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EX-32.2 - CERTIFICATION - iCoreConnect Inc.icct_ex322.htm
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EX-31.1 - CERTIFICATION - iCoreConnect Inc.icct_ex311.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 March 31, 2020

 

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 ☒     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 Exchange Act). Yes ☐     No ☒

 

As of May 8, 2020, there were 72,576,928 shares of the registrant’s common stock outstanding.

 

 

 

 

iCoreConnect Inc.
FORM 10-Q QUARTERLY REPORT

FOR THE QUARTER ENDED MARCH 31, 2020

 

Part I Financial Information

 

 

 

 

 

 

 

 

Item 1

Financial Statements (Unaudited)(Rounded)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

 

4

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three Months ended March 31, 2020 and 2019

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

 

6

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

 

Item 2.

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

 

15

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

 

21

 

 

 

 

 

 

Not applicable

 

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

21

 

 

 

 

 

 

Part II Other Information

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

22

 

 

 

 

 

Item 1A.

Risk Factors

 

22

 

 

 

 

 

 

Not applicable

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

22

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

22

 

 

 

 

 

 

Not Applicable

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

22

 

 

 

 

 

 

Not Applicable

 

 

 

 

 

 

Item 5.

Other Information

 

22

 

 

 

 

 

 

Not Applicable

 

 

 

 

 

 

 

 

Item 6.

Exhibits

 

23

 

 

 

 

 

Signatures

 

24

 

 
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Table of Contents

 

iCoreConnect Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 2019

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$ 61,000

 

 

$ 445,000

 

Accounts receivable, net of allowance for doubtful accounts

 

 

126,000

 

 

 

101,000

 

Prepaid expenses

 

 

23,000

 

 

 

8,000

 

Total current assets

 

 

210,000

 

 

 

554,000

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

5,000

 

 

 

6,000

 

Right of use lease asset - operating

 

 

48,000

 

 

 

53,000

 

Software development costs, net

 

 

713,000

 

 

 

625,000

 

Acquired technology, net

 

 

794,000

 

 

 

891,000

 

Customer relationships, net

 

 

454,000

 

 

 

32,000

 

Goodwill

 

 

491,000

 

 

 

361,000

 

Total long-term assets

 

 

2,505,000

 

 

 

1,968,000

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 2,715,000

 

 

$ 2,522,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 1,082,000

 

 

$ 1,001,000

 

Operating lease liability, current portion

 

 

49,000

 

 

 

55,000

 

Current maturities of long-term debt

 

 

908,000

 

 

 

880,000

 

Deferred revenue, current portion

 

 

7,000

 

 

 

-

 

Total current liabilities

 

 

2,046,000

 

 

 

1,936,000

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

13,000

 

 

 

13,000

 

Deferred revenue, net of current portion

 

 

103,000

 

 

 

108,000

 

Total long-term liabilities

 

 

116,000

 

 

 

121,000

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

2,162,000

 

 

 

2,057,000

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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: 70,673,594 as of March 31, 2020 and 67,476,089 as of December 31, 2019

 

 

71,000

 

 

 

67,000

 

Additional paid-in-capital

 

 

75,602,000

 

 

 

74,738,000

 

Accumulated deficit

 

 

(75,120,000 )

 

 

(74,340,000 )

TOTAL STOCKHOLDERS' EQUITY

 

 

553,000

 

 

 

465,000

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$ 2,715,000

 

 

$ 2,522,000

 

 

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

 

 
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Table of Contents

 

iCoreConnect Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2020 AND  2019 (UNAUDITED)

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

$ 506,000

 

 

$ 280,000

 

Cost of sales

 

 

219,000

 

 

 

88,000

 

Gross profit

 

 

287,000

 

 

 

192,000

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

809,000

 

 

 

797,000

 

Depreciation and amortization

 

 

223,000

 

 

 

107,000

 

Total operating expenses

 

 

1,032,000

 

 

 

904,000

 

Loss from operations

 

 

(745,000 )

 

 

(712,000 )

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(35,000 )

 

 

(49,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (780,000 )

 

$ (761,000 )

 

 

 

 

 

 

 

 

 

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

 

$ (0.01 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

 

69,844,262

 

 

 

52,210,810

 

 

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

 

 
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Table of Contents

 

iCoreConnect Inc.

