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, 2021

 

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.)

 

529 E Crown Point Road, Suite 250 Ocoee, FL 34761

(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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, $.001 par value

ICCT

The OTCQB Venture Market

 

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 ☒

 

Based on the closing price of the Registrant’s Common Stock on the last business day of the Registrant’s most recently completed second fiscal quarter, which was June 30, 2020, the aggregate market value of its shares (based on a closing price of $0.21 per share on June 30, 2021 as reported on the OTCQB Exchange) held by non-affiliates was approximately $9.7 million.

 

The number of shares outstanding of the Registrant’s Common Stock as of March 31, 2022: 172,216,323.

 

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

 

 12

 

2.

Properties

 

 12

 

3.

Legal Proceedings

 

 12

 

4.

Mine Safety Disclosures

 

 12

 

 

 

 

 

 

Part II

 

 

 

 

 

 

 

 

5.

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

 

 13

 

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

 

 20

 

8.

Financial Statements and Supplementary Data

 

 F-1

 

9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

 21

 

9A.

Controls and Procedures

 

 21

 

9B.

Other Information

 

 21

 

 

 

 

 

 

Part III

 

 

 

 

 

 

 

 

10.

Directors, Executive Officers and Corporate Governance

 

 22

 

11.

Executive Compensation

 

22

 

12.

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

 

22

 

13.

Certain Relationships and Related Transactions, and Director Independence

 

 22

 

14.

Principal Accounting Fees and Services

 

 33

 

 

 

 

 

 

Part IV

 

 

 

 

 

 

 

 

15.

Exhibits, Financial Statement Schedules

 

 34

 

Signatures

 

 

 35

 

 

 
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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, is a market leading cloud-based software and technology company focused on increasing workflow productivity and customer profitability through its enterprise platform of applications and services.

 

Software as a Service (SaaS) Offerings

 

The Company currently markets secure Health Insurance Portability and Accountability Act (HIPAA) compliant cloud-based software as a service (SaaS) offering under the names of iCoreRx, iCorePDMP, iCoreEPCS, iCoreVerify, iCoreHuddle, iCoreHuddle+, iCoreCodeGenius, iCoreExchange, iCoreCloud, iCorePay, iCoreSecure, and iCoreIT. The Company’s software is sold under annual recurring revenue subscriptions.

 

iCoreRx – iCoreRx is a HIPAA compliant electronic prescription SaaS solution that integrates with popular practice management and electronic health record systems. It saves time by selecting exact medications at available doses with built-in support from a drug directory and provides full support for Electronic Prescriptions for Controlled Substances (iCoreEPCS). It protects both the patient and provider by viewing the patient’s 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) 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. This 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.

 

iCoreVerify - iCoreVerify is a HIPAA compliant SaaS solution that allows practices to verify patient insurance benefits automatically and on-demand using our real time technology. It provides the practice with the ability to check available patient benefits directly from the payer’s in real-time. The system returns results typically in less than one second for most responses. This substantially reduces the phone calls and labor hours for the practice. This tool integrates with most popular practice management systems.

 

iCoreHuddle and iCoreHuddle+ – iCoreHuddle is a powerful HIPAA compliant SaaS solution to instantly reveal the revenue potential of each patient. The service connects to most popular practice management and electronic health record systems to optimize revenue realization. It provides the practice with a dashboard containing various metrics, analytics, and Key Performance Indicators (“KPIs”). iCoreHuddle provides a daily view of patient schedules, including their outstanding balances, unscheduled treatment plans, recall information, procedure information and the amount of remaining insurance benefits. The software also provides one-click access to each 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. iCoreHuddle+ offers enhanced analytical tools for practices to optimize their revenue generation process and workflows.

 

iCoreCodeGenius – iCoreCodeGenius is a medical coding reference SaaS solution that provides the coding standards for the 10th revision of the International Classification of Diseases and Related Health Problems (ICD-10), 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.

 

 
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iCoreCodeGenius includes a full ICD-10 code lookup and guidance, automatic prompting of comorbidities and Hierarchical Condition Category’s (HCC) to aid in obtaining the appropriate reimbursement with a high degree of accuracy, and the ability to reduce or eliminate queries and denials.

 

iCoreExchange – iCoreExchange provides a secure, HIPAA compliant SaaS 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 patient files with discrete data, which can then be imported and accessed on most Electronic Health Record (EHR) and Practice Management (PM) systems in a HIPAA compliant manner.

 

iCoreCloud - iCoreCloud offers customers the ability to backup their on-premise servers and computers to the cloud. iCoreCloud is a fully HIPAA compliant and automated backup solution. The data backed up is encrypted both in transit and while at rest. In case of full data loss, the mirrored data in the cloud can be seamlessly restored back to the practice on a new computer or a server. The data is stored encrypted in HIPAA compliant data centers with multiple layers of redundancy. The data centers are physically secure with restricted personnel and biometric access. The locations are also guarded by security 24 hours a day, 365 days a year.

 

iCorePay – iCorePay offers a seamless patient payment processing solutions for customers. iCorePay integrates into the practice workflow for payment and revenue cycle tracking.

 

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 is a secure SaaS solution that solves privacy concerns in the insurance, real estate, financial and many other industry sectors that have a need for secure encrypted email.

 

iCoreIT - 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)” and “Managed Software as a Service (MSaaS)” model with recurring revenue.

 

The MSP/MSaaS 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 MSP/MSaaS 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 competitively positioned to address the growing need for MSaaS: 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; and The MSaaS revenue model matches our SaaS and MRR models.

 

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 designed, built, and continue to 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.

 

Competitive Strategy

 

Key elements of our strategy include:

 

1. Extending existing service offerings. We continue to innovate based on customer feedback and have designed our solutions to easily accommodate new features and functionality, especially in underserved areas of compliance and improved workflow/profitability for dental and physician practices. 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 opportunities 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. 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. In the past several years we have competed and won over 81 major healthcare association endorsements in 25 states. We plan to increase the number of direct sales professionals we employ and intend to develop additional distribution channels for our products and services.

 

 
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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, 2021, and December 31, 2020, the Company had 55 and 25 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 https://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.

 

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, 2021 and December 31, 2020, were $4,956,552 and $2,123,587, 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.

 

 
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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 businesses 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.

 

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 usernames, 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.

 

 
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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.

 

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 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 quickly; 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 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 and systemic events such as the Covid-19 Pandemic which impact our operations as well as our customers.

 

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 material weaknesses 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.

  

 
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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.

 

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.

 

Because we generally recognize revenues from our subscription service over the subscription term, a decrease in new subscriptions or renewals during a reporting period may not be immediately reflected in our operating results for that period.

 

We generally recognize revenues from customers ratably over the terms of their subscriptions. Net new annual contract value from new subscriptions, expanded contracts and contract renewals entered into during a period can generally be expected to generate revenues for the duration of the subscription term. As a result, a small portion of the revenues we report in each period are derived from the recognition of deferred revenues relating to subscriptions entered into during previous periods. Consequently, a decrease in new or renewed subscriptions in any single reporting period will have a limited impact on our revenues for that period. In addition, our ability to adjust our cost structure in the event of a decrease in new or renewed subscriptions may be limited.

 

Further, a decline in new subscriptions, expanded contracts or renewals in a given period may not be fully reflected in our revenues for that period, but they will negatively affect our revenues in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our services, and changes in our rate of renewals, may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers are generally recognized over the applicable subscription term. Additionally, due to the complexity of certain customer contracts, the actual revenue recognition treatment required under Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers (“Topic 606”)” depends on contract-specific terms and may result in greater variability in revenues from period to period. In addition, a decrease in new subscriptions, expansion contracts or renewals in a reporting period may not have an immediate impact on billings for that period due to factors that may offset the decrease, such as an increase in billings duration, the dollar value of contracts with future start dates, or the dollar value of collections in the current period related to contracts with future start dates.

 

 
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The COVID-19 pandemic could continue to materially adversely affect our business, financial condition, results of operations, cash flows and day-to-day operations.

 

The outbreak of COVID-19, a novel strain of coronavirus first identified in China, which has spread across the globe including the U.S., has had an adverse impact on our operations and financial condition. The response to this coronavirus by federal, state and local governments in the U.S. has resulted in significant market and business disruptions across many industries and affecting businesses of all sizes. This pandemic has also caused significant stock market volatility and further tightened capital access for most businesses. Given that the COVID-19 pandemic and its disruptions are of an unknown duration, they could have an adverse effect on our liquidity and profitability.

 

As a result of these events, we assessed our near-term operations, working capital, finances and capital formation opportunities, and implemented, in late March 2020, a downsizing of our operations to preserve cash resources and focus our operations on client-centric sales and project management activities. The pandemic and its effects resulted in significant impact on our customers operations, specifically medical and dental practices ability to operate. Other factors related to this coronavirus that could negatively impact our ability to continue operations include the market demand for our products and services, our ability to service the needs of our clients and prospects, potential contract cancellations, project scope reductions and project delays, our ability to fulfill our current backlog, and the ability of our vendors to continue to provide us with product to fulfill our customers’ orders. In light of these extenuating circumstances, there is no assurance that we will be successful in growing and maintaining our business with our clients. If our clients or prospects are unable to obtain project financing and we are unable to increase revenues, or otherwise generate cash flows from operations, we will not be able to successfully execute on the various strategies and initiatives we have set forth in this Report to grow our business.

 

The ultimate magnitude of COVID-19, including the extent of its impact on our financial and operational results, which could be material, will depend on the length of time that the pandemic continues, its effect on the demand for our products and our supply chain, the effect of governmental regulations imposed in response to the pandemic, as well as uncertainty regarding all of the foregoing. We cannot at this time predict the full impact of the COVID-19 pandemic, but it could have a larger material adverse effect on our business, financial condition, results of operations and cash flows beyond what is discussed within this Report.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

The Company operates from its new 7,650 square foot headquarters located in Ocoee, Florida which has been leased on a six year and one month lease beginning January 2022, with an optional five-year renewal term. This office replaces its 4,100 square foot office located in Winter Garden, Florida which is leased by the Company through May 31, 2022. The Company also operates from a 2,100 square foot office space in Concord, NC which is leased by the Company through August 31, 2023.The Company also operates from a 630 square foot office space in Scottsdale, AZ which is leased by the Company to May 12, 2023.

