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iCoreConnect Inc. - Quarter Report: 2019 September (Form 10-Q)

icct_10q.htm

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2019

 

Commission file number: 000-52765

 

iCoreConnect Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada

 

13-4182867

(State or other jurisdiction of incorporation or organization)

 

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

 

13506 Summerport Village Pkwy #160, Windermere, FL 34786

(Address of principal executive offices) (Zip Code)

 

(888) 810-7706

(Registrant's Telephone Number, Including Area Code)

 

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 x 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 x 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

x

Smaller reporting company

x

 

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 Exchange Act). Yes ¨ No x

 

As of October 31, 2019, there were 63,967,923 shares of the registrant’s common stock issued and outstanding.

 

 
 
 
 

 

 

iCoreConnect Inc.

FORM 10-Q QUARTERLY REPORT

FOR THE QUARTER ENDED SEPTEMBER 30, 2019

  

Part I Financial Information

 

Item 1.

Financial Statements (Unaudited)(Rounded)

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

4

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2019 and 2018

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

 6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 7

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 14

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

 20

 

Not applicable

 

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

 20

 

 

 

 

 

Part II Other Information

 

 

 

 

 

Item 1.

Legal Proceedings

 21

 

 

 

 

 

Item 1A.

Risk Factors

21

 

Not applicable

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 21

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

21

 

Not Applicable

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

21

 

Not Applicable

 

 

 

 

 

 

Item 5.

Other Information

21

 

Not Applicable

 

 

 

 

 

 

Item 6.

Exhibits

 22

 

 

 

 

 

Signatures

23

  

 
2
 
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iCoreConnect Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$31,000

 

 

$1,000

 

Accounts receivable, net of allowance for doubtful accounts

 

 

110,000

 

 

 

224,000

 

Prepaid expenses

 

 

97,000

 

 

 

9,000

 

Total current assets

 

 

238,000

 

 

 

234,000

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

7,000

 

 

 

11,000

 

Right of use lease asset - operating

 

 

68,000

 

 

 

-

 

Software development costs, net

 

 

587,000

 

 

 

535,000

 

Acquired technology, net

 

 

988,000

 

 

 

539,000

 

Goodwill and intangible assets, net

 

 

399,000

 

 

 

416,000

 

Total long-term assets

 

 

2,049,000

 

 

 

1,501,000

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$2,287,000

 

 

$1,735,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$483,000

 

 

$664,000

 

Line of credit

 

 

-

 

 

 

498,000

 

Operating lease liability, current portion

 

 

64,000

 

 

 

-

 

Current maturities of long-term debt

 

 

1,285,000

 

 

 

1,361,000

 

Total current liabilities

 

 

1,832,000

 

 

 

2,523,000

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

47,000

 

 

 

55,000

 

Operating lease liability, net of current portion

 

 

6,000

 

 

 

-

 

Deferred revenue

 

 

114,000

 

 

 

115,000

 

Total long-term liabilities

 

 

167,000

 

 

 

170,000

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

1,999,000

 

 

 

2,693,000

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

Common stock par value $0.001; 600,000,000 shares authorized; Issued and Outstanding: 63,867,923 as of September 30, 2019 and 50,864,131 as of December 31, 2018

 

 

64,000

 

 

 

51,000

 

Additional paid-in-capital

 

 

73,842,000

 

 

 

70,335,000

 

Accumulated deficit

 

 

(73,618,000)

 

 

(71,344,000)

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

 

 

288,000

 

 

 

(958,000)

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

$2,287,000

 

 

$1,735,000

 

 

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

 

 
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iCoreConnect Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$225,000

 

 

$271,000

 

 

$810,000

 

 

$893,000

 

Cost of sales

 

 

83,000

 

 

 

130,000

 

 

 

247,000

 

 

 

359,000

 

Gross profit

 

 

142,000

 

 

 

141,000

 

 

 

563,000

 

 

 

534,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

741,000

 

 

 

606,000

 

 

 

2,310,000

 

 

 

2,817,000

 

Depreciation and amortization

 

 

190,000

 

 

 

100,000

 

 

 

464,000

 

 

 

300,000

 

Total operating expenses

 

 

931,000

 

 

 

706,000

 

 

 

2,774,000

 

 

 

3,117,000

 

Loss from operations

 

 

(789,000)

 

 

(565,000)

 

 

(2,211,000)

 

 

(2,583,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(109,000)

 

 

(59,000)

 

 

(204,000)

 

 

(169,000)

Other (expense) income

 

 

-

 

 

 

8,000

 

 

 

-

 

 

 

(1,742,000)

Gain on cacellation of liabilities

 

 

154,000

 

 

 

-

 

 

 

154,000

 

 

 

-

 

Total other

 

 

45,000

 

 

 

(51,000)

 

 

(50,000)

 

 

(1,911,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(744,000)

 

$(616,000)

 

$(2,261,000)

 

$(4,494,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$(0.01)

 

$(0.01)

 

$(0.04)

 

$(0.11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

 

60,737,967

 

 

 

47,379,032

 

 

 

56,536,170

 

 

 

42,708,594

 

 

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

 

 
4
 
Table of Contents

  

iCoreConnect Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common stock

 

 

Paid In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balances at January 1, 2018

 

 

34,318,198

 