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

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2020

 

 

67,476,089

 

 

$ 67,000

 

 

$ 74,738,000

 

 

$ (74,340,000 )

 

$ 465,000

 

Stock issued for cash

 

 

2,280,000

 

 

 

3,000

 

 

 

567,000

 

 

 

-

 

 

 

570,000

 

Stock issued for conversion of note payable

 

 

56,255

 

 

 

-

 

 

 

20,000

 

 

 

-

 

 

 

20,000

 

Stock compensation expense

 

 

131,250

 

 

 

-

 

 

 

95,000

 

 

 

-

 

 

 

95,000

 

Stock issued for asset acquisition of TrinIT (Note 8)

 

 

730,000

 

 

 

1,000

 

 

 

182,000

 

 

 

-

 

 

 

183,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(780,000 )

 

 

(780,000 )

Balances at March 31, 2020

 

 

70,673,594

 

 

$ 71,000

 

 

$ 75,602,000

 

 

$ (75,120,000 )

 

$ 553,000

 

 

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

 

 
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Table of Contents

 

iCoreConnect Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)

 

 

 

 

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITTIES:

 

 

 

 

 

 

Net loss

 

$ (780,000 )

 

$ (761,000 )

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

4,000

 

 

 

1,000

 

Amortization expense

 

 

219,000

 

 

 

106,000

 

Stock compensation expense

 

 

95,000

 

 

 

208,000

 

Non-cash interest expense

 

 

12,000

 

 

 

-

 

Decrease (increase) in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(25,000 )

 

 

102,000

 

Prepaid expenses

 

 

(9,000 )

 

 

(17,000 )

Right of use asset, net of lease liability

 

 

(1,000 )

 

 

(3,000 )

Accounts payable and accrued expenses

 

 

53,000

 

 

 

(14,000 )

Deferred revenue

 

 

(4,000 )

 

 

4,000

 

NET CASH USED IN OPERATING ACTIVITIES

 

 

(436,000 )

 

 

(374,000 )

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property & equipment

 

 

-

 

 

 

-

 

Cash paid for acquisition of TrinIT, net of acquired cash (see Note 8)

 

 

(375,000 )

 

 

-

 

Cash paid for capitalized software development costs

 

 

(181,000 )

 

 

(94,000 )

NET CASH USED IN INVESTING ACTIVITIES

 

 

(556,000 )

 

 

(94,000 )

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITES

 

 

 

 

 

 

 

 

Net proceeds from debt

 

 

88,000

 

 

 

-

 

Payments on debt

 

 

(50,000 )

 

 

(49,000 )

Proceeds from issuance of common stock

 

 

570,000

 

 

 

655,000

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

608,000

 

 

 

606,000

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

 

(384,000 )

 

 

138,000

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

 

 

445,000

 

 

 

1,000

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

 

$ 61,000

 

 

$ 139,000

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$ 38,000

 

 

$ 36,000

 

Stock issued for acquisition of TrinIT

 

$ 183,000

 

 

$ -

 

Stock issued for conversion of convertible notes payable

 

$ 20,000

 

 

$ -

 

 

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

 

 
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Table of Contents

 

iCoreConnect Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(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. The Company 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 with 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 solved this problem.

 

During Q1 2020 iCoreConnect successfully launched two new software solutions: iCoreRx and iCoreHuddle. Both offer much needed workflow enhancements to providers looking to bolster their existing practice management solution with additional features such as ePrescribing and business analytics.

 

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

 

iCoreHuddle is a practice workflow tool that connects to most popular Practice Management and EHR systems. It provides the practice with a dashboard with various metrics and KPIs (key performance indicators). iCoreHuddle provides a daily view of the schedule of patients, including their outstanding balance, uncompleted or open treatment plans, recall information, procedure information and remaining insurance benefits. The system provides an enormously powerful tool to instantly reveal the revenue potential for each patient. Also included in iCoreHuddle is the RTBC (Real Time Benefit Check) module. The RTBC module looks ahead of the schedule and checks for accuracy regarding the patient's insurance among other specifics to ensure that every patient in the schedule has been validated before their visit. This allows the users via a single click to access the eligibility status of their insurance including a detailed report from the insurance provider on benefits and deductibles in real-time. This tool greatly increases workflow efficiency of the practice by reducing the number of lookups and clicks for each patient. In addition to the above benefits, the software also allows the provider to access patient information from anywhere via the cloud, when traditionally this information has only been available on the Practice Management systems inside the office.

 

 
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Table of Contents

  

Software products

 

The Company currently markets nine different customizable secure HIPAA compliant cloud-based software products:

 

iCoreExchange, iCoreCodeGenius, iCoreSecure, iCoreMD, iCoreDental, iCoreMobile, iCoreExam, iCoreHuddle and iCoreRx.