 

Item 3. Legal Proceedings

 

The Company from time to time, may be a party to various litigation, claims and disputes, arising in the ordinary course of business. While the ultimate impact of such actions cannot be predicted with certainty, we believe the outcome of these matters, except for that noted below, will not have a material adverse effect on our financial condition or results of operations.

 

On August 18, 2021 the Company received a Notice of Disposition of Collateral under section 9-611 of the Uniform Commercial Code (“UCC”) (Arizona Revised Statutes 47-611) purporting to set a foreclosure sale, under the UCC, of the Company’s assets that were previously pledged as security to a Lender. On August 24, 2021 the Company received a Default Notice from the Lender asserting that the Company was obligated to pay $863,274. The Lender alleged that it had made certain loans and other financial accommodations in the form of guaranties to our Company beginning in approximately of March of 2009 that was secured by all of the assets our Company. We initiated an investigation into the matter and concluded that we had repaid all of the loans (including tendering payment of $28,577.82 for various credit card obligations with JP Morgan Chase Bank which the Lender rejected on August 4, 2021) and any loans that had not been repaid were released under the terms of a Recapitalization Agreement dated November 1, 2016. We then retained Arizona counsel to prepare an Emergency Application for Temporary Restraining Order and Preliminary Injunction against the Lender in order to stop the foreclosure sale. We are currently in negotiations with Lender to resolve the dispute. We believe the claims of the Lender are without merit and intend to vigorously defend the matter.

 

On June 15, 2021, the Company received a Complaint filed with the Circuit Court of the Ninth Judicial Circuit for Orange County, Florida. The Complaint alleges a breach of a previously entered into 2018 Settlement Agreement for which payments have not been made. The Complainant agreed to begin arbitration on August 31, 2021. We believe these claims are without merit.

 

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 December 31, 2021, there were 526 holders of record of our common stock, with 167,493,479 shares of our common stock issued and outstanding.

 

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, 2021 and 2020 is set forth in the Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2021 and 2020, 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 and funding acquisitions.

 

 
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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.

 

About the Company

 

iCoreConnect Inc., (the “Company”), a Nevada Corporation, is a market leading cloud-based software and technology company focused on increasing workflow productivity and customer profitability through its enterprise platform of applications and services.

 

During 2021 we developed our newest products iCoreVerify and iCoreCloud and enhanced our iCoreRx product.

 

iCoreVerify is a HIPAA compliant SaaS solution that allows practices to verify patient insurance benefits automatically and on-demand using our real time technology. It provides the practice with the ability to check available patient benefits directly from the payer’s in real-time. The system returns results typically in less than one second for most responses. This substantially reduces the phone calls and labor hours for the practice. This tool integrates with most popular practice management systems.

 

iCoreCloud offers customers the ability to backup their on-premise servers and computers to the cloud. iCoreCloud is a HIPAA compliant and automated backup solution. The data backed up is encrypted both in transit and while at rest. In case of full data loss, the mirrored data in the cloud can be seamlessly restored back to the practice on a new computer or a server. The data is stored encrypted in HIPAA compliant data centers with multiple layers of redundancy. The data centers are physically secure with restricted personnel and biometric access. The locations are also guarded by security 24 hours a day, 365 days a year.

 

iCoreRx is a HIPAA compliant electronic prescription 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 drug and medication 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 (templates) and warns the doctor when there is the potential for 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) medication 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. The state PDMP sites may provide Narx Scores and an interactive visualization of usage patterns to help the prescriber identify potential risk factors.

 

 
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SaaS Offerings

 

The Company currently markets secure Health Insurance Portability and Accountability Act (HIPAA) compliant cloud-based software as a service (SaaS) offering under the names of iCoreRx, iCorePDMP, iCoreEPCS, iCoreVerify, iCoreHuddle, iCoreHuddle+, iCoreCodeGenius, iCoreExchange, iCoreCloud, iCorePay, iCoreSecure, and iCoreIT. The Company’s software is sold under annual recurring revenue subscriptions.

 

Managed IT Services (MSP and MSaaS)

 

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 and MSaaS market.

 

The MSP/MSaaS 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. 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.

 

The Company is positioned 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; and the MSP revenue model matches our SaaS, MSaaS MRR (monthly recurring revenue) models.

 

Financing

 

We are currently funding our business capital requirements through revenues from product sales and services and 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.

 

 
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Critical Accounting Policies and Estimates

 

Our financial statements, which were prepared in accordance with generally accepted accounting principles as recognized in the United States of America. The preparation of these financial statements required that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. We based 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 5 primary sources of revenue as of December 31, 2021:

 

 

1.

Electronic Prescription Software

 

2.

Insurance Verifications

 

3.

ICD-10 Medical Coding Software

 

4.

Encrypted and HIPAA Compliant Secure email

 

5.

MSaaS software

 

1) Electronic Prescription software services are provided an annual subscription basis using the software as a service (‘SaaS’) model with revenue recognized ratably over the contract term.

 

2) Insurance verification services are provided on an annual subscription basis using the software as a service (‘SaaS’) model with revenue recognized ratably over the contract term.

 

3) ICD-10 Medical Coding services are provided on an annual subscription basis using the software as a service (“SaaS”) model with revenues recognized ratably over the contract term.

 

4) Encrypted and HIPAA compliant and 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.

 

5) MSaaS software services are provided on an annual subscription basis using the software as a service (‘SaaS’) model with revenue recognized ratably over the contract term.

 

 
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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 350, Internal-Use-Software, 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 cost 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.

 

Long-Lived Assets and Goodwill

 

The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount 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 future undiscounted net 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 by which the carrying amount of the asset exceeds the fair value of the asset. As of December 31, 2021 there is no impairment of Long-lived Assets.

 

The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. During the fourth quarter of 2020, the Company adopted ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which the carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. As of December 31, 2021 there is no impairment of the Company’s Goodwill.

 

 
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Results of Operations

 

The following table sets forth our selected financial data for the periods indicated below:

 

iCoreConnect Inc. 

CONSOLIDATED STATEMENTS OF OPERATIONS  

 

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Revenue

 

$4,956,552

 

 

$2,123,587

 

Cost of sales

 

 

1,580,390

 

 

 

1,008,843

 

Gross profit

 

 

3,376,162

 

 

 

1,114,744

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

5,232,839

 

 

 

3,447,014

 

Depreciation and amortization

 

 

1,430,805

 

 

 

906,060

 

Total operating expenses

 

 

6,663,644

 

 

 

4,353,074

 

Loss from operations

 

 

(3,287,482 )

 

 

(3,238,330 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(500,878 )

 

 

(238,820 )

Financing costs

 

 

(1,513,366 )

 

 

-

 

Other income (expense)

 

 

7,497

 

 

 

(50,733 )

PPP loan forgiveness

 

 

330,047

 

 

 

 -

 

Gain on cancellation of liabilities

 

 

-

 

 

 

36,642

 

Total other income (expense)

 

 

(1,676,700 )

 

 

(252,911)

 

 

 

 

 

 

 

 

 

Net loss

 

$(4,964,182 )

 

$(3,491,241 )

 

 

 

 

 

 

 

 

 

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

 

$(0.03 )

 

$(0.05 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

 

146,726,959

 

 

 

76,459,645

 

 

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

   

Twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020

 

Revenues. Net revenues grew to $4,956,552 for 2021 compared to $2,123,587 for the 2020 period, an increase of 133%. Revenue growth was driven by a combination of strong organic growth in both new and existing products as well as with the asset acquisitions of Advantech IT, Business Computer Solutions and Spectrum Technology Solutions.

 

Cost of sales. Cost of sales of $1,580,390 for the 2021 period increased $571,547 when compared to $1,008,843 for the 2020 period. The increase between periods was primarily due to the additional costs of servicing the organic growth, the addition of the three asset acquisitions.

 

Selling, general and administrative expenses. Selling, general and administrative expenses of $5,232,839 for the 2021 period increased $1,785,825 or 52% when compared to $3,447,014  for the 2020 period. The increase in expenses year on year we due to higher labor costs need to manage and maintain both the organic growth along with serving the additions related to three asset acquisition customers.

 

Depreciation and amortization expenses. Depreciation and amortization expenses of $1,430,805 for the 2021 period increased $524,745 or 58% compared to $906,060 for the 2020 period. The increase between periods was primarily due to $421,667 amortization of capitalized software and $866,186 amortization of goodwill and intangibles associated with the acquisition of Advantech IT, Business Computer Solutions and Spectrum Technology Solutions.

 

Interest expense. Interest expense of $500,878 for the 2021 period increased $262,058 or approximately 110% when compared to $238,820 for the 2020 period. The primary driver for the increase in interest expense was due to the increase in debt taken out by the Company to help fund the asset acquisitions and operating expenses.

 

Other income (expense). Other income of $7,497 for the 2021 period increased by $58,230 when compared to Other expense of $50,733 for the 2020 period.

 

Financing costs. The Company incurred financing costs of $1,513,366 in 2021 compared to $nil for 2020.The loss was driven by the issuance of convertible debt coupled with warrants and inducement shares related to the asset acquisitions during 2021.

 

PPP loan forgiveness. The Company received notice of forgiveness for its Paycheck Protection Plan loan in 2021 including all related interest in the amount of $330,047 in comparison to $nil for 2020.

 

Gain on cancellation of debt. The Company did not incur a cancellation of other debts in 2021 compared $36,642 for the 2020 period.

  

 
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GOING CONCERN AND LIQUIDITY

 

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,

 

 

% Incr/

 

Balance Sheet Data

 

2021

 

 

2020

 

 

(Decr)

 

Total Current Assets

 

$

1,013,140

 

 

$

154,194

 

 

 

557

%

Total Current Liabilities

 

 

4,054,246

 

 

 

3,185,195

 

 

 

33

%

Working capital (deficit)

 

 

(3,041,106

)

 

 

(3,031,001

)

 

 

6

%

Deferred Revenue

 

 

-

 

 

 

73,033

 

 

 

(100

)%

Weighted Average Common Shares Outstanding

 

 

146,726,959

 

 

 

76,459,645

 

 

 

 

 

 

The increase in shares outstanding was driven by issuance of Common Stock for cash and asset acquisitions, the conversion of convertible notes payable and stock compensation expense.