 

$34,000

 

 

$64,856,000

 

 

$(66,154,000)

 

$(1,264,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

1,867,000

 

 

 

2,000

 

 

 

543,000

 

 

 

-

 

 

 

545,000

 

Stock issued for services

 

 

3,400,000

 

 

 

3,000

 

 

 

1,697,000

 

 

 

-

 

 

 

1,700,000

 

Stock compensation expense

 

 

-

 

 

 

-

 

 

 

31,000

 

 

 

-

 

 

 

31,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,300,000)

 

 

(2,300,000)

Balances at March 31, 2018

 

 

39,585,198

 

 

$39,000

 

 

$67,127,000

 

 

$(68,454,000)

 

$(1,288,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

2,173,215

 

 

 

2,000

 

 

 

732,000

 

 

 

-

 

 

 

734,000

 

Stock issued for services

 

 

3,366,440

 

 

 

3,000

 

 

 

871,000

 

 

 

-

 

 

 

874,000

 

Stock compensation expense

 

 

-

 

 

 

-

 

 

 

32,000

 

 

 

-

 

 

 

32,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,578,000)

 

 

(1,578,000)

Balances at June 30, 2018

 

 

45,124,853

 

 

$44,000

 

 

$68,762,000

 

 

$(70,032,000)

 

$(1,226,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

4,191,111

 

 

 

4,000

 

 

 

1,066,000

 

 

 

-

 

 

 

1,070,000

 

Stock compensation expense

 

 

-

 

 

 

-

 

 

 

78,000

 

 

 

-

 

 

 

78,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(616,000)

 

 

(616,000)

Balances at September 30, 2018

 

 

49,315,964

 

 

$48,000

 

 

$69,906,000

 

 

$(70,648,000)

 

$(694,000)

  

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common stock

 

 

Paid In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balances at January 1, 2019

 

 

50,864,131

 

 

$51,000

 

 

$70,335,000

 

 

$(71,344,000)

 

$(958,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative adjustment for the adoption of a new accounting pronouncement (Note 6)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,000)

 

 

(13,000)

Stock issued for cash and conversion of notes payable

 

 

2,395,607

 

 

 

2,000

 

 

 

673,000

 

 

 

-

 

 

 

675,000

 

Stock compensation expense

 

 

212,500

 

 

 

-

 

 

 

208,000

 

 

 

-

 

 

 

208,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(761,000)

 

 

(761,000)

Balances at March 31, 2019

 

 

53,472,238

 

 

$53,000

 

 

$71,216,000

 

 

$(72,118,000)

 

$(849,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

1,600,152

 

 

 

2,000

 

 

 

425,000

 

 

 

-

 

 

 

427,000

 

Stock issued for services

 

 

66,666

 

 

 

-

 

 

 

17,000

 

 

 

-

 

 

 

17,000

 

Stock issued for acquisition of technology (Note 1)

 

 

2,301,007

 

 

 

2,000

 

 

 

573,000

 

 

 

-

 

 

 

575,000

 

Stock compensation expense

 

 

1,047,860

 

 

 

1,000

 

 

 

133,000

 

 

 

-

 

 

 

134,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(756,000)

 

 

(756,000)

Balances at June 30, 2019

 

 

58,487,923

 

 

$58,000

 

 

$72,364,000

 

 

$(72,874,000)

 

$(452,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

 

 

5,380,000

 

 

 

6,000

 

 

 

1,344,000

 

 

 

-

 

 

 

1,350,000

 

Stock compensation expense

 

 

-

 

 

 

-

 

 

 

134,000

 

 

 

-

 

 

 

134,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(744,000)

 

 

(744,000)

Balances at September 30, 2019

 

 

63,867,923

 

 

$64,000

 

 

$73,842,000

 

 

$(73,618,000)

 

$288,000

 

 

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

 

 
5
 
Table of Contents

   

iCoreConnect Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (UNAUDITED)

 

 

 

 

 

 

 

 

 

September 30,

2019

 

 

September 30,

2018

 

CASH FLOWS FROM OPERATING ACTIVITTIES:

 

 

 

 

 

 

Net loss

 

$(2,261,000)

 

$(4,494,000)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

4,000

 

 

 

3,000

 

Amortization of software development costs

 

 

460,000

 

 

 

296,000

 

Gain on cancellation of liabilities

 

 

(154,000)

 

 

-

 

Stock issued for services

 

 

17,000

 

 

 

-

 

Change in allowance for doubtful accounts

 

 

-

 

 

 

3,000

 

Stock compensation expense

 

 

476,000

 

 

 

2,715,000

 

Decrease (increase) in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

114,000

 

 

 

(111,000)

Prepaid expenses

 

 

(88,000)

 

 

5,000

 

Right of use asset, net of lease liability

 

 

(11,000)

 

 

-

 

Accounts payable and accrued expenses

 

 

(48,000)

 

 

(38,000)

Deferred revenue

 

 

(1,000)

 

 

40,000

 

NET CASH USED IN OPERATING ACTIVITIES

 

 

(1,492,000)

 

 

(1,581,000)

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Amount paid for acquisition of ClariCare software

 

 

(50,000)

 

 

-

 

Amounts paid for capitalized software development costs

 

 

(298,000)

 

 