 

IT Services

 

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

 

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

 

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

 

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

 

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

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

  

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

 

BASIS OF PRESENTATION

 

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, 2019, which are included in the Company’s Annual Report filed on Form 10-K with the SEC on March 27, 2020. The accompanying condensed balance sheet as of December 31, 2019 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 three month period ended March 31, 2020 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 three month period ended March 31, 2020 the Company generated an operating loss of $745,000. In addition, the Company has an accumulated deficit, total stockholders’ equity and net working capital deficit of $75,120,000, $553,000 and $1,836,000, respectively, at March 31, 2020. 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.

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve months after issuance and received $75,000 net of closing fees. Interest at 10% per annum is not due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into Common Stock. The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time. During 1Q 2020 the note holder converted on two separate occasions a total of $20,000 in convertible note principal into 56,255 common shares of the Company at an average conversion price of $0.36 per common share.

 

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

 

In January 2020 the Company signed a $100,000 convertible promissory note payable to a third finance company due twelve (12) months after issuance and received $88,500 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. The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the lowest traded price for the Common Stock during the prior twenty (20) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

On March 11, 2020, the World Health Organization characterized the spread of a novel strain of coronavirus (“COVID-19”) as a global pandemic and continued widespread infection in the United States is a possibility. Actions have been taken by federal, state and local governmental authorities to combat the spread of COVID-19, including issuance of “stay-at-home” directives and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These measures, while intended to protect human life, have led to reduced economic activity. The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact COVID-19 will have on the Company’s business, financial condition, results of operation and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 outbreak in the United States.

 

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.

 

 
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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 our financial position, results of operations and cash flows are summarized below.

 

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. Conversely, if the financial condition of our customers improves and collections of amounts outstanding commence or are reasonably assured, then we may reverse previously established allowances for doubtful accounts. The Company has estimated and recorded an allowance for doubtful accounts of $17,000 at both March 31, 2020 and December 31, 2019.

 

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.

 

 
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Revenue Recognition

 

The Company has five primary sources of revenue:

 

1. Electronic Health Records (EHR) licenses and rental services

 

2. Encrypted Secure & HIPPA Compliant email services (“Encrypted Secure email”)

 

3. ICD Coding Software

 

4. IT Project (new from TrinIT acquisition)

 

5. Managed IT Services (new from TrinIT acquisition)

 

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 a 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 a 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.

 

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.

 

IT Project revenue, new from the TrinIT acquisition in Q1 2020, relates to the “ad hoc” customer projects involving time and material with the corresponding revenue being recognized after job completion.

 

Managed IT Services, new from the TrinIT acquisition in Q1 2020, offers customers bundled IT services with annual contracts invoiced monthly as services are performed or prepaid annually with any unearned revenue being deferred and amortized ratably over the course of the remaining year.

 

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, warrants and shares to be issued under convertible debt instruments.

 

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.

 

 
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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.

 

Recently Issued Accounting Pronouncements

 

The Company does not believe that any 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 three month period ended March 31, 2020, the Company issued 2,280,000 shares of common stock for cash proceeds totaling $570,000. August 2019 convertible note holders also converted $20,000 of note principal into 56,255 shares. In addition, a total of 131,250 restricted shares of common stock issued in 2019 vested during the three month period ended March 31, 2020. Lastly, the Company issued 730,000 shares of common stock as part of the consideration to acquire the assets of TrinIT (See Note 8).

 

Stock Options

 

During the three month period ended March 31, 2020, no options to purchase shares of common stock granted to employees expired and no options were forfeited or exercised.

 

A summary of option activity for the three month period ended March 31, 2020, is presented below:

  

Options Outstanding

 

Number of Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term in Years

 

 

Aggregate Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding - January 1, 2020

 

 

1,410,000

 

 

$ 0.24

 

 

 

9.2

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

$ -

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

-

 

 

$ -

 

 

 

 

 

 

 

 

 

Balance Outstanding - March 31, 2020

 

 

1,410,000

 

 

$ 0.24

 

 

 

8.9

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - March 31, 2020

 

 

976,667

 

 

$ 0.24

 

 

 

8.9

 

 

$ -

 

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

 

 

-

 

 

$ -

 

 

 

 

 

Forfeited/expired

 

 

-

 

 

 

 

 

 

 

 

 

Nonvested - March 31, 2020

 

 

433,333

 

 

$ 0.13

 

 

 

0.4

 

 

 
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5. SOFTWARE DEVELOPMENT COSTS

 

The Company continued to develop its software products with significant features and enhancements during the three month period ended March 31, 2020 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:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Development costs

 

$ 2,117,000

 

 

$ 1,936,000

 

Acquired technology

 

 

1,277,000

 

 

 

1,277,000

 

Less accumulated amortization

 

 

(1,887,000 )

 

 

(1,697,000 )

 

 

$ 1,507,000

 

 

$ 1,516,000

 

  

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.