 

The following table summarizes the impact of operating, investing and financing activities on our cash flows for the years ended December 31, 2021 and 2020.

 

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Net cash used in operating activities

 

$(2,896,248)

 

$(1,270,491)

Net cash used in investing activities

 

 

(3,518,504)

 

 

(917,900)

Net cash provided by financing activities

 

 

6,478,940

 

 

 

1,751,010

 

Net Increase / (Decrease) in cash

 

 

64,188

 

 

 

(437,381

 

Cash and cash equivalents at the beginning of the year

 

 

7,619

 

 

 

445,000

 

Cash and cash equivalents at the end of the year

 

$71,807

 

 

$7,619

 

   

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.

 

Operating Activities: Net cash required by operating activities for the year ended December 31, 2021 increased by $1,625,757 to $2,896,248 compared to $1,270,491 utilized in the 2020 period. The increase in cash utilized by operating activities compared to the 2020 period was attributable to a $467,353 change in accounts receivable and $292,183 in prepaid expenses during the 2021 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, 2021 increased by $2,600,604 to $3,518,504 compared to $917,900 utilized in the 2020 period.  The increase in cash utilized by investing activities was primarily due to the purchases of Advantech, Business Technology Solutions and Spectrum Technology Solutions.  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 $6,478,940 for the year ended December 31, 2021 was $4,727,930 higher than the $1,751,010 for the year ended 2020, primarily due to a change in proceeds from the issuance of common stock of $2,776,230 in 2021 versus $676,000 in proceeds in 2020. Net proceeds from debt increased to $3,261,488 in 2021 versus $1,050,488 in 2020. Payments on debt increased to $510,650 in 2021 from $70,793 in 2020.

 

U. S. GAAP requires management to assess a company’s ability to continue as a going concern within one year from the financial statement issuance and to provide related note disclosures in certain circumstances.

 

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 fiscal year period ended December 31, 2021, the Company generated an operating loss of $4,964,182. In addition, the Company has an accumulated deficit, and net working capital deficit of $82,795,263 and $3,041,106. The Company’s activities were primarily financed through private placements of equity securities and issuance of debt. The Company intends to raise additional capital through the issuance of debt and/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.

 

 
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In October of 2020, the Company signed a $53,000 convertible promissory note payable to a different finance company due twelve (12) months after issuance and received $50,000 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 two (2) lowest traded prices 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. This note was paid in 2021.

 

The Company issued a note payable to a related party 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. As of December 31, 2020, $535,021 of principal was outstanding on this note payable. Subsequent to the end of fiscal 2020, the maturity on note payable to the related party was extended to a new 2-year term note payable bearing interest rate payable of 18% per annum with a maturity date of December 31, 2023. The note will pay monthly cash interest only in the first year (12 months) of note payable term. In the 2nd year, the note payable will be repaid with 12 monthly installment payments of interest and principal until fully repaid. This note has been paid subsequent to year end.

 

In April 2021, the Company signed a $150,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $150,000 from a finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 780,000 restricted shares of the Company’s Common Stock and 2,600,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common Stock under this Warrant is $0.20 per share for the first 1,300,000 Warrant Shares and $0.25 for the next 1,300,000 Warrant Shares.

 

In April 2021, the Company signed a $350,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $350,000 from the same finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at a fixed conversion price of $0.10 per common share. The Company has 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 April 2021, the Company signed a $250,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $250,000 from a third finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 390,000 restricted shares of the Company’s Common Stock and 1,300,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.20 per share for the first 650,000 Warrant Shares and $0.25 for the next 650,000 Warrant Shares. During the year the Investor converted $125,000 of outstanding principal and interest into 1,250,000 shares of the Company’s common stock.

 

In April 2021, the Company signed a $250,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $245,000 from a third finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 390,000 restricted shares of the Company’s Common Stock and 1,300,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.20 per share for the first 650,000 Warrant Shares and $0.25 for the next 650,000 Warrant Shares. During the year the Investor converted $35,000 of outstanding principal and interest into 350,000 shares of the Company’s common stock.

 

In May 2021, the Company signed a $250,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $248,000 net of fees from a fifth finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 390,000 restricted shares of the Company’s Common Stock and 1,300,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.20 per share for the first 650,000 Warrant Shares and $0.25 for the next 650,000 Warrant Shares. During the year the Investor converted $28,846 of outstanding principal and interest into 288,463 shares of the Company’s common stock

 

In August 2021, the Company signed a $1,000,000 and $500,000 promissory note with a maturity date 24 months after issuance from the preliminary finance company in April 2021 (the “Investor” or “Holder”). An Interest charge of 15% per annum shall accrue and be paid on the maturity date. The Company also issued to the Holder 1,000,000 restricted shares of the Company’s Common Stock and 1,500,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.25 per share.

 

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.

 

 
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Item 8. Financial Statements and Supplementary Data.

 

A list of financial statements filed herewith is contained and is set forth on the financial statements that immediately follow this page of this Report and is incorporated by reference herein. The financial statement schedules have been omitted because they are not required, not applicable or the information has been included in the Exhibit Index beginning on Part IV of this Annual Report on Form 10-K and are incorporated herein by reference.

 

 

 

 

Page

 

 

 

 

 

 

FINANCIAL STATEMENTS – AS OF DECEMBER 31, 2021 AND 2020

 

 

 

 

 

 

 

 

 

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID Numbers Marcum # 688; BF Borgers CPA PC #5041)

 

 

F-2 

 

CONSOLIDATED BALANCE SHEETS

 

 

F-3 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

F-4 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

 

 

F-5 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

F-6 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

F-7 

 

 

 
F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To Stockholders and Board of Directors of

iCoreConnect Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of iCoreConnect Inc. (the “Company”) as of December 31, 2021, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021, and the consolidated results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.  These conditions raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

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

 

We conducted our audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

 

Critical Audit Matters

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.  We determined that there are no critical audit matters.

 

/s/ Marcum LLP

 

Marcum LLP

 

We have served as the Company’s auditor since 2021.

 

New York, NY

April 15, 2022

 

 
F-2

 

 

To the Board of Directors and Shareholders of iCoreConnect Inc.:

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of iCoreConnect Inc. (the “Company”) as of December 31, 2020 and the related consolidated statement of operations, shareholders’ equity (deficit), and cash flows for the period ended December 31, 2020, and the related notes and schedules (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, 2020, and the results of its operations and its cash flows for the ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

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 suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

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

 

We conducted our audit 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 audit, 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 audit 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 audit 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 audit provide a reasonable basis for our opinion.

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Revenue recognition in relation to fraud

 

As described in Note 2 to the consolidated financial statements, management applies FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”) to recognize revenue. Management recognizes revenue upon transfer of control of promised products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products. The Company’s revenue is divided into five sources, but the vast majority can be most simply described as Software as a Service (“SaaS”) revenue. SaaS revenue transactions are recognized ratably over the contract term.

 

The principal considerations for our determination that performing procedures over the ratable recognition of SaaS revenue contracts and subsequent payment collections is a critical audit matter are there are more significant risks associated with the ratable recognition of this revenue. This in turn led to significant effort in performing our audit procedures which were designed to evaluate whether the contractual terms, the timing of revenue recognition and the subsequent collections were appropriately identified and accounted for by management under ASC 606.

 

Our audit procedures included, among others, understanding of controls relating to management’s revenue recognition process, examining transaction related documents, confirming revenues and outstanding receivables at the balance sheet date with a sample of the SaaS customers, and testing collections subsequent to the balance sheet date.

 

BF Borgers CPA PC

 

We have served as the Company's auditor since 2021

 

Lakewood, CO

April 15, 2021

 

 
F-3

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iCoreConnect Inc. 

CONSOLIDATED BALANCE SHEETS 

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

Cash

 

$71,807

 

 

$7,619

 

Accounts receivable, net

 

 

629,047

 

 

 

126,472

 

Prepaid expenses and other current assets

 

 

312,286

 

 

 

20,103

 

Total current assets

 

 

1,013,140

 

 

 

154,194

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

92,562

 

 

 

2,405

 

Right of use lease asset - operating

 

 

99,054

 

 

 

150,477

 

Software development costs, net

 

 

592,781

 

 

 

768,907

 

Acquired technology, net

 

 

277,966

 

 

 

753,794

 

Customer relationships, net

 

 

3,069,874

 

 

 

369,524

 

Goodwill

 

 

1,484,966

 

 

 

491,376

 

Total long-term assets

 

 

5,617,203

 

 

 

2,536,483

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$6,630,343

 

 

$2,690,677

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$1,641,750

 

 

$1,664,125

 

Operating lease liability, current portion

 

 

66,738

 

 

 

89,088

 

Current maturities of long-term debt

 

 

2,325,339

 

 

 

1,429,207

 

Deferred revenue, current portion

 

 

20,419

 

 

 

2,775

 

Total current liabilities

 

 

4,054,246

 

 

 

3,185,195

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

1,538,488

 

 

 

-

 

Operating lease liability, net of current portion

 

 

32,318

 

 

 

61,389

 

Deferred revenue, net of current portion

 

 

-

 

 

 

73,033

 

Total long-term liabilities

 

 

1,570,806

 

 

 

134,422

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

5,625,052

 

 

 

3,319,617

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Preferred Stock, par value $0.001; 10,000,000 shares authorized; Issued and Outstanding: 0 as of December 31, 2021 and 0 as of December 31, 2020.

 

 

-

 

 

 

-

 

Common Stock par value $0.001; 600,000,000 shares authorized; Issued and Outstanding: 167,493,479 as of December 31, 2021 and 90,081,336 as of December 31, 2020

 

 

167,493

 

 

 

90,081

 

Additional paid-in-capital

 

 

83,633,061

 

 

 

77,112,060

 

Accumulated deficit

 

 

(82,795,263 )

 

 

(77,831,081 )

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

 

 

1,005,291

 

 

 

(628,940 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

$6,630,343

 

 

$2,690,677

 

 

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

 

 
F-4

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iCoreConnect Inc. 

