoption, the Company increased assets and liabilities by approximately $112,000 and $125,000, respectively, and decreased retained earnings on January 1, 2019 by $13,000.

 

The Company does not believe that any other issued, but not yet effective accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations and cash flows.

 

4. COMMON STOCK AND PREFERRED STOCK

 

Stock Issuances

 

During the year ended December 31, 2019, the Company issued 12,435,759 shares of common stock for cash and conversion of notes payable proceeds totaling $3,217,000. The Company also issued 2,301,007 shares of common stock to acquire technology and certain other assets of ClariCare Inc. (See Note 12). The Company also issued 66,666 shares of common stock as compensation to a former employee for services performed. The Company authorized 675,000 shares of restricted stock as compensation to certain executives and directors for services performed, of which 412,500 shares vested and were issued in 2019 with the remaining 262,500 shares vesting evenly in 2020 and 2021. Lastly, the Company issued 1,396,026 shares of restricted stock during 2019 related to the vesting of prior year restricted stock grants.

 

During the year ended December 31, 2018, the Company issued 9,265,801 shares of common stock for cash proceeds totaling $2,649,000. The Company also issued 3,400,000 shares of common stock for the purchase of all of the outstanding common stock of Electro-Fish Media (See Note 12). The Company also issued 340,525 shares of common stock as compensation to certain directors and vendors for services performed. The Company issued 5,287,161 shares of restricted stock as compensation to certain executives and directors for services performed, of which 3,191,440 shares vested and were issued in 2018 with the remaining 2,095,720 shares vesting evenly in 2019 and 2020. Lastly, 348,167 shares of restricted stock issued by the Company in 2017 vested during 2018.

 

 
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Stock Options

 

Certain employees and executives have been granted options or warrants that are compensatory in nature. A summary of option activity for the year ended December 31, 2019 and 2018 are presented below:

 

Options Outstanding

 

Number of Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term in Years

 

 

Aggregate Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding - January 1, 2018

 

 

198,402

 

 

$ 10.40

 

 

 

0.7

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,300,000

 

 

$ 0.25

 

 

 

10.2

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited/expired

 

 

(142,245 )

 

$ 9.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding - December 31, 2018

 

 

1,356,157

 

 

$ 0.31

 

 

 

9.8

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - December 31, 2018

 

 

489,490

 

 

$ 0.29

 

 

 

9.1

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding - January 1, 2019

 

 

1,356,157

 

 

$ 0.31

 

 

 

9.8

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

135,000

 

 

$ 0.15

 

 

 

9.2

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(81,157 )

 

$ 1.17

 

 

 

 

 

 

 

 

 

Balance Outstanding - December 31, 2019

 

 

1,410,000

 

 

$ 0.24

 

 

 

9.2

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - December 31, 2019

 

 

976,667

 

 

$ 0.24

 

 

 

9.2

 

 

$ -

 

 

Nonvested Options

 

Number of

 Options

 

 

Weighted Average Grant Date Fair Value

 

 

Weighted Average Remaining Years to Vest

 

Nonvested - January 1, 2018

 

 

18,719

 

 

$ 10.40

 

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,300,000

 

 

$ 0.13

 

 

 

 

 

Vested

 

 

(452,052 )

 

$ 0.31

 

 

 

 

 

Forfeited/expired

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested - December 31, 2018

 

 

866,667

 

 

$ 0.13

 

 

 

1.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested - January 1, 2019

 

 

866,667

 

 

$ 0.13

 

 

 

1.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

135,000

 

 

$ 0.15

 

 

 

 

 

Vested

 

 

(568,334 )

 

$ 0.13

 

 

 

 

 

Forfeited/expired

 

 

-

 

 

 

 

 

 

 

 

 

Nonvested - December 31, 2019

 

 

433,333

 

 

$ 0.13

 

 

 

0.6

 

 

Future compensation related to nonvested awards expected to vest of $56,000 is estimated to be recognized over a weighted average vesting period of approximately 0.6 years.

 

Restricted Stock Compensation

 

On February 21, 2019, the Company’s Board of Directors approved the grant of 200,000 restricted shares of common stock to Directors of the Company, for services to be rendered during 2019, all of which shares vested on December 31, 2019. Compensation expense related to this grant for the year 2019 was $50,000 based upon the estimated fair value of our common stock of $0.25 per share.

 

On February 21, 2019, the Company’s Board of Directors approved the grant of 475,000 restricted shares of common stock to management, for services rendered, of which 212,500 shares vested on the date of the Board of Director approval, with 131,250 shares vesting on each of the next two anniversary dates of the Board of Director approval. The total unvested restricted stock of 262,500 shares has been excluded from the shares of common stock outstanding on December 31, 2019 in the accompanying financial statements due to the restrictions on the shares. Compensation expense related to this grant for the year 2019 was approximately $81,000 based upon the estimated fair value of our common stock of $0.25 per share. Compensation expense of approximately $33,000 and $5,000 will be recognized related to this grant for each of the years 2020 and 2021, respectively.