 

On January 3, 2020, the Company purchased the assets of Computer Plumber, LLC, doing business as TrinIT (“TrinIT”), an IT service company located in the Charlotte, North Carolina area, to complement our technology line up. TrinIT signed a two-year lease for its headquarters starting on November 1, 2018.

 

As of March 31, 2020, undiscounted future lease obligations for the office spaces are as follows:

 

Year Ended

 

Lease Amount

 

 

 

 

 

December 31, 2020

 

$ 51,000

 

December 31, 2021

 

 

-

 

 

 

$ 51,000

 

 

Lease costs for the three months ended March 31, 2020 were $17,000 and cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2020 were $21,000. As of March 31, 2020, the following represents the difference between the remaining undiscounted lease commitments under non-cancelable leases and the lease liabilities:

 

Undiscounted minimum lease commitments

 

$ 51,000

 

Present value adjustment using incremental borrowing rate

 

 

(2,000 )

Lease liabilities

 

$ 49,000

 

  

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 could range from immediate payment for access to the Company’s software products to payment over a period of several months. Management periodically and regularly reviews customer account activity 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 three months ended March 31, 2020 and 2019 and the accounts receivable concentrations as of March 31, 2020 and December 31, 2019, expressed as a percentage of the Company’s revenue and accounts receivable, respectively, are as follows:

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

Accounts Receivable at

 

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer A

 

 

20 %

 

 

38 %

 

 

27 %

 

 

32 %

Customer B

 

 

0 %

 

 

19 %

 

 

0 %

 

 

0 %

Customer C

 

 

0 %

 

 

0 %

 

 

23 %

 

 

29 %

 

 
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8. BUSINESS COMBINATIONS

 

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”).

 

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 the 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 January 3, 2020:

 

Consideration Paid:

 

 

 

Cash

 

$ 400,000

 

Common stock

 

 

183,000

 

 

 

$ 583,000

 

 

 

 

 

 

Fair values of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

Assets acquired:

 

 

 

 

Cash

 

$ 25,000

 

Other current asset

 

 

6,000

 

Right of Use - Lease

 

 

14,000

 

Fixed Assets

 

 

3,000

 

Customer relationships

 

 

450,000

 

Goodwill

 

 

130,000

 

Total assets acquired

 

 

628,000

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Due to Seller

 

 

10,000

 

Accrued Liability

 

 

15,000

 

Deferred revenue

 

 

6,000

 

Lease Liability

 

 

14,000

 

Total liabilities assumed

 

 

45,000

 

 

 

 

 

 

Net assets acquired

 

$ 583,000

 

 

9. SUBSEQUENT EVENTS

 

Since March 31, 2020, the Board approved the issuance of 1,000,000 shares of the Company’s Common Stock to the President and Chief Executive Officer of the Company which were earned and reflected as a 2019 expense. The Board also approved the issuance of an additional 890,000 shares to its Directors, certain officers, and employees which will be reflected as an expense during 2020.

 

 
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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 Results of 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 March 27, 2020 and under the heading entitled “Going Concern” in the “Notes to Condensed Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q. 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., (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. The Company 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 with 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 solved this problem.

 

During Q1 2020 iCoreConnect successfully launched two new software solutions: iCoreRx and iCoreHuddle. Both offer much needed workflow enhancements to providers looking to bolster their existing practice management solution with additional features such as ePrescribing and business analytics.

 

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

 

 
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iCoreHuddle is a practice workflow tool that connects to most popular Practice Management and EHR systems. It provides the practice with a dashboard with various metrics and KPIs (key performance indicators). iCoreHuddle provides a daily view of the schedule of patients, including their outstanding balance, uncompleted or open treatment plans, recall information, procedure information and remaining insurance benefits. The system provides an enormously powerful tool to instantly reveal the revenue potential for each patient. Also included in iCoreHuddle is the RTBC (Real Time Benefit Check) module. The RTBC module looks ahead of the schedule and checks for accuracy regarding the patient's insurance among other specifics to ensure that every patient in the schedule has been validated before their visit. This allows the users via a single click to access the eligibility status of their insurance including a detailed report from the insurance provider on benefits and deductibles in real-time. This tool greatly increases workflow efficiency of the practice by reducing the number of lookups and clicks for each patient. In addition to the above benefits, the software also allows the provider to access patient information from anywhere via the cloud, when traditionally this information has only been available on the Practice Management systems inside the office.