CONSOLIDATED STATEMENTS OF OPERATIONS  

 

 

 

For the Years Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Revenue

 

$4,956,552

 

 

$2,123,587

 

Cost of sales

 

 

1,580,390

 

 

 

1,008,843

 

Gross profit

 

 

3,376,162

 

 

 

1,114,744

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

5,232,839

 

 

 

3,447,014

 

Depreciation and amortization

 

 

1,430,805

 

 

 

906,060

 

Total operating expenses

 

 

6,663,644

 

 

 

4,353,074

 

Loss from operations

 

 

(3,287,482 )

 

 

(3,238,330 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(500,878 )

 

 

(238,820 )

Finance charges

 

 

(1,513,366 )

 

 

-

 

Other income (expense)

 

 

7,497

 

 

 

(50,733 )

     Gain on cancellation of PPP loan

 

 

 330,047

 

 

 

-

 

Gain on cancellation of liabilities

 

 

-

 

 

 

36,642

 

Total other income (expense)

 

 

(1,676,700 )

 

 

(252,911

)

 

 

 

 

 

 

 

 

 

Net loss

 

$(4,964,182 )

 

$(3,491,241 )

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$(0.03 )

 

$(0.05 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

 

146,726,959

 

 

 

76,459,645

 

 

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

 

 
F-5

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iCoreConnect Inc. 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Common stock

 

 

Paid In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balances as at January 1, 2020

 

 

67,476,089

 

 

$67,476

 

 

$74,737,404

 

 

$(74,339,840 )

 

$465,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

7,128,002

 

 

 

7,128

 

 

 

1,032,872

 

 

 

-

 

 

 

1,040,000

 

Stock issued for conversion of convertible notes payable

 

 

6,761,558

 

 

 

6,762

 

 

 

194,838

 

 

 

-

 

 

 

201,600

 

Stock compensation expense

 

 

2,124,693

 

 

 

2,125

 

 

 

421,175

 

 

 

-

 

 

 

423,300

 

Stock issued as origination fee in convertible debt agreement

 

 

50,000

 

 

 

50

 

 

 

4,450

 

 

 

-

 

 

 

4,500

 

Stock issued for asset acquisition of TrinIT (Note 8)

 

 

730,000

 

 

 

730

 

 

 

182,270

 

 

 

-

 

 

 

183,000

 

Stock issued for conversion of accounts payable

 

 

1,000,000

 

 

 

1,000

 

 

 

249,781

 

 

 

-

 

 

 

250,781

 

Stock issued for stock option exercises

 

 

5,000

 

 

 

5

 

 

 

995

 

 

 

-

 

 

 

1,000

 

Stock issued as commitment fee on note

 

 

250,000

 

 

 

250

 

 

 

37,250

 

 

 

 

 

 

 

37,500

 

Stock issued as true-up portion of purchase agreement for Claricare

 

 

4,555,994

 

 

 

4,556

 

 

 

251,025

 

 

 

 

 

 

 

255,581

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,491,241 )

 

 

(3,491,241 )

Balances as at December 31, 2020

 

 

90,081,336

 

 

$90,081

 

 

$77,112,060

 

 

$(77,831,081 )

 

$(628,940 )

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common stock

 

 

Paid In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balances as at January 1, 2021

 

 

90,081,336

 

 

$90,081

 

 

$77,112,060

 

 

$(77,831,081)

 

$(628,940

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

42,719,600

 

 

 

42,720

 

 

 

2,733,510

 

 

 

 

 

 

 

2,776,230

 

Stock issued for conversion of fees for services payable

 

 

16,376,047

 

 

 

16,376

 

 

 

802,427

 

 

 

 

 

 

 

818,803

 

Stock compensation expense

 

 

3,151,416

 

 

 

3,151

 

 

 

148,206

 

 

 

 

 

 

 

151,357

 

Stock issued as origination fee in convertible debt agreement

 

 

3,980,000

 

 

 

3,980

 

 

 

1,509,386

 

 

 

 

 

 

 

1,513,366

 

Stock issued for asset acquisition of Advantech

 

 

5,000,000

 

 

 

5,000

 

 

 

495,000

 

 

 

 

 

 

 

500,000

 

Stock issued for asset acquisition of Business Computer Solutions

 

 

250,000

 

 

 

250

 

 

 

24,750

 

 

 

 

 

 

 

25,000

 

Stock issued for asset acquisition of Spectrum Technology Solutions

 

 

4,046,617

 

 

 

4,047

 

 

 

495,953

 

 

 

 

 

 

 

500,000

 

Stock issued for conversion of convertible debt

 

 

1,888,463

 

 

 

1,888

 

 

 

311,769

 

 

 

 

 

 

 

313,657

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,964,182)

 

 

(4,964,182)

Balances as at December 31, 2021

 

 

167,493,479

 

 

$167,493

 

 

$83,633,061

 

 

$(82,795,263)

 

$1,005,291

 

 

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

 

 
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iCoreConnect Inc. 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

 

 

December 31,

 

December 31,

 

 

 

2021

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net loss

 

$(4,964,182)

 

$(3,491,241)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

143,406

 

 

 

6,595

 

Amortization expense

 

 

1,287,853

 

 

 

898,622

 

Finance charges

 

 

1,513,366

 

 

 

-

 

          Forgiveness of PPP loan

 

 

 (330,047)

 

 

 

-

 

Change in allowance for doubtful accounts

 

 

-

 

 

 

60,000

 

Gain on cancellation of liabilities

 

 

-

 

 

 

(12,642)

Stock compensation expense

 

 

331,945

 

 

 

422,175

 

Non-cash interest expense

 

 

106,555

 

 

 

55,000

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(467,353)

 

 

(85,472

Prepaid expenses and other current assets

 

 

(292,183)

 

 

(6,103

Right of use asset, net of lease liability

 

 

(136,659)

 

 

(2,000)

Accounts payable and accrued expenses

 

 

(33,560)

 

 

922,767

 

Deferred revenue

 

 

(55,389)

 

 

(38,192)

NET CASH USED IN OPERATING ACTIVITIES

 

 

(2,896,248)

 

 

(1,270,491)

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash portion of consideration paid to acquire TrinIT

 

 

 -

 

 

 

(374,900)

Cash portion of consideration paid to acquire Advantech

 

 

(1,773,056)

 

 

 

 

Cash portion of consideration paid to acquire BCS

 

 

(94,880)

 

 

 

 

Cash portion of consideration paid to acquire Spectrum Technology Solutions

 

 

(1,350,000)

 

 

 

 

Purchases of capital assets

 

 

(55,027)

 

 

 

 

Additions to capitalized software

 

 

(245,541)

 

 

(543,000)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(3,518,504)

 

 

(917,900)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITES

 

 

 

 

 

 

 

 

Net proceeds from debt

 

 

3,261,488

 

 

 

676,000

 

Payments on debt

 

 

(510,650)

 

 

(70,793)

Proceeds from issuance of common stock

 

 

2,776,230

 

 

 

1,050,488

 

Conversion of convertible debt into common stock

 

 

319,057

 

 

 

 

 

Conversion of fees for services payable

 

 

632,815

 

 

 

 

 

Proceeds from exercise of employee stock options

 

 

-

 

 

 

1,000

 

Conversion of debt into common stock

 

 

-

 

 

 

94,315

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

6,478,940

 

 

 

1,751,010

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

64,188

 

 

 

(437,381

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

 

 

7,619

 

 

 

445,000

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

 

$71,807

 

 

$7,619

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

 

 

 

$

94,126

 

Stock issued for acquisition of TrinIT

 

 

 

 

 

$183,000

 

Stock issued for acquisition of Advantech

 

 

500,000

 

 

 

 

 

Stock issued for acquisition of Business Computer Solutions

 

 

25,000

 

 

 

 

 

Stock issued for acquisition of Spectrum Technology Solutions

 

 

500,000

 

 

 

 

 

Stock issued for conversion of convertible notes payable

 

$63,846

 

 

$240,315

 

Stock issued for conversion of notes payable

 

$

 

 

 

$

-

 

Stock issued for conversion of accounts payable

 

$

 

 

 

$

250,000

 

 

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

 

 
F-7

Table of Contents

  

Notes to Consolidated Financial Statements

 

1. NATURE OF OPERATIONS

 

iCoreConnect Inc., (the “Company”), a Nevada Corporation, is a market leading cloud-based software and technology company focused on increasing workflow productivity and customer profitability through its enterprise platform of applications and services.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidations

 

The accompanying consolidated financial statements are presented in United States dollars and include the accounts of the Company’s wholly owned subsidiaries, with all intercompany transactions eliminated. They have been prepared on the accrual basis 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.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement) as follows:

 

Level 1 – Observable inputs that reflect quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs.

 

Level 3 – Unobservable inputs for which there is little, if any, market activity for the asset or liability being measured. These inputs may be used with standard pricing models or other valuation or internally-developed methodologies that result in management’s best estimate of fair value.

 

The Company utilizes fair value measurements primarily in conjunction with the valuation of assets acquired and liabilities assumed in a business combination. In addition, certain nonfinancial assets and liabilities are to be measured at fair value on a nonrecurring basis in accordance with applicable GAAP. In general, nonfinancial assets including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when an impairment is recognized.

 

As allowed by applicable FASB guidance, the Company has elected not to apply the fair value option for financial assets and liabilities to any of its currently eligible financial assets or liabilities. The Company’s financial instruments consist of cash, accounts receivable, accounts payable and notes payable. The Company has determined that the book value of its outstanding financial instruments as of December 31, 2021 and 2020, approximated their fair value due to their short-term nature. 

 

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.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are customer obligations due under normal trade terms. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the potential inability of certain customers to make required future payments on amounts due. 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 $36,142 and $77,000 as of December 31, 2021 and 2020, 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.

 

 
F-8

Table of Contents

  

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.