(251,000)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(348,000)

 

 

(251,000)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITES

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

75,000

 

 

 

-

 

Payments on debt

 

 

(637,000)

 

 

(92,000)

Proceeds from issuance of common stock

 

 

2,432,000

 

 

 

2,349,000

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

1,870,000

 

 

 

2,257,000

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH

 

 

30,000

 

 

 

425,000

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

 

 

1,000

 

 

 

52,000

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

 

$31,000

 

 

$477,000

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$170,000

 

 

$125,000

 

Stock issued for acquisition of technology

 

$575,000

 

 

$-

 

Stock issued for conversion of notes payable

 

$20,000

 

 

$-

 

  

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

 

 
6
 
Table of Contents

  

iCoreConnect Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019

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

 

1. NATURE OF OPERATIONS

 

iCoreConnect, Inc., (the "Company") a Nevada Corporation, builds secure cloud-based communications systems, focused on healthcare, although the core technology can be adopted to other vertical markets that require a high degree of secure data communication, such as the legal, financial and education fields. iCoreConnect’s iCoreExchange (Health Information Exchange), allows providers and health care professionals to exchange patient specific healthcare information via the internet while maintaining compliance with all Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) regulations and the current Direct protocol. Our solutions allow providers and health care professionals to use the internet in ways previously unavailable to them due to HIPAA restrictions to quickly and cost effectively exchange and share patient medical information. iCoreConnect Inc., creates communication and practice management software that allows you to share information at the highest level of security and is a national provider of secure communications for high compliance industries. Our software allows organizations and individuals to easily exchange information utilizing 2048-bit encryption in full compliance of current federal laws. The Company currently designs, engineers and sells cloud-based software for the healthcare industry, with potential application in other industries with a need for secure information communication compliance. Due to current HIPAA regulations, providers and health care professionals have been prohibited from electronically exchanging unencrypted personal health information. Until recently, there was no cost-effective platform for transferring this information in a HIPAA compliant environment. We set out to solve this problem. The Company markets several products under the iCoreConnect umbrella which solve several industry problems.

 

We provide customizable secure cloud-based software. iCoreConnect currently markets six different software products: iCoreExchange, iCoreCodeGenius, iCoreSecure, iCoreMD, iCoreDental and iCoreExam.

 

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

 

The Company accounted for the ClariCare Asset Purchase Agreement as an asset acquisition under ASC 805, which provides guidance for asset acquisitions. Under the guidance, if substantially all of the acquisition is made up of one asset or similar assets, then the acquisition is an asset acquisition. The Company believes the assets acquired from ClariCare are similar and consider them all to be acquired technology (See Note 5). Further, the Company does not believe the acquired technology constitutes a business as defined under ASC 805.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2018, which are included in the Company’s Annual Report filed on Form 10-K with the SEC on April 1, 2019. The accompanying condensed balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date, but does not include all information and footnotes required by GAAP for complete financial statements.

 

The results of operations for the nine month period ended September 30, 2019 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year. Readers of this Quarterly Report are strongly encouraged to review the risk factors relating to the Company which are set forth in the Company’s Form 10-K filed with the SEC.

 

 
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2. GOING CONCERN

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

For the nine month period ended September 30, 2019 the Company generated an operating loss of $2,211,000. In addition, the Company has an accumulated deficit, total stockholders’ equity and net working capital deficit of $73,618,000, $288,000 and $1,594,000 respectively at September 30, 2019. The Company’s activities were primarily financed through private placements of equity securities. The Company intends to raise additional capital through the issuance of debt 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.

 

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

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve (12) months after issuance (the "Note") and received $75,000 net of closing fees. Interest at 10% per annum shall not be due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the Note shall be convertible into common stock of the Company ("Common Stock"). The conversion price shall be subject to a discount of 39%. The conversion price shall be determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the Note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The Note Holder will be limited to convert no more than 4.99% of the issued and outstanding Common Stock at time of conversion at any one time.

 

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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting

 

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

 

Cash and Cash Equivalents

 

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

 

 
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Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are customer obligations due under normal trade terms. We maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of certain customers to make required future payments on amounts due us. Management determines the adequacy of this allowance by periodically evaluating the aging and past due nature of individual customer 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 $12,000 at both September 30, 2019 and December 31, 2018.

 

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).

 

Software Development Costs and Acquired Software

 

The Company accounts for software development costs, including costs to develop software products or the software component of products to be sold to external users. In accordance with ASC 985-730, Computer Software Research and Development, research and planning phase costs are expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs are capitalized. We have determined that technological feasibility for our products to be marketed to external users was reached before the release of those products. As a result, the development costs and related acquisition costs after the establishment of technological feasibility were capitalized as incurred. Capitalized costs for software to be sold to external users and software acquired in a business combination are amortized based on current and projected future revenue for each product with an annual minimum equal to the straight-line amortization over three years.

 

Impairment of Long-Lived Assets

 

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

 

Goodwill

 

Goodwill acquired in a business combination is not amortized, but is tested for impairment annually or between annual tests when an impairment indicator exists. If an optional qualitative goodwill impairment assessment is not performed, we are required to determine the fair value of each reporting unit. If a reporting unit’s fair value is lower than its carrying value, we must determine the amount of implied goodwill that would be established if the reporting unit were hypothetically acquired on the impairment test date. If the carrying amount of a reporting unit’s goodwill exceeds the amount of implied goodwill, an impairment loss equal to the excess would be recorded. The recoverability of indefinite lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded.