 

 
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The Company plans to grant 1,000,000 restricted shares of common stock to an officer, for services rendered and a note extension, effective 2020. Compensation expense related to this planned grant for the year 2019 was $250,000 based upon the estimated fair value of our common stock of $0.25 per share, the offset to which is included in accrued expenses in the 2019 Consolidated Balance Sheets.

 

On April 1, 2018, the Company reached an agreement with a Director of the Company, to issue 1,000,000 shares of restricted common stock as compensation for past services including securities offerings, financings, special projects and other matters similar in nature of which 333,333 shares vested upon issuance and 666,667 shares will vest evenly in 2019 and 2020. The total unvested restricted stock of 333,334 shares has been excluded from the shares of common stock outstanding on December 31, 2019 in the accompanying financial statements due to the restrictions on the shares. Compensation expense related to this grant for the year 2019 was approximately $83,000 based upon the estimated fair value of our common stock of $0.25 per share. Compensation expense related to this grant of approximately $31,000 will be recognized in 2020.

 

On May 22, 2018, the Company’s Board of Directors approved the grant of 4,287,161 shares of restricted common stock to management, for services rendered, of which 2,858,107 shares vested upon issuance and 1,429,054 shares vest evenly in 2019 and 2020. The total unvested restricted stock as of December 31, 2019 of 714,527 shares has been excluded from the shares of common stock outstanding on December 31, 2019 in the accompanying financial statements due to the restrictions on the shares. Compensation expense related to this grant for the year 2019 was approximately $179,000 based upon the estimated fair value of our common stock of $0.25 per share. Compensation expense related to this grant of approximately $67,000 will be recognized in 2020.

 

On November 3, 2017, our Board of Directors approved and authorized the issuance of 2,500,000 restricted shares of common stock to Directors of the Company and certain employees according to the terms of the 2016 Employee Long-Term Incentive Compensation Plan. All shares for Mr. McDermott and Mr. Douglas vested on the date of Board of Director approval, with all other shares to vest as follows: 33% on the date of Board of Director approval, with 33% on each of the next two anniversary dates of the Board of Director approval. Compensation expense related to this grant for the year 2019 was approximately $96,000 based on the estimated fair value of our common stock of $0.25 per share. Of the 2,500,000 restricted shares of common stock authorized on November 3, 2017, there were 2,428,000 shares that vested and 72,000 shares that were forfeited as of December 31, 2019.

 

Warrants

 

During the year ended December 31, 2019, the Company issued 55,000 warrants related to subscriptions of common stock which warrants have an exercise price of $1.35 per share and will expire on December 31, 2020. During the year ended December 31, 2019, none of these warrants expired or were exercised.

 

During the year ended December 31, 2018, the Company issued 4,002,646 warrants related to subscriptions of common stock which warrants have an exercise price of $1.35 per share and will expire on December 31, 2020. During the year ended December 31, 2018, 72,669 warrants expired and none were exercised.

 

The outstanding warrants issued by the Company contain a provision that allows the Company to redeem any or all outstanding and unexercised Warrants at a redemption price of $0.001 per Warrant upon fourteen (14) days’ written notice in the event (i) a Registration Statement registering for sale under the Securities Act of 1933, as amended (the “Act”), the shares of the Company’s Common Stock issuable upon exercise of these Warrants, has been filed with the Securities and Exchange Commission and is in effect on the date of written notice given by the Company to the holders of the warrants, (ii) there exists on the date of the written notice a public trading market for the Company’s Common Stock and such shares are listed for quotation on the NASDAQ Stock Market or the OTC Bulletin Board, (iii) the public trading price of the Company’s Common Stock has equaled or exceeded 150% of the Exercise Price, as then in effect, for twenty (20) of the preceding thirty (30) Trading Days immediately preceding the date of such notice, and (iv) the average daily trading volume during such period has been at least 50,000 shares. The holders of the Warrants called for redemption shall have the right to exercise the Warrants until the close of business on the date next preceding the date fixed for redemption.