 

Software products

 

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

 

IT Services

 

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

 

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

 

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

 

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

 

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

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

  

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

 

 
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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.

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve months after issuance and received $75,000 net of closing fees. Interest at 10% per annum is not due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into Common Stock. The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time. During 1Q 2020 the note holder converted on two separate occasions a total of $20,000 in convertible note principal into 56,255 common shares of the Company at an average conversion price of $0.36 per common share.

 

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

 

In January 2020 the Company signed a $100,000 convertible promissory note payable to a third finance company due twelve (12) months after issuance and received $88,500 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. The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the lowest traded price for the Common Stock during the prior twenty (20) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

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.

 

 
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Revenue Recognition

 

The Company has five primary sources of revenue:

 

1. Electronic Health Records (EHR) licenses and rental services

 

2. Encrypted Secure & HIPPA Compliant email services (“Encrypted Secure email”)

 

3. ICD Coding Software

 

4. IT Project (new from TrinIT acquisition)

 

5. Managed IT Services (new from TrinIT acquisition)

 

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 a 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 a 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.

 

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.

 

IT Project revenue, new from the TrinIT acquisition in Q1 2020, relates to the “ad hoc” customer projects involving time and material with the corresponding revenue being recognized after job completion.

 

Managed IT Services, new from the TrinIT acquisition in Q1 2020, offers customers bundled IT services with annual contracts invoiced monthly as services are performed or prepaid annually with any unearned revenue being deferred and amortized ratably over the course of the remaining year.

 

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

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

 

 

March 31,

 

 

 

 

 

 

2020

 

 

2019

 

 

% Incr/(Decr)

 

Revenues

 

$ 506,000

 

 

$ 280,000

 

 

 

81 %

Cost of sales

 

 

219,000

 

 

 

88,000

 

 

 

149 %

Gross profit

 

 

287,000

 

 

 

192,000

 

 

 

49 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

809,000

 

 

 

797,000

 

 

 

2 %

Depreciation and amortization

 

 

223,000

 

 

 

107,000

 

 

 

108 %

Total operating expenses

 

 

1,032,000

 

 

 

904,000

 

 

 

14 %

Loss from operations

 

 

(745,000 )

 

 

(712,000 )

 

 

5 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(35,000 )

 

 

(49,000 )

 

 

-29 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (780,000 )

 

$ (761,000 )

 

 

2 %

  

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

 

Three Month Period Ended March 31, 2020 (“1Q 2020”) Compared to Three Month Period Ended March 31, 2019 (“1Q 2019”)

 

Revenues. Net revenues of $506,000 for the 1Q 2020 period increased $226,000 or 81% compared to $280,000 for the 1Q 2019 period. The increase between periods was primarily due to recurring SaaS revenues increasing $48,000 combined with an $181,000 increase in sales due to the acquisition of TrinIT in 1Q 2020.

 

Cost of sales. Cost of sales of $219,000 for the 1Q 2020 period increased $131,000 or 149% compared to $88,000 for the 1Q 2019 period. The increase between periods was due primarily to a $51,000 increase in cost of sales labor and $73,000 in cost of sales material both as a result of the acquisition of TrinIT in 1Q 2020.

 

Selling, general and administrative expenses. Selling, general and administrative expenses of $809,000 for the 1Q 2020 period increased $12,000 or 2% compared to $797,000 for the 1Q 2019 period. The increase between periods was primarily due to an increase of $56,000 in consulting fees and a $46,000 increase in payroll expenses due to the acquisition of TrinIT in 1Q 2020 offset by a $113,000 decrease in stock compensation expenses in 1Q 2020.

 

Depreciation and amortization expenses. Depreciation and amortization expenses of $223,000 for the 1Q 2020 period increased $116,000 or 108% compared to $107,000 for the 1Q 2019 period. The increase between periods was primarily made of three components. First, there was a $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. Second, we effectively doubled our Acquired Technology assets with the acquisition of technology from ClariCare during 2Q 2019 thus resulting in a $55,000 quarterly increase in the related amortization expense between periods. Third, the 1Q 2020 acquisition of TrinIT increased our quarterly amortization $23,000 starting in 1Q 2020.