 

Revenue Recognition

 

The Company has three primary sources of revenue:

 

 

·Electronic Health Records (EHR) licenses and rental services

 

 

 

 

·Encrypted Secure & HIPPA Compliant email services (“Encrypted Secure email”)

 

 

 

 

·ICD Coding Software

 

Revenue from EHR software licensing arrangements include private cloud hosting services and post contract support provided to clients that have purchased a perpetual or specific term license to the EHR software solution and have contracted with the Company to host the software. These arrangements provide the client with a contractual right to take possession of the software at any time during the private cloud hosting period and it is feasible for the client to either use the software on its own equipment or to contract with an unrelated third party to host the software. The Company recognizes revenue from the sale of its EHR software license at the time the customer has access to use the software, with deferral of revenues associated with the cloud hosting and post contract support performance objectives, allocated based on relative fair value.

 

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

 

Encrypted Secure email services are provided on a fee basis as software as a service (“SaaS”) arrangements and are recognized as revenue ratably over the annual contract terms beginning on the date our solutions are made available to the customer.

 

ICD coding services are provided on a fee basis as SaaS arrangements and are recognized as revenue ratably over the contract terms beginning on the date the Company’s solutions are made available to the customer. The length of a customer service period varies from multi-year annually renewed to monthly over which such customer has the right to use the Company’s ICD coding software solution.

 

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 period or year in which incurred. Advertising costs were $31,000 and $33,000, for the nine month period ended September 30, 2019 and 2018, respectively.

 

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 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 shares of common stock 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 the granting of share purchase options using the fair value method whereby all awards are recorded at fair value on the date of the grant. Share based awards granted with a performance condition are measured based on the probable outcome of that performance condition during the requisite service period. Such an award with a performance condition is accrued if it is probable that the performance condition will be achieved. Compensation costs for stock-based payments that do not include performance conditions are recognized on a straight-line basis over the requisite service 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 fair value of restricted stock units issued are determined by the Company based on the estimated fair value of the Company’s common stock. 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 date of the agreement. The Company estimates the volatility of its common stock at the date of grant based on its historical stock prices. The Company determines the expected life based on the Simplified Method as allowed by SAB 107. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.

 

 
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Options granted during the nine months ended September 30, 2019 were vested using the following assumptions:

 

Expected Term (years)

 

2 years

 

Weighted average volatility

 

 

100%

Weighted average risk free rate

 

 

2.76%

Expected dividends

 

$0

 

 

Recently Issued Accounting Pronouncements

 

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

 

In July 2017, the Financial Accounting Standards Board issued ASU No. 2017-11, “Accounting for Certain Financial Instruments with Down Round Features” (“Topic 480”). This update changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. ASU 2017-11 is effective for interim and annual periods beginning after December 15, 2018. The Company has evaluated the impact of the pronouncement on the financial statements and has determined that it did not have a significant impact on the financial statements.

 

In June 2018, the Financial Accounting Standards Board issued ASU No. 2018-07, “Compensation-Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting.” This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. ASU 2018-07 is effective for interim and annual periods beginning after December 15, 2018. The Company has implemented the guidance and determined the impact of the pronouncement on the financial statements did not have a significant impact on the financial statements.

 

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

 

4. COMMON STOCK AND PREFERRED STOCK

 

Stock Issuances

 

During the nine month period ended September 30, 2019, the Company issued 9,375,759 shares of common stock for the conversion of a $20,000 note payable and cash proceeds totaling $2,432,000. The Company also issued 675,000 shares of restricted common stock as compensation to certain employees and directors for services performed of which 212,500 shares have vested. In addition, a total of 1,047,860 shares vested from an issuance of restricted common stock in 2018. The Company also issued 66,666 shares relating to a Settlement Agreement with our former CFO. Lastly, the Company issued 2,301,007 shares of common stock to acquire technology and other certain assets from ClariCare (See Note 1).

 

 
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Stock Options

 

On February 21, 2019, our Board of Directors authorized the issuance of options to certain employees to purchase 135,000 shares of Common stock, at an exercise price of $0.15, that vested upon issuance. During the nine month period ended September 30, 2019, no options expired or were exercised and 25,000 options were forfeited. A summary of option activity for the nine month period ended September 30, 2019, is presented below:

 

Options Outstanding

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Aggregate

 

 

 

Number

 

 

Exercise

 

 

Term in

 

 

Intrinsic

 

 

 

of Options

 

 

Price

 

 

Years

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding - January 1, 2019

 

 

1,356,157

 

 

$0.31

 

 

 

9.8

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

135,000

 

 

$0.15

 

 

 

9.4

 

 

 

 

 

Exercised

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(25,000)

 

$0.15

 

 

 

 

 

 

 

 

 

Balance outstanding - September 30, 2019

 

 

1,466,157

 

 

$0.29

 

 

 

9.1

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - September 30, 2019

 

 

599,490

 

 

$0.27

 

 

 

8.5

 

 

$-

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

Number

 

 

Average

grant date

 

 