 

 
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Warrants

 

 

Weighted Average Exercise Price

 

Outstanding at January 1, 2018

 

 

7,643,003

 

 

$ 1.34

 

 

 

 

 

 

 

 

 

 

Issued

 

 

4,002,646

 

 

$ 1.35

 

Exercised

 

 

-

 

 

 

 

 

Expired

 

 

(72,669 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2018

 

 

11,572,980

 

 

$ 1.35

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2019

 

 

11,572,980

 

 

$ 1.35

 

 

 

 

 

 

 

 

 

 

Issued

 

 

55,000

 

 

$ 1.35

 

Exercised

 

 

-

 

 

 

 

 

Expired

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2019

 

 

11,627,980

 

 

$ 1.35

 

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment is stated at cost and consist of the following:

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Furniture and fixtures

 

$ 8,000

 

 

$ 8,000

 

Leasehold improvements

 

 

26,000

 

 

 

26,000

 

Equipment

 

 

16,000

 

 

 

16,000

 

 

 

$ 50,000

 

 

$ 50,000

 

 Less accumulated depreciation

 

 

(44,000 )

 

 

(39,000 )

 

 

$ 6,000

 

 

$ 11,000

 

 

Depreciation expense on property and equipment for the years ended December 31, 2019 and 2018, were $5,000 and $4,000, respectively.

 

 
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6. SOFTWARE DEVELOPMENT COSTS

 

A summary of the capitalization and amortization of software development costs as of the dates indicated follows:

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Development costs

 

$ 1,936,000

 

 

$ 1,513,000

 

Acquired technology

 

 

1,277,000

 

 

 

630,000

 

Less accumulated amortization

 

 

(1,697,000 )

 

 

(1,069,000 )

 

 

$ 1,516,000

 

 

$ 1,074,000

 

 

Amortization of software development costs and acquired technology for the years ended December 31, 2019 and 2018, were $628,000 and $377,000, respectively. The Company also amortized acquired customer relationship assets related to the ICDLogic LLC acquisition (See Note 12), of $ 22,000 during the year ended December 31, 2019.

  

7. LINE OF CREDIT

 

The Company had a revolving line of credit agreement in the amount of $500,000 which had an outstanding balance of $498,000 as of June 30, 2019. All outstanding principal and interest under the line of credit was due and payable on July 15, 2019. In August 2019 the counterparty to the line of credit agreement sold its interest in the line to a limited liability company (LLC) of which at least one stockholder of the Company was a member. In September 2019 the amount owing to the LLC was paid in full and the Company was released of all of its obligations under the line of credit.

 

8. LONG-TERM DEBT

 

Our notes payable (including accrued interest) are summarized as follows:

 

 

 

 

 

December 31

 

 

December 31

 

 

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

(1)

 

Note payable bearing interest at 12.0% per annum, due December 31, 2020

 

$ 118,000

 

 

$ 106,000

 

(2)

 

Note bearing interest at 8% per annum

 

 

-

 

 

 

494,000

 

(3)

 

Non-interest bearing note

 

 

-

 

 

 

10,000

 

(4)

 

Related Party Long term debt bearing interest at 8%, due April 15, 2021

 

 

93,000

 

 

 

92,000

 

(5)

 

Related Party Promissory note bearing interest at 18%, due December 31, 2020

 

 

556,000

 

 

 

714,000

 

(6)

 

Convertible note bearing interest at 10%, due August 8, 2020

 

 

81,000

 

 

 

-

 

(7)

 

Convertible note bearing interest at 10%, due December 16, 2020

 

 

45,000

 

 

 

-

 

 

 

 

 

 

893,000

 

 

 

1,416,000

 

 

 

Less current maturities

 

 

(880,000 )

 

 

(1,361,000 )

 

 

Total Long-term debt

 

$ 13,000

 

 

$ 55,000

 

 

 
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Total future minimum payments due on long-term debt as of December 31, 2019:

 

2020

 

 

880,000

 

2021

 

 

13,000

 

 

 

 

 893,000

 

 

 

1. The Company issued a note payable on December 31, 2018 with a principal amount of $100,000 bearing interest at a rate of 12% per annum, with quarterly accrued interest payments and with a balloon payment due by the maturity date of December 31, 2019. The balloon payment due on December 31, 2019 was not made and the Company issued, in exchange for the original note, a new note dated December 31, 2019 with a principal amount of $100,000 bearing interest at a rate of 12% per annum, with quarterly accrued interest payments and a balloon payment due on the maturity date of December 31, 2020. The amounts owing on the note as of December 31, 2019 were $100,000 of principal plus $18,000 of accrued interest.

 

 

 

 

2. During the year ended December 31, 2019, the Company determined that due to the statute of limitations, this obligation has been legally extinguished and as such has recognized a gain on cancellation of debt totaling $511,000.

 

 

 

 

3. During the year ended December 31, 2019, the Company determined that due to the statute of limitations, this obligation has been legally extinguished and as such has recognized a gain on cancellation of debt totaling $10,000.

 

 

 

 

4. The Company executed a promissory note payable to a director of the Company as a part of the terms to a settlement agreement dated April 1, 2018 with a principal amount of $113,000 bearing interest at a rate of 8.0% per annum. Principal payments in the amount of $3,000 with accrued interest were payable monthly starting May 15, 2018.