 

Long-Lived Assets and Goodwill

 

The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount 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 future undiscounted net 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 by which the carrying amount of the asset exceeds the fair value of the asset. As of December 31, 2021 there is no impairment of Long-lived Assets.

 

The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. During the fourth quarter of 2020, the Company adopted ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which the carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. As of December 31, 2021 there is no impairment of the Company’s Goodwill.

 

Revenue Recognition

 

We have 5 primary sources of revenue as of December 31, 2021

 

 

1.

Electronic Prescription Software

 

2.

Insurance Verifications

 

3.

ICD-10 Medical Coding Software

 

4.

Encrypted and HIPAA Compliant Secure email

 

5.

MSaaS software

 

 
F-9

Table of Contents

  

1) Electronic Prescription software services are provided an annual subscription basis using the software as a service (‘SaaS’) model with revenue recognized ratably over the contract term.

 

2). Insurance verification services are provided on an annual subscription basis using the software as a service (‘SaaS’) model with revenue recognized ratably over the contract term.

 

3) ICD-10 Medical Coding services are provided on an annual subscription basis using the software as a service (“SaaS”) model with revenues recognized ratably over the contract term.

 

4) Encrypted and HIPAA compliant and 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.

 

5) MSaaS software services are provided on an annual subscription basis using the software as a service (‘SaaS’) model with revenue recognized ratably over the contract term.

 

The Company accounts for revenue from contracts with customers in accordance with ASU No. 2017-09, Revenue from Contracts with Customers and a series of related accounting standard updates (collectively referred to as “Topic 606”). This guidance sets forth a five-step revenue recognition model which replaced the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance and to require more detailed disclosures. The five steps of the revenue recognition model are: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

 

At contract inception, the Company assesses the goods and services promised in the contract with customers and identifies a performance obligation for each. To determine the performance obligation, the Company considers all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. The Company measures revenue as the amount of consideration expected to be received in exchange for transferring goods and services. Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities.

 

We recognize revenue for our service in accordance with accounting standard ASC 606. Our customers are acquired through our own salesforce and through the referrals from our many state association marketing partners. We primarily generate revenue from multiple software as a service (SaaS) offering, which typically include subscriptions to our online software solutions. The Company’s secondary source of revenue is professional services and other revenue related to customer onboarding, IT services and equipment sales that often precede a subscription service offering purchased by the customer. Approximately 80% of our revenue is subscription based with the remainder being professional services and other IT related revenue. The geographic concentration of our revenue is 100% in North America.

 

Management has determined that it has the following performance obligations related to its products and services:  multiple software as a service (SaaS) offering, which typically include subscriptions to our online software solutions. The Company’s secondary source of revenue is professional services and other revenue related to customer onboarding, IT services and equipment sales that often precede a subscription service offering purchased by the customer. Revenue from Software as a Service, hardware, service repairs, and support & maintenance are all recognized at a point in time when control of the goods is transferred to the customer, generally occurring upon shipment or delivery dependent upon the terms of the underlying contract, or services is completed. Our customers do not have the right to take possession of the online software solution. Revenue from subscriptions, including additional fees for items such as incremental contacts, is recognized ratably over the subscription period beginning on the date the subscription is made available to customers. Substantially all subscription contracts are one year. We recognize revenue from on-boarding services and equipment as the services are provided. Amounts billed that have not yet met the applicable revenue recognition criteria are recorded as deferred revenue.

 

For contracts with customers that contain multiple performance obligations, the Company accounts for the promised performance obligations separately as individual performance obligations if they are distinct. In determining whether performance obligations meet the criteria for being distinct, the Company considers several factors, including the degree of interrelation and interdependence between obligations and whether or not the good or service significantly modifies or transforms another good or service in the contract. After identifying the separate performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company generally determines the standalone selling prices based on the prices charged to customers. Judgment may be used to determine the standalone selling prices for items that are not sold separately, including taking into consideration either historical pricing practices or an adjusted market assessment. Unsatisfied and partially unsatisfied performance obligations as of the end of the reporting period primarily consist of products and services for which customer purchase orders have been accepted and that are in the process of being delivered.

 

Transaction price is calculated as the selling price less any variable consideration, consisting of rebates and discounts. Discounts provided to customers are known at contract inception. Rebates are calculated on the “expected value” method where the Company (1) estimates the probability of each rebate amount which could be earned by the distributor, (2) multiplies each estimated amount by its assigned probability factor, and (3) calculates a final sum of each of the probability-weighted amounts calculated in step (2). The sum calculated in step (3) is the rebate amount, which along with discounts reduces the amount of revenue recognized.

 

The Company has elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. As a result, the Company accrues the costs of shipping and handling when the related revenue is recognized. Costs incurred for shipping and handling are included in costs of goods sold on the Consolidated Statement of Operations. Amounts billed to a customer for shipping and handling are reported as revenue on the Consolidated Statement of Operations.

 

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 they are incurred. Advertising costs were $350,318 and $70,000 for the years ended December 31, 2021 and 2020, 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.

 

 
F-10

Table of Contents

  

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.

 

Financial Instruments With Down Round Features

 

With respect to financial instruments, the Company follows the guidance of FASB ASU 2017-11, “Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. Whereby ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downround adjustment of the current exercise price based on the price of the future equity offerings. The standard requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for the purposes of determining liability of equity classification. Companies that provide earning per share (“EPS”) data will adjust their diluted EPS calculation for the effect of the feature when triggered (i.e. when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

 

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 accounts for share-based compensation costs in accordance with ASC 718, Compensation – Stock Compensation. ASC 718 requires companies to measure the cost of awards of equity instruments, including stock options and restricted stock awards, based on the grant-date fair value of the award and to recognize it as compensation expense over the employee’s requisite service period or the non-employee’s vesting period. An employee’s requisite service period is the period of time over which an employee must provide service in exchange for an award under a share-based payment arrangement and generally is presumed to be the vesting period. 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. 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 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.

 

 
F-11

 

 

Beneficial Conversion Features and Warrants

 

The Company evaluates the conversion feature of convertible debt instruments to determine whether the conversion feature was beneficial as described in ASC 470-30, Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants with the convertible instruments using the Black-Scholes valuation model.

 

Under these guidelines, the Company first allocates the value of the proceeds received from a convertible debt transaction between the convertible debt instrument and any other detachable instruments included in the transaction (such as warrants) on a relative fair value basis. A BCF is then measured as the intrinsic value of the conversion option at the commitment date, representing the difference between the effective conversion price and the Company’s stock price on the commitment date multiplied by the number of shares into which the debt instrument is convertible. The allocated value of the BCF and warrants are recorded as a debt discount and accreted over the expected term of the convertible debt as interest expense. If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible debt instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible debt instrument.

 

Leases 

 

The Company adopted ASU No. 2016-02, Leases and a series of related Accounting Standards Updates that followed (collectively referred to as “Topic 842”). Topic 842 requires organizations to recognize right-of-use (“ROU”) lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. The FASB retained the distinction between finance leases and operating leases, leaving the effect of leases in the statement of comprehensive income and the statement of cash flows largely unchanged from previous U.S. GAAP. The Company utilized the transition method allowed under ASU 2018-11 in which an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if any.

 

The Company determines, at contract inception, whether or not an arrangement contains a lease and evaluates the contract for classification as an operating or finance lease. For all leases, ROU assets and lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. If the Company’s lease does not provide an implicit rate in the contract, the Company uses its incremental, secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. Any renewal periods are considered in the analysis of each lease to the extent that the Company considers them to be reasonably certain of being exercised.

 

Related Party Transactions

 

The Company accounts for related party transactions in accordance with FASB ASC 850, Related Party Disclosures. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries’ controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party. 

 

Reportable Segments

 

U.S. GAAP establishes standards for reporting financial and descriptive information about a company’s reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The chief operating decision maker is the Company’s Chief Executive Officer, who currently reviews the financial performance and the results of operations of the Company’s operating subsidiaries on a consolidated basis when making decisions about allocating resources and assessing performance of the Company. Accordingly, the Company currently considers itself to be in a single reporting segment for reporting purposes focused on the North American market.

 

 
F-12

Table of Contents

  

Recently Issued Accounting Pronouncements

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (ASU 2021-04). This guidance clarifies an issuer’s accounting for certain modifications of freestanding equity-classified written call options and provides a “principles-based” framework to determine whether an issuer should recognize the modification or exchange and an adjustment to equity or an expense. The Company is currently evaluating the potential impact ASU 2021-04 will have on our Consolidated Financial Statements.

 

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance simplifies the accounting for certain convertible instruments and contracts in an entity’s own equity. As a smaller reporting entity, this standard will become effective for fiscal years beginning after December 15, 2023, including interim periods within those years. The Company is currently evaluating the potential impact ASU 2020-06 will have on the Consolidated Financial Statements.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for borrowing instruments that use LIBOR as a reference rate and is effective upon issuance through December 31, 2022. The Company has performed an evaluation of and will continue to evaluate, through December 31, 2022, the impact of this ASU. This ASU does not currently and is not expected to have in the future, a material effect on the Consolidated Financial Statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). This guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws and rate changes. ASU 2019-12 will be effective for the Company in the fiscal years beginning after December 15, 2020 and for interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the potential impact that adopting this ASU will have on the Consolidated Financial Statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. This standard will become effective for interim and annual periods beginning after December 15, 2022 and earlier adoption is permitted. The Company is currently evaluating the potential impact the adoption of this ASU will have on the Condensed Consolidated Financial Statements.

 

Going Concern and Liquidity

 

U. S. GAAP requires management to assess a company’s ability to continue as a going concern within one year from the financial statement issuance and to provide related note disclosures in certain circumstances.