Remaining

Years

 

 

 

of Options

 

 

Fair Value

 

 

to Vest

 

Nonvested - January 1, 2019

 

 

866,667

 

 

$0.13

 

 

 

1.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

135,000

 

 

$0.15

 

 

 

 

 

Vested

 

 

(135,000)

 

$0.15

 

 

 

 

 

Forfeited/expired

 

 

-

 

 

 

 

 

 

 

 

 

Nonvested - September 30, 2019

 

 

866,667

 

 

$0.13

 

 

 

0.9

 

  

5. SOFTWARE DEVELOPMENT COSTS

 

The Company continued to develop its software products with significant features and enhancements during the nine month period ended September 30, 2019 and has continued to capitalize development costs during that period. A summary of the capitalization and amortization of the software development costs is as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Development costs

 

$1,811,000

 

 

$1,513,000

 

Acquired technology

 

 

1,277,000

 

 

 

630,000

 

Less accumulated amortization

 

 

(1,513,000)

 

 

(1,069,000)

 

 

$1,575,000

 

 

$1,074,000

 

 

 
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6. COMMITMENTS AND CONTINGENCIES

 

LEASE COMMITMENTS

 

On November 15, 2017 the Company signed a three-year lease agreement for approximately 4,100 square feet of office space located in Winter Garden, Florida in which the Company has its headquarters. The lease provides for a one-year renewal term at the option of the Company. As of September 30, 2019, undiscounted future lease obligations for the office space are as follows:

 

Year Ended

 

Lease Amount

 

 

 

 

 

September 30, 2020

 

$69,000

 

September 30, 2021

 

 

6,000

 

 

 

$75,000

 

  

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

 

Lease costs for the nine months ended September 30, 2019 were $42,000 and cash paid for amounts included in the measurement of lease liabilities for the nine month ended September 30, 2019 were $50,000. As of September 30, 2019, the following represents the difference between the remaining undiscounted lease commitments under non-cancelable leases and the lease liabilities:

 

Undiscounted minimum lease commitments

 

$75,000

 

Present value adjustment using incremental borrowing rate

 

 

(5,000)

Lease liabilities

 

$70,000

 

  

7. CONCENTRATION OF CREDIT RISK

 

The Company has historically provided financial terms to customers in accordance with what management views as industry norms. Financial terms range from immediate payment for access to the Company’s software products to several months for Meaningful Use consulting services. 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 conditions of our customers were to deteriorate, or if they were otherwise unable to make payments in accordance with management’s expectations, we might have to increase our allowance for doubtful accounts, modify their financial terms and/or pursue alternative collection methods.

 

Revenue concentrations for the nine months ended September 30, 2019 and 2018 and the accounts receivable concentrations as of September 30, 2019 and December 31, 2018, expressed as a percentage of the Company’s revenue and accounts receivable, respectively, are as follows:

 

 

 

Net Sales

 

 

 

 

 

 

For The Nine Months Ended

 

 

Accounts Receivable at 

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer A

 

 

42%

 

 

30%

 

 

33%

 

 

15%

Customer B

 

 

0%

 

 

11%

 

 

0%

 

 

0%

Customer C

 

 

1%

 

 

10%

 

 

2%

 

 

42%

Customer D

 

 

4%

 

 

0%

 

 

15%

 

 

1%

  

 
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Statements made in this Quarterly Report on Form 10-Q, including without limitation this Management's Discussion and Analysis of Financial Condition and Operations, other than statements of historical information, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by such words as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. We believe it is important to communicate our future expectations to investors. However, these forward-looking statements involve many risks and uncertainties, including the risk factors disclosed under the heading "Risk Factors" included in the Company's Form 10-K filed with the Securities and Exchange Commission ("SEC") on April 1, 2019. Our actual results could differ materially from those indicated in such forward-looking statements as a result of certain factors. We are under no duty to update any of the forward-looking statements after the date of this Report on Form 10-Q to conform these statements to actual results, other than to comply with the federal securities laws.

 

About the Company

 

iCoreConnect Inc., a Nevada corporation (the “Company”), creates communication and practice management software that allows our customers to share information at the highest level of security. We are a national provider of secure communications for high-compliance industries including healthcare and potentially for the financial and legal industries. Our software allows organizations and individuals to easily exchange information utilizing 2048-bit encryption in full compliance of current federal laws.

 

On April 30, 2019 iCoreConnect Inc., acquired technology and certain assets from ClariCare, Inc. ClariCare has created cloud-based dental analytics and practice management software which empower dentists and providers to run their practices more efficiently and effectively. The acquisition of ClariCare’s technology, now being marketed and further developed as iCoreHuddle deepens our portfolio of SaaS based products and has the following functionality:

 

1) Analytics and KPI’s -The software connects to a customer’s Practice Management System and provides simple access to their patient financials, consolidated patient history, and scheduling opportunities. This daily dashboard ensures that your clinical team and front office are always in sync and prepared. The software provides real time KPIs and provides this information in a viewer friendly dashboard allowing the team a view of practice goals and real time access to metrics that will boost their performance.