 

 

 

 

5. The Company issued a note payable on December 31, 2018 with a principal amount of $714,000, bearing interest at a rate of 18% per annum, with monthly principal and accrued interest payments and with a balloon payment due by the maturity date of December 31, 2019. The balloon payment due on December 31, 2019 was not made and the Company issued, in exchange for the original note, a new note dated December 31, 2019 with a principal amount of $556,000, bearing interest at a rate of 18% per annum, with monthly principal and accrued interest payments and a balloon payment due by the maturity date of December 31, 2020. The amounts owing on the note as of December 31, 2019 were $556,000 of principal plus a nominal amount of accrued interest.

 

 

 

 

6. In August 2019 the Company signed a $78,000 convertible promissory note due twelve months after issuance and received $75,000 net of closing fees. Interest at 10% per annum is not due until maturity. The amounts owing on the convertible note as of December 31, 2019 were $78,000 in principal with accrued interest of $3,000. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into common stock of the Company ("Common Stock"). The conversion price of the Note is 61% of the Market Price (as defined in the Note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

 

 

 

7. In December 2019 the Company signed a $45,000 convertible promissory note payable to a different finance company due twelve (12) months after issuance and received $40,000 net of closing fees. Interest at 10% per annum is not due until maturity. The amounts owing on the convertible note as of December 31, 2019 were $45,000 of principal and a nominal amount of accrued interest. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into common stock of the Company ("Common Stock"). The conversion price of the Note is 61% of the Market Price (as defined in the Note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the lowest traded price for the Common Stock during the prior twenty (20) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

 
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9. INCOME TAXES

 

The Company has incurred net losses since inception. As of December 31, 2019, the Company had cumulative federal net operating loss carryforwards of approximately $6,433,000, which are available to be carried forward indefinitely and federal net operating loss carryforwards of approximately $57,031,000 which at the latter date may be carried forward for tax years ending through December 31, 2037. Utilization of NOL carryforwards may be limited under various sections of the Internal Revenue Code depending on the nature of the Company’s operations. The Company’s income tax returns are subject to examination by the Internal Revenue Service and applicable state taxing authorities, generally for a period of three years from the date of filing.

 

Deferred taxes comprise the following as of December 31, 2019 and 2018:

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Deferred Income Tax Assets

 

 

13,327,000

 

 

 

13,779,000

 

Valuation Allowance

 

 

(13,327,000 )

 

 

(13,779,000 )
Net Deferred Tax Asset

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Reconciliation of the effective income tax rate to the federal statutory rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Income Tax Rate

 

 

21 %

 

 

21 %
Change in valuation allowance including the effect of the rate change

 

 

-21

 

 

-21

Effective income tax rate

 

 

0 %

 

 

0 %

 

10. CONCENTRATION OF CREDIT RISK

 

The Company has historically provided financial terms to customers in accordance with what management views as industry norms. Access to the Company’s software products usually requires immediate payment but can extend several months under certain circumstances. Management periodically and regularly reviews customer account activity in order to assess the adequacy of allowances for doubtful accounts, considering such factors as economic conditions and each customer’s payment history and creditworthiness. If the financial condition of our customers were to deteriorate, or if they were otherwise unable to make payments in accordance with management’s expectations, we might have to increase our allowance for doubtful accounts, modify their financial terms and/or pursue alternative collection methods.

 

Revenue concentrations for the years ended December 31, 2019 and 2018, and the accounts receivables concentrations at December 31, 2019 and 2018 are as follows:

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

For the Years Ended

 

 

Accounts Receivable at

 

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer A

 

 

42 %

 

 

33 %

 

 

32 %

 

 

15 %
Customer B

 

 

2 %

 

 

8 %

 

 

0 %

 

 

42 %
Customer C

 

 

0 %

 

 

9 %

 

 

0 %

 

 

14 %
Customer D

 

 

3 %

 

 

0 %

 

 

29 %

 

 

0 %

 

 
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11. COMMITMENTS AND CONTINGENCIES

 

(A) LEASE COMMITMENTS

 

On November 15, 2017 the Company signed a three-year lease agreement for approximately 4,100 square feet of office space located in Winter Garden, Florida in which the Company has its headquarters. The lease provides for a one-year renewal term at the option of the Company. As of December 31, 2019, undiscounted future lease obligations for the office space are $58,000 for the year ended December 31, 2020.

 

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), which requires a lessee, in most leases, to initially recognize a lease liability for the obligation to make lease payments and a rightof use asset for the right to use the underlying asset for the lease term. In arriving at the right of use lease asset as of January 1, 2019, we applied the weighted-average incremental borrowing rate of 11.9% over a weighted-average remaining lease term of 1.6 years. The Company adopted this standard using the cumulative-effect adjustment method and elected certain practical expedients allowed under the standard. As a result of the adoption, the Company increased assets and liabilities by approximately $112,000 and $125,000, respectively, and decreased retained earnings on January 1, 2019 by $13,000.