 

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 fiscal year period ended December 31, 2021, the Company generated an operating loss of $4,964,182. In addition, the Company has an accumulated deficit, and net working capital deficit of $82,795,263 and $3,041,106. The Company’s activities were primarily financed through private placements of equity securities and issuance of debt. The Company intends to raise additional capital through the issuance of debt and/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 vastly 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. COMMON STOCK

 

Stock Issuances

 

During the year ended December 31, 2021 the Company issued 42,719,600 shares of common stock for cash of $2,776,230. The Company issued 3,980,000 shares of common stock to debt holders as inducements to issue debt valued at $1,513,366.  Common stock of 9,296,617 was issued in conjunction with the acquisition of the assets of Advantech, BCS and Spectrum Technology Solutions with a value of $1,025,000. The Company issued common stock in the amount of 1,888,463 related to the conversion of $188,846 of convertible debt. The Company issued 3,151,416 shares of common stock for stock compensation expense of $331,945. The Company issued 16,376,047 shares of common stock for conversion of services related payables of $638,215.

 

During the year ended December 31, 2020, the Company issued 7,128,002 shares of common stock for cash of $1,040,000. The Company issued 6,761,558 shares of common stock for the conversion of notes payable of $201,600. The Company issued 730,000 shares of common stock for the acquisition of TrinIT (Note 8).  The Company also issued 4,555,994 shares of common stock to acquire technology and certain other assets of ClariCare Inc. in accordance with the asset purchase agreement. The Company issued 1,000,000 shares of common stock for the conversion accounts payable of $250,781. The Company issued 250,000 shares of common stock for a commitment fee on note of $37,500.  The Company issued 2,124,693 shares of common stock for stock compensation expense of $423,300.  The Company issued 50,000 shares of common stock for an origination fee for a convertible debt agreement for $4,500.  The Company issued 5,000 shares of common stock for the exercise of stock options of $1,000.

 

 
F-13

Table of Contents

  

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, 2021 and 2020 are presented below:

 

2020 Options Outstanding

 

Number of

Options

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Term in Years

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding - January 1, 2020

 

 

1,410,000

 

 

$0.24

 

 

 

8.7

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

Exercised

 

 

(5,000 )

 

$0.15

 

 

 

 

 

 

 

 

 

Forfeited

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

Balance Outstanding - December 31, 2020

 

 

1,405,000

 

 

$0.24

 

 

 

7.7

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - December 31, 2020

 

 

1,405,000

 

 

$0.24

 

 

 

7.7

 

 

$-

 

 

2020 Nonvested Options

 

Number of

Options

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Weighted

Average

Remaining

Years to Vest

 

 

 

 

 

 

 

 

 

 

 

Nonvested - January 1, 2020

 

 

433,333

 

 

$0.13

 

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

$-

 

 

 

 

 

Vested

 

 

(433,333 )

 

$0.13

 

 

 

 

 

Forfeited/expired

 

 

-

 

 

 

 

 

 

 

 

 

Nonvested - December 31, 2020

 

 

-

 

 

$-

 

 

 

0.00

 

 

2021 Options Outstanding

 

Number of

Options

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Term in Years

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding - January 1, 2021

 

 

1,405,000

 

 

$0.24

 

 

 

7.7

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

30,880,000

 

 

$0.12

 

 

 

9.9

 

 

 

 

 

Exercised

 

 

(10,000)

 

 

 

0.15 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

Balance Outstanding - December 31, 2021

 

 

32,275,000

 

 

$0.12

 

 

 

9.8

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - December 31, 2021

 

 

1,395,000

 

 

$0.24

 

 

 

6.7

 

 

$-

 

 

2021 Nonvested Options

 

Number of

Options

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Weighted

Average

Remaining

Years to Vest

 

 

 

 

 

 

 

 

 

 

 

Nonvested - January 1, 2021

 

 

-

 

 

$-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

30,880,000

 

 

$9.9

 

 

 

 

 

Vested

 

 

 

 

 

$-

 

 

 

 

 

Forfeited/expired

 

 

-

 

 

 

 

 

 

 

 

 

Nonvested - December 31, 2021

 

 

30,880,000

 

 

$9.9

 

 

 

0.00

 

 

 
F-14

Table of Contents

 

Restricted Stock Compensation

 

On April 13, 2020, the Company’s Board of Directors approved the grant of 250,000 restricted share of common stock to Directors of the Company, for services to be rendered during 2020, all of which vested on December 31, 2020. Compensation expense related to this grant for the year 2020 was $50,000 based upon fair value of our common stock of $0.25 per share.

 

On March 29, 2021, the Company’s Board of Directors approved the grant of 1,300,000 restricted shares of common stock to the Chief Executive Officer for bonus related to 2020 service.

 

On March 29, 2021, 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 2020, all of which shares vested on December 31, 2021. Compensation expense related to this grant for the year 2021 was $10,000 based upon the estimated fair value of our common stock of $0.05 per share.

 

On March 29 2021 the Company’s Board of Directors approved the granting of restricted shares of common stock to the Chief Executive Officer for bonus related to 2021 service. The Chief Executive Officer could earn fully vested restricted stock based on revenue bands; 800,000 for revenues from $2,600,000 to $3,200,000; 1,200,000 for revenues of $3,200,001 to $4,500,000; 1,600,000 for revenues of $4,500,001 to $5,999,999; or 2,000,000 for revenues above $6,000,000. Based on revenues for 2021 the Chief Executive Officer earned 1,600,000 restricted shares of common stock which vested on December 31, 2021. The Company record the fair value of the compensation totaling $176,160 in 2021.

 

Warrants

 

The Company typically issues warrants to individual investors and institutions to purchase shares of the Company’s Common Stock in connection with public and private placement fundraising activities. Warrants may also be issued to individuals or companies in exchange for services provided for the Company. The warrants are typically exercisable six months after the issue date, expire in five years, and contain a cash exercise provision and registration rights.

 

During the year ended December 31, 2021, the Company issued 10,600,000 Common Stock Warrants in connection with the issuance of the Company’s Convertible Promissory Notes and Promissory Notes. These warrants were designated Common Stock Warrants with an initial term of 5 years and an exercise price of $0.20 and $0.25. The Company may not effect, and a holder will not be entitled to, convert the Common Stock Warrants, which, upon giving effect to such conversion or exercise, would cause the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99%.

 

As of December 31, 2021, the number of shares issuable upon exercise of the Common Stock Warrants were 10,600,000 shares.

 

Type

 

Issue Date

 

Shares

 

 

Exercise

Price

 

 

Expiration

 

Investors

 

4/19/2021

 

 

1,300,000

 

 

$

0.20

 

 

4/19/2026

 

Investors

 

4/19/2021

 

 

1,300,000

 

 

$

0.25

 

 

4/19/2026

 

Investors

 

4/22/2021

 

 

1,300,000

 

 

$

0.20

 

 

4/22/2026

 

Investors

 

4/22/2021

 

 

1,300,000

 

 

$

0.25

 

 

4/22/2026

 

Investors

 

4/30/2021

 

 

650,000

 

 

$

0.20

 

 

4/30/2026

 

Investors

 

4/30/2021

 

 

650,000

 

 

$

0.25

 

 

4/30/2026

 

Investors

 

5/4/2021

 

 

650,000

 

 

$

0.20

 

 

5/4/2026

 

Investors

 

5/4/2021

 

 

650,000

 

 

$

0.25

 

 

5/4/2026

 

Investors

 

5/19/2021

 

 

650,000

 

 

$

0.20

 

 

5/19/2026

 

Investors

 

5/19/2021

 

 

650,000

 

 

$

0.25

 

 

5/16/2026

 

Investors

 

8/31/2021

 

 

1,500,000

 

 

$

0.25

 

 

8/31/2026

 

Total

 

 

 

 

10,600,000

 

 

 

 

 

 

 

 

 

 

 

Warrant Shares Outstanding

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Life

 

 

Intrinsic Value 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding – December 31, 2019

 

 

-

 

 

$-

 

 

 

-

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

Forfeited/expired

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

Outstanding – December 31, 2020

 

 

 

 

 

$-

 

 

 

 

 

 

 

 

Granted

 

 

10,600,000

 

 

$0.23

 

 

 

4.40

 

 

$715,223

 

Forfeited/expired

 

 

 -

 

 

$-

 

 

 

 

 

 

 

 

 

Outstanding – December 31, 2021

 

 

10,600,000

 

 

$0.23

 

 

 

4.40

 

 

$715,223

 

 

Equity Line of Credit

 

In January 2021 the Company and one of its Convertible Debt Holders entered into a Purchase Agreement for up to $5,000,000 shares of the Company’s common stock for 24 months. The purchase price of the stock will be at 75% of the lowest individual daily weight average price of the past five (5) trading days with the amount to be drawn down as the lesser of $250,000 or 300% of the average shares traded for the ten (10) days prior to the Closing Request Date with a minimum $25,000 put allowance. As part of the agreement, the Company issued 250,000 shares of common stock as a commitment fee. The Company did not utilize the equity line of credit during the year end December 31, 2021.

 

 
F-15

Table of Contents

  

4. PROPERTY AND EQUIPMENT

 

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

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Furniture and fixtures

 

$69,840

 

 

$7,740

 

Leasehold improvements

 

 

26,145

 

 

 

26,145

 

Equipment

 

 

22,240

 

 

 

16,439

 

Vehicles

 

 

32,000

 

 

 

-

 

 

 

$150,225

 

 

$50,324

 

Less accumulated depreciation

 

 

(57,663 )

 

 

(47,919 )

 

 

$92,562

 

 

$2,405

 

 

Depreciation expense on property and equipment for the years ended December 31, 2021 and 2020, were $6,745 and $6,595, respectively.