 

2) Insurance Eligibility Verification -Denied dental claims are routinely linked to eligibility issues – and many of those errors are rooted in either a failure to check eligibility, or the use of inaccurate data. iCoreHuddle brings connectivity to every commercial and government payer in the country, with a detailed explanation of benefits generated for patients before they come into office. We also make reactivation campaigns more effective by verifying benefits prior to patient outreach.

 

3) Prescription Drug Monitoring - While primary care physicians prescribe the majority of opioids, dentists prescribe them at a higher rate – and are the second highest prescribers of opioids overall. As state legislatures look at ways to combat the opioid crisis, making prescribers accountable for scripts that go out their door is a priority. With iCoreHuddle’s clinical integration into multi-state prescription drug monitoring databases, the software automates the process of checking for risk factors and provides a risk score in a dashboard that is easily identifiable to the doctor to make sound clinical decisions on Controlled Substances prescriptions.

 

Financing

 

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

 

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

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve (12) months after issuance (the "Note") and received $75,000 net of closing fees. Interest at 10% per annum shall not be due until maturity.  One hundred eighty (180) days following the date of funding and thereafter, the Note shall be convertible into common stock of the Company ("Common Stock").  The conversion price shall be subject to a discount of 39%.  The conversion price shall be determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period.  There is an ascending prepayment penalty percentage applied should the Company prepay the Note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The Note Holder will be limited to convert no more than 4.99% of the issued and outstanding Common Stock at time of conversion at any one time.

 

Critical Accounting Policies and Estimates

 

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

 

Critical Accounting Policies and Estimates

 

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

 

Revenue Recognition

 

We have three primary sources of revenue:

 

 

·Electronic Health Records (EHR) licenses

 

 

 

 

·Encrypted & HIPAA Compliant Secure email

 

 

 

 

·ICD Coding Software

  

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

 

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

 

Encrypted Secure email services are provided on a fee basis as software as a service (“SaaS”) arrangement and are recognized as revenue ratably over the annual contract terms beginning on the date our solutions are made available to clients.

 

ICD Coding Software provides the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD), a medical classification list by the World Health Organization (WHO). It contains codes for diseases, signs and symptoms, abnormal findings, complaints, social circumstances, and external causes of injury or diseases. ICD coding services are provided on a fee basis as software as a service (“SaaS”) arrangements and are recognized as revenue ratably over the contract terms beginning on the date our solutions are made available to clients. The length of a client service period varies from multi-year annually renewed to monthly over which such client has the right to use our ICD coding software solution.

 

Software Development Capitalization and Amortization

 

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

 

In accordance with ASC 985-730, Computer Software Research and Development, research and planning phase costs should be expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs may be 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 marketed to external users are amortized based on current and projected future revenue for each product with an annual minimum equal to the straight-line amortization over three years.

 

Stock Based Compensation

 

The Company estimates the fair value of each option award on the date of grant generally 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 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 cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.

 

 
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Results of Operations

 

Overview. 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:

  

 

 

Three Months Ended

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

% Incr/(Decr)

 

 

2019

 

 

2018

 

 

% Incr/(Decr)

 

Revenues

 

$225,000

 

 

$271,000

 

 

 

-17

%

 

$810,000

 

 

$893,000

 

 

 

-9

%

Cost of sales

 

 

83,000

 

 

 

130,000

 

 

 

-36

%

 

 

247,000

 

 

 

359,000

 

 

 

-31

%

Gross profit (deficit)

 

 

142,000

 

 

 

141,000

 

 

 

 

 

 

 

563,000

 

 

 

534,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, General and administrative

 

 

741,000

 

 

 

606,000

 

 

 

22%

 

 

2,310,000

 

 

 

2,817,000

 

 

 

-18

%

Depreciation and amortization

 

 

190,000

 

 

 

100,000

 

 

 

90%

 

 

464,000

 

 

 

300,000

 

 

 

55%

Total operating expenses

 

 

931,000

 

 

 

706,000

 

 

 

32%

 

 

2,774,000

 

 

 

3,117,000

 

 

 

-11

%

Loss from operations

 

 

(789,000)

 

 

(565,000)

 

 

40%

 

 

(2,211,000)

 

 

(2,583,000)

 

 

-14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(109,000)

 

 

(59,000)

 

 

85%

 

 

(204,000)

 

 

(169,000)

 

 

21%

Other (expense) income

 

 

-

 

 

 

8,000

 

 

 

-100

%

 

 

-

 

 

 

(1,742,000)

 

 

-100

%

Gain on cacellation of liabilities

 

 

154,000

 

 

 

-

 

 

 

-

 

 

 

154,000

 

 

 

-

 

 

 

-

 

Total other

 

 

45,000

 

 

 

(51,000)

 

 

-188

%

 

 

(50,000)

 

 

(1,911,000)

 

 

-97

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(744,000)

 

$(616,000)

 

 

21%

 

$(2,261,000)

 

$(4,494,000)

 

 

-50

%

  

The accompanying “Management’s Discussion and Analysis of Financial Condition and Results of Operations” provides a comparison of the amounts listed above.

 

 
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Three Month Period Ended September 30, 2019 (“3Q 2019”) Compared to Three Month Period Ended September 30, 2018 (“3Q 2018”)

 

Revenues. Net revenues of $225,000 for the 3Q 2019 period decreased $46,000 or 17% compared to $271,000 for the 3Q 2018 period. The decrease between periods was due to recurring SaaS revenues increasing $34,000 combined with an $80,000 decrease in one-time EHR revenues.