 

Lease costs for the year ended December 31, 2019 were $57,000 and cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2019 were $67,000. As of December 31, 2019, the following represents the difference between the remaining undiscounted lease commitments under non-cancelable leases and the lease liabilities:

 

Undiscounted minimum lease commitments

 

$ 58,000

 

Present value adjustment using incremental borrowing rate

 

 

(3,000 )
Lease liabilities

 

$ 55,000

 

 

B) EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS

 

On July 1, 2018, Robert McDermott, the President and Chief Executive Officer of the Company, entered into an employment agreement with the Company pursuant to which the Company, pursuant to which the Company employed Mr. McDermott for a term of three years and six months. Mr. McDermott received a starting annual base salary of $250,000 per annum which increased to $262,500 per annum on July 1, 2019 and will increase to $275,500 per annum on July 1, 2020 and $289,000 per annum on July 1, 2021. In addition, Mr. McDermott is eligible to receive incentive bonus compensation pursuant to an executive bonus plan approved by the Board of Directors or the Compensation Committee of the Board of Directors. For the year ended December 31, 2018 Mr. McDermott received a bonus of 350,000 restricted shares and for the year ended December 31, 2019 he received a cash bonus of $75,000 and the Company plans to award him 800,000 restricted shares in early 2020 which has been reflected as compensation expense in the accompanying 2019 Consolidated Statements of Operations. Also, Mr. McDermott was awarded an option to purchase 700,000 shares of the Company’s Common Stock of which 33% (233,333 shares) vested on July 1, 2018, another 33% (233,333 shares) vested on July 1, 2019 and the remaining 33% (233,334 shares) will vest on July 1, 2020. In the event of termination of Mr. McDermott’s employment due to a change in control, by reason of his death or disability or by the Company without cause, his stock options that have not already vested will fully vest on the date of termination and any restrictions on any restricted stock owned by Mr. McDermott shall be lifted. Further, in the event of the termination of Mr. McDermott’s employment (i) due to a change in control Mr. McDermott will continue to receive his base salary and his annual bonus computed at 100% of his base salary for the 24 month period following the date of termination, (ii) due to death or disability Mr. McDermott or his estate will continue to receive his base salary during the six month period following the date of termination and (iii) by the Company without cause Mr. McDermott will continue to receive his base salary for the 18 month period following the date of termination or through the end of the employment period, whichever is longer.

 

On October 1, 2018, David Fidanza, the Chief Information Officer of the Company, entered into an employment agreement with the Company, pursuant to which the Company employed Mr. Fidanza for a term of three years. Mr. Fidanza received a starting annual base salary of $115,000 per annum which increased to $125,000 per annum on October 1, 2019 and will increase to $130,000 per annum on October 1, 2020. Also, Mr. Fidanza was awarded an option to purchase 300,000 shares of the Company’s Common Stock. 33% of the option award (100,000 shares) vested on October 1, 2018 and another 33% (100,000 shares) vested on October 1, 2019 and the remaining 33% (100,000 shares) will vest on October 1, 2020. In the event of termination of Mr. Fidanza’s employment due to a change in control, by reason of his death or disability or by the Company without cause, the stock option will become fully vested on the date of termination and any restrictions on any restricted stock owned by Mr. Fidanza shall be lifted. Further, in the event of the termination of Mr. Fidanza’s employment (i) due to a change in control Mr. Fidanza will continue to receive his base salary and his annual bonus computed at 100% of his base salary for the six month period following the date of termination, (ii) due to death or disability Mr. Fidanza or his estate will continue to receive his base salary during the six month period following the date of termination and (iii) by the Company without cause Mr. Fidanza will continue to receive his base salary for the six month period following the date of termination or through the end of the employment period, whichever is longer.

 

 
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On November 1, 2018, Murali Chakravarthi, the Chief Technology Officer of the Company, entered into an employment agreement with the Company, pursuant to which the Company employed Mr. Chakravarthi for three years. Mr. Chakravarthi is to receive an annual base salary of $120,000. Also, Mr. Chakravarthi was awarded an option to purchase 300,000 shares of the Company’s Common Stock. 33% of the option award (100,000 shares) vested on November 1, 2018 and another 33% (100,000 shares) vested on November 1, 2019 and the remaining 33% (100,000 shares) will vest on November 1, 2020. In the event of termination of Mr. Chakravarthi’s employment due to a change in control, by reason of his death or disability or by the Company without cause, the stock option will become fully vested on the date of termination and any restrictions on any restricted stock owned by Mr. Chakravarthi shall be lifted. Further, in the event of the termination of Mr. Chakravarthi’s employment (i) due to a change in control Mr. Chakravarthi will continue to receive his base salary and his annual bonus computed at 100% of his base salary for the six month period following the date of termination, (ii) due to death or disability Mr. Chakravarthi or his estate will continue to receive his base salary during the six month period following the date of termination and (iii) by the Company without cause Mr. Chakravarthi will continue to receive his base salary for the six month period following the date of termination or through the end of the employment period, whichever is longer.