  

5. GOODWILL AND OTHER INTANGIBLE ASSETS

 

The following table sets forth the changes in the carrying amount of goodwill for the year ended 2021 and 2020:

 

 

 

Total

 

Balance at December 31, 2019

 

$361,376

 

2020 Acquisitions

 

 

130,000

 

Balance at December 31, 2020

 

$491,376

 

2021 Acquisitions

 

 

1,005,008

 

Balance at December 31, 2021

 

 

1,496,384

 

 

The following table sets forth the gross carrying amounts and accumulated amortization of the Company’s intangible assets as of December 31, 2021 and 2020:

 

 

 

Gross

Carrying

Amount

 

 

  Impairment

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Capitalized software

 

$2,479,137

 

 

$-

 

 

$(1,710,230 )

 

$768,907

 

Customer relationships

 

 

1,203,529

 

 

 

-

 

 

 

(70,476 )

 

 

953,053

 

Acquired technology

 

 

1,527,186

 

 

 

-

 

 

 

(773,392 )

 

 

753,794

 

Total definite-lived intangible assets at December 31, 2020

 

$5,029,851

 

 

$-

 

 

$(2,554,098 )

 

$2,475,753

 

Capitalized software

 

 

2,724,678

 

 

 

-

 

 

 

(2,131,897 )

 

 

592,781

 

Customer relationships

 

 

3,713,443

 

 

 

-

 

 

 

(643,560 )

 

 

3,069,874

 

Acquired technology

 

 

1,527,186

 

 

 

-

 

 

 

(1,249,220 )

 

 

277,966

 

Total definite-lived intangible assets at December 31, 2021

 

$7,965,297

 

 

$-

 

 

$(4,024,677 )

 

$3,940,621

 

 

 
F-16

 

 

Amortization expense of intangible assets was $1,470,579 and $809,732, respectively, for the years ended December 31, 2021 and 2020. The Company’s amortization is based on no residual value using the straight-line amortization method as it best represents the benefit of the intangible assets. The following table sets forth the weighted-average amortization period, in total and by major intangible asset class:

 

Asset Class

 

Weighted-Average Amortization period

Capitalized software

 

 

6.8 years

Customer relationships

 

 

5.0 years

Acquired technology

 

 

6.0 years

All Intangible assets

 

 

5.9 years

 

As of December 31, 2021, assuming no additional amortizable intangible assets, the expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter was as follows:

 

 

Estimated

 

2022

 

 

1,401,835 

 

2023

 

 

911,998 

 

2024

 

 

719,494 

 

2025

 

 

719,494 

 

2026

 

 

187,800 

 

2027

 

 

 

 

2028

 

 

 

 

 

6. LONG-TERM DEBT

 

 

 

 

December 31,

2021

 

 

December 31,

2020

 

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

 

$

 -

 

 

118,000

(9)

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

 

 

116,562

 

 

 

100,257

(1)

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

 

 

483,150

 

 

 

535,021

 

Convertible note bearing interest at 10%, due July 15, 2021

 

 

-

 

 

 

156,438

 

Convertible note bearing interest at 10%, due March 2, 2021

 

 

-

 

 

 

189,444

(5)

Convertible note bearing interest at 12% due April 27, 2022

 

 

270,301

 

 

 

 

(6)

Convertible note bearing interest at 12% due May 12, 2022

 

 

242,151

 

 

 

 

(8)

Convertible note bearing interest at 12% due April 25, 2022

 

 

110,548

 

 

 

 

(3)

Convertible note bearing interest at 12% due April 16, 2022

 

 

379,458

 

 

 

 

(2)

Convertible note bearing interest at 12% due April 16, 2022

 

 

162,625

 

 

 

 

(4)

Convertible note bearing interest at 12% due April 22, 2022

 

 

541,589

 

 

 

 

(7)

Note bearing interest at 18% due October 1, 2023

 

 

1,012,637

 

 

 

 

(7)

Note bearing interest at 18% due October 1, 2023

 

 

506,318

 

 

 

 

(9)

Note bearing interest at 3.7% due November 2026

 

 

38,488

 

 

 

 

 

 

 

 

3,863,827

 

 

 

1,099,160

 

Less current maturities

 

 

(2,325,339)

 

 

(1,099,160)

 

Total Long-term debt

 

$

 1,538,488

 

 

$

 -

 

 

Total future minimum payments due on long-term debt as of :

  

 

 

December 31, 2021

 

 

December 31, 2020

 

2022

 

$1,508,628

 

 

 

-

 

2023

 

 

8,628

 

 

 

-

 

2024

 

 

8,628

 

 

 

-

 

2025

 

 

8,628

 

 

 

-

 

2026

 

 

3,976

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 TOTAL

 

$1,538,488

 

 

$0

 

 

 
F-17

Table of Contents

  

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

 

1.

The Company issued a note payable to a related party 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. As of December 31, 2020, $535,021 of principal was outstanding on this note payable. Subsequent to the end of fiscal 2020, the maturity on note payable to the related party was extended to a new 2-year term note payable bearing interest rate payable of 18% per annum with a maturity date of December 31, 2023. The note will pay monthly cash interest only in the first year (12 months) of note payable term. In the 2nd year, the note payable will be repaid with 12 monthly installment payments of interest and principal until fully repaid.

 

 

2.

In April 2021, the Company signed a $150,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $150,000 from a finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 780,000 restricted shares of the Company’s Common Stock and 2,600,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common Stock under this Warrant is $0.20 per share for the first 1,300,000 Warrant Shares and $0.25 for the next 1,300,000 Warrant Shares.

 

 

3.

In April 2021, the Company signed a $350,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $350,000 from the same finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at a fixed conversion price of $0.10 per common share. The Company has 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.

 

 

4.

In April 2021, the Company signed a $500,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $500,000 from a second finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at a fixed conversion price of $0.10 per common share. The Company has 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. The company also issued to the Holder 788,000 restricted shares of the Company’s Common Stock and 2,600,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.20 per share for the first 1,300,000 Warrant Shares and $0.25 for the next 1,300,000 Warrant Shares. During the year the Investor converted $125,000 of outstanding principal and interest into 1,250,000 shares of the Company’s common stock.

 

5.

In April 2021, the Company signed a $250,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $245,000 from a third finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 390,000 restricted shares of the Company’s Common Stock and 1,300,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.20 per share for the first 650,000 Warrant Shares and $0.25 for the next 650,000 Warrant Shares. During the year the Investor converted $35,000 of outstanding principal and interest into 350,000 shares of the Company’s common stock.

 

6.

In April 2021, the Company signed a $250,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $230,000 net of fees from a fourth finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 390,000 restricted shares of the Company’s Common Stock and 1,300,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.20 per share for the first 650,000 Warrant Shares and $0.25 for the next 650,000 Warrant Shares. During the year the Investor converted $28,846 of outstanding principal and interest into 288,463 shares of the Company’s common stock.

 

7.

In May 2021, the Company signed a $250,000 convertible promissory note with a maturity date twelve months after issuance and received in exchange $248,000 net of fees from a fourth finance company (the “Investor” or “Holder”). An Interest charge of 12% per annum shall accrue and be paid on the maturity date. The note is convertible into the Company’s Common Stock at fixed conversion price $0.10 per common share. The Company has 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. The Company also issued to the Holder 390,000 restricted shares of the Company’s Common Stock and 1,300,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.20 per share for the first 650,000 Warrant Shares and $0.25 for the next 650,000 Warrant Shares.

 

8.

In August 2021, the Company signed a $1,000,000 and $500,000 promissory note with a maturity date 24 months after issuance from the preliminary finance company in April 2021 (the “Investor” or “Holder”). An Interest charge of 15% per annum shall accrue and be paid monthly. The Company also issued to the Holder 1,000,000 restricted shares of the Company’s Common Stock and 1,500,000 cash Warrant Shares with a 5-year term. The exercise price per share of Common stock under this Warrant is $0.25 per share.

 

9.

 In November 2021, the Company signed a $40,071 equipment finance agreement with a maturity date 60 months after issuance from a third-party financing company. Payments of principle and interest of $791 are due monthly.

 

7. INCOME TAXES

 

The Company has incurred net losses since inception. As of December 31, 2021, the Company had cumulative federal net operating loss carryforwards of approximately $16,086,459 which are available to be carried forward indefinitely and federal net operating loss carryforwards of approximately $55,275,953 which at the latter date may be carried forward for tax years ending through December 31, 2036. 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.

 

 
F-18

Table of Contents

  

Deferred taxes comprise the following as of December 31, 2021 and 2020:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Net Operating Losses

 

 

14,986,000

 

 

 

13,692,000

 

Valuation Allowance

 

 

(14,986,000 )

 

 

(13,692,000 )

Net Deferred Tax Asset

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Income Tax Rate

 

 

21%

 

 

21%

Permanent Differences

 

 

 5

 %

 

 

 

 

Change in valuation allowance including the effect of the rate change

 

 

-26%

 

 

-21%

Effective income tax rate

 

 

0%

 

 

0%

 

8. CONCENTRATION OF CREDIT RISK

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and trade accounts receivables. The Company places its cash with high-credit-quality financial institutions. At times, such cash may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limit of $250 thousand per depositor. As a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company has not experienced any losses due to these excess deposits and believes the risk is not significant. With respect to trade receivables, management routinely assesses the financial strength of its customers and, as a consequence, believes that the receivable credit risk exposure is limited.

 

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.

 

The Company has no significant customers (greater than 10% of total revenue) in its 2021 revenue. The Company has one significant customer that represented 13% of revenue in 2020. Customer concentration was diminished in 2021 due to the increase in number of customers generated through the acquisitions of Advantech, Business Computer Solutions and Spectrum Technology Solutions as well as through organic growth in the both the number of customers and number of services being purchased by new and existing customers. The Company has accounts receivable concentration with one customer in 2021 representing 33% of total accounts receivables outstanding as of December 31, 2021 and two customers that represent 21% and 16% of accounts receivable outstanding as of December 31, 2020. Overall, the company grew its accounts receivable approximately ending balance 460% in 2021 from year-end 2020, compared to an over 137% growth in sales for 2021.

 

9. 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 provided for a one-year renewal term at the option of the Company that the company exercised. An amendment to this lease was signed on October 26, 2020 which extended the lease term through October 31, 2021. On September 10, 2021 an additional seven month extension was signed extending the lease term to May 30, 2022. On September 22, 2021 the Company signed a six year and one month lease agreement for approximately 7,650 square feet for its new headquarters commencing on January 1, 2022 located in Ocoee, Florida. The lease provides for a five year renewal term at the option of the Company. The company signed a three-year lease agreement for approximately 2.100 square feet of office space located in Concord, NC on July 16, 2020. With the acquisition of Advantech, the Company signed a two-year lease on May 12, 2021 for an office in Scottsdale, AZ.