 

Interest Expense. Interest expense of $35,000 for the 1Q 2020 period decreased $14,000 or 29% compared to $49,000 in the 1Q 2019 period. The decrease between periods was primarily due to an $8,000 decrease in quarterly interest expense resulting from the 2Q 2019 payoff of the line of credit (see further discussion in “Credit Facilities”).

 

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 three month period ended March 31, 2020 the Company generated an operating loss of $745,000. In addition, the Company has an accumulated deficit, total stockholders’ equity and net working capital deficit of $75,120,000, $553,000 and $1,836,000, respectively, at March 31, 2020. 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.

 

 
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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 three month periods ended March 31, 2020 and 2019 related to our operations:

  

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

Ended

 

 

Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net cash used in operating activities

 

$ (436,000 )

 

$ (374,000 )

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(556,000 )

 

 

(94,000 )

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

608,000

 

 

 

606,000

 

 

 

 

 

 

 

 

 

 

Net Increase / (Decrease) in cash

 

 

(384,000 )

 

 

138,000

 

Cash and cash equivalents at the beginning of the period

 

 

445,000

 

 

 

1,000

 

Cash and cash equivalents at the end of the period

 

$ 61,000

 

 

$ 139,000

 

  

Operating Activities: Net cash used by operating activities of $436,000 for the three month period ended March 31, 2020 was $62,000 more than the $374,000 cash used by operations for the three month period ended March 31, 2019. The increase in cash utilized by operating activities compared to the three month period ended March 31, 2019 was attributable to a $4,000 increase in net loss and non-cash adjustments to net loss combined with an $58,000 increase 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 $556,000 for the three month period ended March 31, 2020 was $462,000 more than the $94,000 cash used by investing activities for the three month period ended March 31, 2019. This was due to an increase of $87,000 in software development spending combined with the net cash outlay of $375,000 paid as part of the consideration to acquire the assets of TrinIT. 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 $608,000 for the three month period ended March 31, 2020 was $2,000 more than the $606,000 cash provided by financing activities for the three month period ended March 31, 2019. This was primarily due to cash proceeds of $88,000 from a convertible debt deal closing in Q1 2020 being largely offset by $85,000 less cash being raised from the issuance of common stock during the three month period ended March 31, 2020.

 

Credit Facilities

 

The Company’s line of credit was paid off in 2Q 2019 and its commercial banking business was moved. The Company currently has no active line of credit facility.

 

In August 2019 the Company signed a $78,000 convertible promissory note due twelve months after issuance and received $75,000 net of closing fees. Interest at 10% per annum is not due until maturity. One hundred eighty (180) days following the date of funding and thereafter, the note is convertible into Common Stock. The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the average of the three (3) lowest closing bid prices for the Common Stock during the prior fifteen (15) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time. During 1Q 2020 the note holder converted on two separate occasions a total of $20,000 in convertible note principal into 56,255 common shares of the Company at an average conversion price of $0.36 per common share.

 

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

 

In January 2020 the Company signed a $100,000 convertible promissory note payable to a third finance company due twelve (12) months after issuance and received $88,500 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. The conversion price of the note is 61% of the Market Price (as defined in the note) for the Common Stock (a discount of 39%). The conversion price is determined on the basis of the lowest traded price for the Common Stock during the prior twenty (20) trading day period. There is an ascending prepayment penalty percentage applied should the Company prepay the note during the first one hundred eighty (180) days after which the Company shall have no right of prepayment. The note holder is limited to receive upon conversion no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.

 

ITEM 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 also filling the role of Acting Chief Financial Officer, has evaluated our disclosure controls and procedures. Based on such evaluation, and after considering the controls implemented to mitigate the material weakness related to insufficient accounting personnel discussed in our SEC filing on Form 10-K dated December 31, 2019, he has concluded that, as of March 31, 2020, 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 March 31, 2020 is set forth in the Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three Month Period Ended March 31, 2020 and 2019 (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: May 15, 2020 By: /s/ Robert McDermott

 

 

Robert McDermott

 
   

Chief Executive Officer

(Principal Executive Officer)

 
       

Date: May 15, 2020

By:

/s/ Robert McDermott

 

 

 

Robert McDermott

 

 

 

Acting Chief Financial Officer

 

 

 

(Acting Principal Accounting Officer)

 

 

 
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