 

(C) LITIGATION

 

From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is, however, subjective to inherent uncertainties and an adverse result in these or other matters may harm the Company’s business. The Company is not aware of any legal proceedings or claims that it believes would or could have, individually or in the aggregate, a material adverse effect on its operations or financial position.

 

12. BUSINESS COMBINATIONS

 

Electro-Fish Media Inc.

 

On January 19, 2018, iCoreConnect Inc. acquired all of the outstanding common stock of Electro Fish Media Inc., a Texas corporation, in exchange for 3,400,000 shares of our Common Stock (at an agreed upon price of $0.50 per share).

 

Pursuant to the guidance in FASB Accounting Standards Codification (“ASC”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, the Company performed a review of the essential elements of inputs, activities and outputs of the acquisition. The Company determined that the purchase of the Electro-Fish Media stock did not qualify as a business combination. The Company has recorded the $1,700,000 purchase price as an other non-operating expense in the accompanying Statement of Operations for the year ended December 31, 2018.

 

ClariCare Inc.

 

On April 30, 2019 iCoreConnect Inc., acquired technology and certain other assets of ClariCare Inc., an Indiana corporation, in exchange for (i) $50,000 in cash, (ii) 2,301,007 shares of the Company’s common stock, subject to adjustment, and (iii) the assumption of certain specified liabilities including a company credit card balance not to exceed $23,000, all upon the terms and conditions set forth in the Asset Purchase Agreement dated as of April 30, 2019 (the “ClariCare Asset Purchase Agreement”) which was attached as an exhibit to the Company’s Form 8-K filed on May 2, 2019 with the SEC. The Company is required to issue additional shares on September 30, 2020 if the stock price is less than $1.49 per share as of that date. ClariCare had created cloud-based dental analytics and practice management software to provide dentists and providers to the dental market modern tools to run their practices more efficiently and effectively and which are a complement to our current dental market product offering.

 

The Company accounted for the acquisition of the ClariCare business and assets as an asset acquisition under ASC 805, which provides guidance for asset acquisitions. Under the guidance, if substantially all of the acquisition is made up of one asset or similar assets, then the acquisition is an asset acquisition. The Company believes the assets acquired from ClariCare are similar and consider them all to be acquired technology (See Note 6). Further, the Company does not believe the acquired technology constitutes a business as defined under ASC 805.

 

 
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13. PRO FORMA FINANCIAL STATEMENTS

 

On January 3, 2020, the Company purchased the assets of Computer Plumber, LLC, doing business as TrinIT (“TrinIT”), an IT service company located in the Charlotte, North Carolina area to complement our technology line up in exchange for; (i) 730,000 shares of Common Stock of the Company, (ii) $400,000 in cash, and (iii) the assumption of certain specified liabilities.

 

The following unaudited pro forma condensed combined financial statements are based on our historical audited consolidated financial statements and TrinIT’s historical unaudited financial statements as adjusted to give effect to the January 3, 2020 acquisition by the Company of TrinIT. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2019 give effect to the acquisition of TrinIT as if it had occurred on January 1, 2019. The unaudited pro form condensed balance sheet as of December 31, 2019 gives effect to the acquisition of TrinIT as if it had occurred on December 31, 2019.

 

The pro forma combined financial statements do not necessarily reflect what the combined companies’ financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined companies. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2019

(All amounts rounded to the nearest thousand except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

iCoreConnect

 

 

TrinIT*

 

 

Pro Forma Adjustments

 

 

Notes

 

Pro Forma Combined

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$ 445,000

 

 

$ 15,000

 

 

$ (400,000 )

 

 

 

$ 60,000

 

Accounts receivable, net

 

 

101,000

 

 

 

-

 

 

 

-

 

 

 

 

 

101,000

 

Prepaid expenses

 

 

8,000

 

 

 

-

 

 

 

-

 

 

 

 

 

8,000

 

Total current assets

 

 

554,000

 

 

 

15,000

 

 

 

(400,000 )

 

 

 

 

169,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

6,000

 

 

 

3,000

 

 

 

-

 

 

 

 

 

9,000

 

Right of use lease asset - operating

 

 

53,000

 

 

 

-

 

 

 

-

 

 

 

 

 

53,000

 

Software development costs, net

 

 

625,000

 

 

 

-

 

 

 

-

 

 

 

 

 

625,000

 

Acquired technology, net

 

 

891,000

 

 

 

-

 

 

 

-

 

 

 

 

 

891,000

 

Goodwill and intangible assets, net

 

 

393,000

 

 

 

 

 

 

 

583,000

 

 

(a)

 

 

976,000

 

Total long-term assets

 

 