 

As of December, 2021, undiscounted future lease obligations for the office space are $99,054 for year ending December 31, 2021.

 

Lease Commitments

as of 12/31/2021

Less than 1 year

 

 

1-3 years

 

 

3-5 years

 

Total

 

$158,804

 

 

$497,131

 

 $

 481,744

 

$1,137,681

 

 

Lease costs for the year ended December 31, 2021 were $148,497 and cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2020 were $123,500. As of December 31, 2021, the following represents the difference between the remaining undiscounted lease commitments under non-cancelable leases and the lease liabilities:

 

Undiscounted minimum lease commitments

 

$1,595,260

 

Present value adjustment using incremental borrowing rate

 

 

(1,496,206 )

Lease liabilities

 

$99,054

 

 

 
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(B) EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS

 

On December 16, 2021, Robert McDermott, the President and Chief Executive Officer of the Company, entered into an employment agreement with the Company pursuant to which the Company employed Mr. McDermott for a term of three years. Mr. McDermott received a starting annual base salary of $295,000 per annum which increased to $317,500 per annum on December 16, 2022 and will increase to $348,000 per annum on December 31, 2023. 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 of up to 30% of base salary. Mr. McDermott was awarded an option to purchase 18,000,000 shares of the Company’s Common Stock of which 25% (4,500,000) shares vest on December 16, 2022, another 25% (45,000,000)shares vest on December 16, 2023, another 25% (45,000,000)shares vest on December 16, 2024, and the remaining 25% (4,500,000) shares vest on December 16, 2025. 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. For the year ended December 31, 2020, Mr. McDermott received an award 600,000 restricted shares in early 2021 which has been reflected as compensation expense in the accompanying 2020 Consolidated Statements of Operations. For the year ended December 31, 2021, Mr. McDermott received an award of 1,600,000 restricted shares in early 2022 which has been reflected in compensation expense in the accompanying 2021 Consolidated Statements of Operations.

 

On December 16, 2021, 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 $165,000 per annum which increases to $176,555 per annum on December 16, 2022, and to $190,000 per annum on December 16, 2023. Mr. Fidanza was awarded an option to purchase 3,000,000 shares of the Company’s Common Stock. 25% of the option award (750,000 shares) vest on December 16, 2022, another 25% (750,000 shares) vest on December 16, 2023, another 25% (750,000 shares) vest on December 16, 2024 and the remaining 25% (750,000 shares) vest on December 16, 2025. 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.

 

On December 16, 2021, Muralidar 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 $165,000 per annum which increases to $176,555 per annum on December 16, 2022 and to $190,000 per annum on December 16, 2023. Mr. Chakravarthi was awarded an option to purchase 3,000,000 shares of the Company’s Common Stock. 25% of the option award (750,000 shares) vest on December 16, 2022, another 25% (750,000 shares) vest on December 16, 2023 another 25% (750,000 shares) vest on December 16, 2024 and the remaining 25% (750,000 shares) vest on December 16, 2025. 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.

 

On December 16, 2021, Mr. Jeffrey Stellinga was promoted to Chief Operating Officer of the Company and entered into an employment agreement with the Company, pursuant to which the Company employed Mr. Stellinga for two years. Mr. Stellinga is to receive an annual base salary of $150,000 per annum which increases to $157,500 per annum on December 16, 2022 . Mr. Stellinga was awarded an option to purchase 2,000,000 shares of the Company’s Common Stock. 33% of the option award (666,666 shares) vest on December 16, 2022, another 33% (666,666 shares) vest on December 16, 2023 and the remaining 34% (666,668 shares) vest on December 16, 2024. In the event of termination of Mr. Stellinga’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. Stellinga shall be lifted. Further, in the event of the termination of Mr. Stellinga’s employment (i) due to a change in control Mr. Stellinga 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. Stellinga 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. Stellinga 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.

 

On August 18, 2021, Mr. Archit Shah, Chief Financial Officer of the Company entered into an employment agreement with the Company, pursuant to which the Company employed Mr. Shah for three years. Mr. Shah is to receive an annual base salary of $232,500 per annum beginning September 7, 2021 which increases to $242,500 per annum on September 7, 2022 and increases to $255,000 on September 7, 2023 . Mr. Shah was awarded an option to purchase 2,880,000 shares of the Company’s Common Stock. 33% of the option award (960,000 shares) vest on September 7, 2022, another 33% (960,000 shares) vest on September 7, 2023 and the remaining 34% (960,000 shares) vest on September 7, 2024. In the event of termination of Mr. Shah’s employment due to 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. Shah shall be lifted. Further, in the event of the termination of Mr. Shah’s employment due to death or disability Mr. Shah 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. Shah 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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(C) LITIGATION

 

The Company from time to time, may be a party to various litigation, claims and disputes, arising in the ordinary course of business. While the ultimate impact of such actions cannot be predicted with certainty, we believe the outcome of these matters, except for that noted below, will not have a material adverse effect on our financial condition or results of operations.

  

On August 18, 2021 the Company received a Notice of Disposition of Collateral under section 9-611 of the Uniform Commercial Code (“UCC”) (Arizona Revised Statutes 47-611) purporting to set a foreclosure sale, under the UCC, of the Company’s assets that were previously pledged as security to a Lender. On August 24, 2021 the Company received a Default Notice from the Lender asserting that the Company was obligated to pay $863,274. The Lender alleged that it had made certain loans and other financial accommodations in the form of guaranties to our Company beginning in approximately of March of 2009 that was secured by all of the assets our Company. We initiated an investigation into the matter and concluded that we had repaid all of the loans (including tendering payment of $28,577.82 for various credit card obligations with JP Morgan Chase Bank which the Lender rejected on August 4, 2021) and any loans that had not been repaid were released under the terms of a Recapitalization Agreement dated November 1, 2016. We then retained Arizona counsel to prepare an Emergency Application for Temporary Restraining Order and Preliminary Injunction against the Lender in order to stop the foreclosure sale. We are currently in negotiations with Lender to resolve the dispute. We believe the claims of the Lender are without merit and intend to vigorously defend the matter.

 

On June 15, 2021, the Company received a Complaint filed with the Circuit Court of the Ninth Judicial Circuit for Orange County, Florida. The Complaint alleges a breach of a previously entered into 2018 Settlement Agreement for which payments have not been made. The Complainant agreed to begin arbitration on August 31, 2021. We believe these claims are without merit.

 

10. BUSINESS COMBINATIONS

 

The Company accounts for business combinations under the acquisition method of accounting, in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, which requires assets acquired and liabilities assumed to be recognized at their fair values on the acquisition date. Any excess of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as goodwill. The fair values of the assets acquired and liabilities assumed are determined based upon the valuation of the acquired business and involves management making significant estimates and assumptions.

 

TrinIT

 

On January 3, 2020 the Company acquired substantially all of the assets and business of Computer Plumber, LLC, a North Carolina limited liability company doing business as TrinIT (“Seller”), in exchange for (i) 730,000 shares of Common Stock of Buyer, (ii) $400,000 in cash, and (iii) the assumption of certain specified debts, liabilities and obligations, all upon the terms and conditions set forth in an Asset Purchase Agreement dated as of January 3, 2020 (the “Computer Plumber LLC Asset Purchase Agreement”).

 

Advantech

On April 23, 2021 iCoreConnect Inc., a Nevada corporation (“Buyer”), acquired substantially all of the assets and business of Heyns Unlimited LLC, an Arizona limited liability company, doing business as Advantech (“Seller”), in exchange for (i) 5,000,000 shares of restricted Common Stock of Buyer, (ii) $1,800,000 in cash and (iii) the assumption of certain liabilities and obligations of Seller.

 

For the period April 1, 2021 through May 17, 2021, the Company issued 10,420,000 shares of Common Stock for cash proceeds totaling $1,042,000 The proceeds were used for the acquisition of Advantech and general corporate purposes. The Company also issued 5,000,000 shares of common stock during the period to acquire the assets of Advantech.

 

Business Computer Solutions (BCS)

On May 31, 2021 the Company acquired substantially all of the assets and business of BCS Tech Center, Inc., an Arizona corporation doing business as Business Computer Solutions (“Seller”), in exchange for (i) 250,000 shares of Common Stock of Buyer, (ii) $100,000 in cash, and (iii) the assumption of certain specified debts, liabilities and obligations, all upon the terms and conditions set forth in an Asset Purchase Agreement dated as of May 31, 2021 (the “BCS Tech Center, Inc. Asset Purchase Agreement”).

 

Spectrum Technology Solutions (STS)

On September 1, 2021 the Company acquired substantially all of the assets and business of Spectrum Technology Solutions, LLC, an Arizona limited liability company doing business as STS (“Seller”), in exchange for (i) 4,046,617 shares of common stock of Buyer and; (ii) $1,350,000 in cash all upon the terms and conditions set forth in an Asset Purchase Agreement dated as of September 1, 2021 (the “Spectrum Technology Solutions, LLC Asset Purchase Agreement”). 

  

 
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Pursuant to the guidance in FASB Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, the Company calculated the estimated fair value of the acquired customer relationships using the discounted cash flow approach. The key assumptions and inputs into the cash flow model used were: (1) an annual customer attrition rate of 8%, (2) a gross margin percentage of 55%, (3) a tax rate of 23.50% and (4) a discount rate of 12%.

 

Certain fair values of acquired assets and assumed liabilities may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods within the measurement period when it reflects new information obtained about facts and circumstances that were in existence at the acquisition date. The measurement period cannot exceed one year from the acquisition date.

 

The following table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed as of the dates detailed in the table:

 

 

 

TrinIT

 

 

Advantech

 

 

BCS

 

 

STS

 

Consideration Paid:

 

January 3, 2020

 

 

April 23, 2021

 

 

May 31, 2021

 

 

September 1, 2021

 

Cash

 

$400,000

 

 

$

1,800,000

 

 

$

100,000

 

 

$

1,500,000

 

Common stock

 

 

183,000

 

 

 

500,000

 

 

 

25,000

 

 

 

500,000

 

 

 

$583,000

 

 

$

2,300,000