 

Cost of sales. Cost of sales of $83,000 for the 3Q 2019 period decreased $47,000 or 36% compared to $130,000 for the 3Q 2018 period. The decrease between periods was due primarily due to a $30,000 reduction in IT development wages being classified as cost of sales.

 

Selling, general and administrative expenses. Selling, general and administrative expenses of $741,000 for the 3Q 2019 period increased $135,000 or 22% compared to $606,000 for the 3Q 2018 period. The increase between periods was primarily due to an increase of $52,000 in consulting fees, $40,000 increase in legal fees and a $23,000 increase in payroll expenses.

 

Depreciation and amortization expenses. Depreciation and amortization expenses of $190,000 for the 3Q 2019 period increased $90,000 or 90% compared to $100,000 for the 3Q 2018 period. The increase between periods was primarily due to $22,000 in increased quarterly amortization with respect to the ICD Logic acquisition to reflect a change to three (3) years of remaining useful life from the previous six (6) years. We also effectively doubled our Acquired Technology assets with the acquisition of technology from ClariCare during 2Q 2019 (as discussed previously in “Nature of Operations”), thus resulting in a $55,000 quarterly increase in the related amortization expense between periods.

 

Interest Expense. Interest expense of $109,000 for the 3Q 2019 period increased $50,000 or 85% compared to $59,000 in the 3Q 2018 period. The increase between periods was primarily due to a $60,000 increase stemming from late fees assessed upon paying off our line of credit facility during 3Q 2019 (see “Credit Facilities” for further discussion) combined with a $11,000 decrease in quarterly interest expense resulting from the 4Q 2018 payoff of a Stockholder Convertible note.

 

Other (expense) income. Other (expense) income was $0 for the 3Q 2019 and $8,000 in the 3Q 2018 period. The activity in 3Q 2018 related to a small debt forgiveness as part of a dispute resolution.

 

Gain on cancellation of liabilities. Gain on cancellation of liabilities income of $154,000 for the 3Q 2019 increased $154,000 compared to $0 in the 3Q 2018 period. The increase between periods was due to liabilities being cancelled in the current fiscal quarter.

 

Nine Month Period Ended September 30, 2019 Compared to Nine Month Period Ended September 30, 2018

 

Revenues. Net revenues of $810,000 for the nine month period ended September 30, 2019 decreased $83,000 or 9% when compared to net revenues of $893,000 for the nine month period ended September 30, 2018. The decrease between periods was primarily due to a $175,000 decrease in one-time EHR software revenues somewhat offset by a $105,000 increase in recurring SaaS revenues.

 

Cost of sales. Cost of sales of $247,000 for the nine month period ended September 30, 2019 decreased $112,000 or 31% when compared to cost of sales of $359,000 for the nine month period ended September 30, 2018. The decrease between periods was due to an additional $38,000 of expense getting capitalized and recorded on the Balance Sheet for the nine month period ended September 30, 2019, a $24,000 one-time expense being recorded in the nine month period ended September 30, 2018 and a $41,000 reduction in IT development wages being classified as cost of sales in the nine month period ended September 30, 2018.

 

Selling, general and administrative expenses. Selling, general and administrative expenses of $2,310,000 for the nine month period ended September 30, 2019 decreased $507,000 or 18% when compared to selling, general and administrative expenses of $2,817,000 for the nine month period ended September 30, 2018. The decrease between periods was primarily due to a decrease of $546,000 in stock compensation expense.

 

 
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Depreciation and amortization expenses. Depreciation and amortization expenses of $464,000 for the nine month period ended September 30, 2019 increased $164,000 or 55% when compared to the depreciation and amortization expenses of $300,000 for the nine month period ended September 30, 2018. The increase between periods was primarily due to $22,000 in increased quarterly amortization with respect to the ICD Logic acquisition to reflect a change to three (3) years of remaining useful life from the previous six (6) starting in 2Q 2019. We also effectively doubled our Acquired Technology assets with the acquisition of technology from ClariCare during the 2Q 2019 (as discussed previously in “Nature of Operations”) thus resulting in a quarterly increase in amortization expense of $54,000 starting in 2Q 2019.

 

Interest Expense. Interest expense of $204,000 for the nine month period ended September 30, 2019 increased $35,000 or 21% when compared to interest expense of $169,000 for the nine month period ended September 30, 2018. The increase between periods was primarily due to a $60,000 increase stemming from late fees assessed upon paying off our line of credit facility during 3Q 2019 (see “Credit Facilities” for further discussion) combined with a $11,000 decrease in quarterly interest expense resulting from the 4Q 2018 payoff of a Stockholder Convertible note.

 

Other (expense) income. Other (expense) income was $0 for the nine month period ended September 30, 2019 and $1,742,000 for the nine month period ended September 30, 2018. The change between periods was primarily due to the $1,750,000 acquisition of Electro-Fish Media, Inc. in January, 2018.

 

Gain on cancellation of liabilities. Gain on cancellation of liabilities of $154,000 for the nine month period ended September 30, 2019 and $0 for the nine month period ended September 30, 2018. The increase between periods was due to liabilities being cancelled in 3Q 2019.