1,968,000

 

 

 

3,000

 

 

 

583,000

 

 

 

 

 

2,554,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 2,522,000

 

 

$ 18,000

 

 

$ 183,000

 

 

 

 

$ 2,723,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 1,001,000

 

 

 

-

 

 

 

-

 

 

 

 

$ 1,001,000

 

Operating lease liability, current portion

 

 

55,000

 

 

 

-

 

 

 

-

 

 

 

 

 

55,000

 

Current maturities of long-term debt

 

 

880,000

 

 

 

-

 

 

 

-

 

 

 

 

 

880,000

 

Total current liabilities

 

 

1,936,000

 

 

 

-

 

 

 

-

 

 

 

 

 

1,936,000

 

Long-term debt

 

 

121,000

 

 

 

-

 

 

 

-

 

 

 

 

 

121,000

 

TOTAL LIABILITIES

 

 

2,057,000

 

 

 

-

 

 

 

-

 

 

 

 

 

2,057,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS' EQUITY

 

 

465,000

 

 

 

18,000

 

 

 

183,000

 

 

 

 

 

666,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$ 2,522,000

 

 

$ 18,000

 

 

$ 183,000

 

 

 

 

$ 2,723,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying note to the Unaudited Pro Forma Condensed Combined Financial Information

* - The financial statements of TrinIT as of and for the year ended December 31, 2019 are unaudited and have been compiled by management.

 

 
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2019

(All amounts rounded to the nearest thousand except share amounts)

 

 

 

iCoreConnect

 

 

TrinIT*

 

 

Pro Forma Adjustments

 

 

Pro Forma Combined

 

Revenue

 

$ 1,014,000

 

 

$ 983,000

 

 

 

-

 

 

$ 1,997,000

 

Cost of sales

 

 

305,000

 

 

 

371,000

 

 

 

-

 

 

 

676,000

 

Gross profit

 

 

709,000

 

 

 

612,000

 

 

 

-

 

 

 

1,321,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

3,434,000

 

 

 

299,000

 

 

 

-

 

 

 

3,733,000

 

Depreciation and amortization

 

 

655,000

 

 

 

-

 

 

 

-

 

 

 

655,000

 

Total operating expenses

 

 

4,089,000

 

 

 

299,000

 

 

 

-

 

 

 

4,388,000

 

Income (Loss) from operations

 

 

(3,380,000 )

 

 

313,000

 

 

 

-

 

 

 

(3,067,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(236,000 )

 

 

-

 

 

 

-

 

 

 

(236,000 )

Other (expense) income

 

 

(64,000 )

 

 

(30,000 )

 

 

-

 

 

 

(94,000 )

Gain on cancellation of liabilities

 

 

697,000

 

 

 

-

 

 

 

-

 

 

 

697,000

 

Total other income (expense)

 

 

397,000

 

 

 

(30,000 )

 

 

-

 

 

 

367,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ (2,983,000 )

 

$ 283,000

 

 

 

-

 

 

$ (2,700,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share available to common stockholders, basic and diluted

 

$ (0.05 )

 

 

 

 

 

 

 

 

 

$ (0.05 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

$ 58,546,699

 

 

 

 

 

 

 

 

 

 

$ 59,276,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying note to the Unaudited Pro Forma Condensed Combined Financial Information

* - The financial statements of TrinIT as of and for the year ended December 31, 2019 are unaudited and have been compiled by management.

 

Note Pro forma adjustments

 

(a) Since all information required to perform a detailed valuation analysis of TrinIT’s intangible assets could not be obtained as of the date of this filing, these pro forma adjustments are provisional in nature and subject to change in the near-term.

 

14. SUBSEQUENT EVENTS

 

For the period January 1, 2020 through March 27, 2020, the Company issued 2,280,000 shares of common stock for cash proceeds totaling $570,000. The Company also issued 730,000 shares of common stock during the period to acquire the assets of Computer Plumber, LLC, doing business at TrinIT (“TrinIT”) (See Note 13). Lastly, the Company issued 131,250 shares of restricted stock during the period related to the vesting of a 2019 restricted stock grant.

 

 
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer, currently filling the role of Acting Chief Financial Officer, has evaluated our disclosure controls and procedures. Based on such evaluation, and after considering the controls implemented to mitigate the material weakness related to insufficient accounting personnel discussed below, he has concluded that, as of December 31, 2019, our disclosure controls and procedures were effective in ensuring that information relating to the Company required to be disclosed in the reports that we file or submit under the Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to him and other members of our management as appropriate to allow timely decisions regarding required disclosure.

 

Changes to Internal Control Over Financial Reporting

 

Except for the departure of our Chief Financial Officer and Chief Accounting Officer during the year (whose duties have been assumed by our President and Chief Executive Officer), we have not identified any change in our internal control over financial reporting during our most recently completed fiscal year that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our Chief Executive Officer, currently filling the role of Acting Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting refers to the processes designed by, or under the supervision of, our Chief Executive Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

 

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

 
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Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of preventing and detecting misstatements on a timely basis. It is possible to design into the process safeguards to reduce, though not eliminate, the risk that misstatements are not prevented or detected on a timely basis.

 

In the course of completing its assessment of internal control over financial reporting as of December 31, 2019, management identified a material weakness, relating to the number of personnel available to serve the Company’s accounting function. Specifically, management believes that we may not be able to adequately segregate responsibility over financial transaction processing and reporting. Although we are unable to remediate the material weakness with current personnel, we are mitigating its potential impact, primarily through greater involvement of senior management in the review and monitoring of financial transaction processing and financial reporting.

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO (2013 Framework). Based on this assessment, management has concluded that, as of December 31, 2019, our internal control over financial reporting was effective.

 

This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts smaller reporting companies from the auditor attestation requirement.

 

Item 9B. Other Information.

 

None.

 

 
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PART III

   

Items 10, 11, 12, 13 and 14

   

The information required under these items is contained in the Company’s 2020 Proxy Statement, which will be filed with the SEC within 120 days after the close of the Company’s fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.

 

 
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PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a) Financial Statements

 

The financial statements included in this Form 10-K are listed in Item 8.

 

(b) Exhibits*:

 

Exhibit No. Description
1.1 Certificate of Amended and Restated Articles of Incorporation of iMedicor, Inc. filed with the Secretary of State of the State of Nevada on June 29, 2017, effective June 30, 2017, changing the name of iMedicor, Inc. to iCoreConnect Inc. (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
1.2 Amended and Restated By-Laws of the Company as amended and restated on June 30, 2017, (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
2.2 Stock Purchase Agreement dated as of January 19, 2018 among iCoreConnect Inc. and Christopher L. Elley and Cile L. Spelce, (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
2.3 Asset Purchase Agreement dated as of April 30, 2019 between iCoreConnect Inc. and ClariCare Inc., (incorporated by reference to the Company's Current Report on Form 8-K filed on May 2, 2019).
2.4 Asset Purchase Agreement dated as of January 3, 2020 between iCoreConnect Inc. and Computer Plumber, LLC, a North Carolina limited liability company doing business as TrinIT.
3.6 Executive Employment Agreement dated as of July 1, 2018 between iCoreConnect, Inc. and Robert McDermott, (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
3.7 David Fidanza Employment Agreement dated October 1, 2018, (incorporated by reference to the Company's Form 10-K filed on April 1, 2019).
3.8 Murali Chakravarthi Employment Agreement dated November 1, 2018, (incorporated by reference to the Company's Form 10-K filed on April 1, 2019).
4.1 iCoreConnect Inc. 2016 Long-Term Incentive Compensation Plan, (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
4.2 Form of Restricted Stock Award Agreement under the 2016 Long-Term Incentive Compensation Plan, (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
4.3 iCoreConnect Inc. 2016 Incentive Bonus Compensation Plan, (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
5.2 Lease Agreement dated October 17, 2017 between iCoreConnect Inc. and Lake Butler Plaza Properties, LLC., (incorporated by reference to the Company s Registration Report on Form 10/A filed on August 17, 2018).
10.1 Fifth Amendment between iCoreConnect Inc. and United Healthcare Services Inc. dated December 16, 2019
31.1 CEO Certification pursuant to rule 13a-14(a)
31.2 CFO Certification pursuant to rule 13a-14(a)
32.1 CEO Sarbanes Oxley certification
32.2 CFO Sarbanes Oxley certification

 

Notes to exhibits:

 

iCoreConnect Inc. will furnish a copy of any of the exhibits listed above upon payment of $5.00 per exhibit to cover the cost of the Company furnishing the exhibit.

 

 
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Table of Contents

  

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Name

 

Title

 

Date

 

/s/ Robert P McDermott

 

Robert P McDermott

 

Chief Executive Officer

 

March 27, 2020

 

(Principal Executive Officer)

 

 

 

 

 

/s/ Robert P McDermott

 

Robert P McDermott

 

Acting Chief Financial and Accounting Officer

 

March 27, 2020

 

 

(Acting Principal Financial and Accounting Officer)

 

 

 

 

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Robert P McDermott

 

Robert P McDermott

 

Director

 

March 27, 2020

 

/s/ JD Smith

 

JD Smith

 

Director

 

March 27, 2020

 

/s/ Jeff Stellinga

 

Jeff Stellinga

 

Director

 

March 27, 2020

 

/s/ Robert A DeSanti

 

Robert A DeSanti

 

Director

 

March 27, 2020

 

/s/ Samuel B Fortenbaugh III

 

Samuel B Fortenbaugh III

 

Director

 

March 27, 2020

 

 
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