 

LIQUIDITY AND CAPITAL

 

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 nine month period ended September 30, 2019 the Company generated an operating loss of $2,211,000. In addition, the Company has an accumulated deficit, total stockholders’ equity and net working capital deficit of $73,618,000, $288,000 and $1,594,000 respectively at September 30, 2019. The Company’s activities were primarily financed through private placements of equity securities. The Company intends to raise additional capital through the issuance of debt 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. It’s worth noting the Company paid off its existing line of credit and successfully borrowed $78k in convertible debt during 3Q 2019.

 

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.

 

The primary factors that influence our liquidity include, but are not limited to, the amount and timing of our equity and debt raises, revenues, cash collections from our clients, capital expenditures, and investments in research and development. The following table summarizes the impact of operating, investing and financing activities on our cash flows for the nine month periods ended September 30, 2019 and 2018 related to our operations:  

 

 

 

Nine Months

Ended

 

 

Nine Months

Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

Net cash used in operating activities

 

$(1,492,000)

 

$(1,581,000)

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(348,000)

 

 

(251,000)

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

1,870,000

 

 

 

2,257,000

 

 

 

 

 

 

 

 

 

 

Net Increase / (Decrease) in cash

 

 

30,000

 

 

 

425,000

 

Cash and cash equivalents at the beginning of the period

 

 

1,000

 

 

 

52,000

 

Cash and cash equivalents at the end of the period

 

$31,000

 

 

$477,000

 

  

The accompanying “Management’s Discussion and Analysis of Financial Condition and Results of Operations” provides a comparison of the amounts listed above.

 

 
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Operating Activities: Net cash used by operating activities of $1,492,000 for the nine month period ended September 30, 2019 was $89,000 less than the $1,581,000 cash used by operations for the nine month period ended September 30, 2018. The decrease in cash utilized by operating activities compared to the nine month period ended September 30, 2018 was attributable to a $19,000 decrease in net loss and non-cash adjustments to net loss combined with an $70,000 decrease in the cash impact of changes in operating assets and liabilities. Future spending on operating activities is expected to be funded by the sale of and issuance of additional shares of common stock.

 

Investing Activities: Net cash used by investing activities of $348,000 for the nine month period ended September 30, 2019 was $97,000 more than the $251,000 cash used by investing activities for the nine month period ended September 30, 2018. This was due to an increase of $47,000 in software development spending combined with the cash of $50,000 paid as part of the consideration to acquire technology from ClariCare. Future spending on investing activities is expected to be funded by the sale of and issuance of additional shares of common stock.

 

Financing Activities: Net cash provided by financing activities of $1,870,000 for the nine month period ended September 30, 2019 was $387,000 less than the $2,257,000 cash provided by financing activities for the nine month period ended September 30, 2018 primarily due to the $498,000 line of credit debt being paid off in 3Q 2019 (see “Credit Facilities” below for further discussion) partially offset by $83,000 more cash being raised from the issuance of common stock during the nine month period ended September 30, 2019.

 

Credit Facilities

 

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

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve (12) months after issuance (the "Note") and received $75,000 net of closing fees. Interest at 10% per annum shall not be due until maturity.  One hundred eighty (180) days following the date of funding and thereafter, the Note shall be convertible into common stock of the Company ("Common Stock").  The conversion price shall be subject to a discount of 39%.  The conversion price shall be determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period.  There is an ascending prepayment penalty percentage applied should the Company prepay the Note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The Note Holder will be limited to convert no more than 4.99% of the issued and outstanding Common Stock at time of conversion at any one time.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer, currently filling the role of Acting Chief Financial Officer, has evaluated our disclosure controls and procedures. Based on such evaluation, and after considering the controls implemented to mitigate the significant deficiency related to insufficient accounting personnel discussed in our SEC filing on Form 10-K dated December 31, 2018, he has concluded that, as of September 30, 2019, our disclosure controls and procedures were effective in ensuring that information relating to the Company required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to him and other members of our management as appropriate to allow timely decisions regarding required disclosure.

 

Changes to Internal Control Over Financial Reporting

 

We have not identified any change in our internal control over financial reporting during our most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

ITEM 1. 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 will not have a material adverse effect on our financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Information with respect to sales of unregistered shares of the Common Stock of the Company during the fiscal quarter ended September 30, 2019, as well as sales of unregistered shares of Common Stock of the Company during the first nine months of the current fiscal year, is set forth in the Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Nine Month Period Ended September 30, 2019 and 2018 (Unaudited) contained in Part I Financial Information. All such sales were to accredited investors and were made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended. The proceeds were used by the Company for working capital purposes.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

 
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ITEM 6. EXHIBITS

 

31.1*

Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

 

31.2*

Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

 

32.1*

Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2*

Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101

Interactive data files pursuant to Rule 405 of Regulation S-T

 

 
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SIGNATURES

 

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

 

 

iCoreConnect, Inc. (Registrant)

 

Date: November 14, 2019

By:

/s/ Robert McDermott

 

Robert McDermott

 

Chief Executive Officer

 

(Principal Executive Officer)

 

Date: November 14, 2019

By:

/s/ Robert McDermott

 

Robert McDermott

 

Acting Chief Financial Officer

 

(Acting Principal Accounting Officer)

 

 

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