UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of
1934
iCoreConnect Inc.
(Exact name of registrant as specified in its charter)
File No. 000-52765
Nevada
|
13-4182867
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(State or other
jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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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)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, 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. (Check
one):
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated
filer
|
☐ (Do not
check if a smaller reporting company)
|
Smaller reporting company
|
☒
|
|
|
Emerging growth
company
|
☐
|
Item 1. Business.
The following information should be read in conjunction with the
“Risk Factors” discussed in Item 1A of this
Registration Form 10 for an understanding of the negative variables
that can affect our business and results of
operations.
Business Overview
iCoreConnect
Inc., a Nevada corporation (the “Company”), builds
cloud based software for healthcare records capture, storage,
retrieval, transport and security related products. The
Company’s focus presently is on four different revenue
streams provided by: (1) iCoreConnect’s cloud-based messaging
exchange, (the “iCoreExchange”), which allows
physicians, patients and other members of the healthcare community
to exchange patient-specific healthcare information securely via
the internet, while maintaining compliance with all current Health
Insurance Portability and Accountability Act (“HIPAA”)
regulations, (2) customized electronic health record platform
technology that is specifically tailored to provide specialized
medical and dental practices with a technology that conforms to
workflows of a particular medical discipline, (3) the
Company’s Meaningful Use Consulting Division, that assists
both medical and dental healthcare providers becoming
“Meaningful Use” compliant to ultimately qualify for
federal incentive funds under the Federal Meaningful Use Incentive
Funds Program and (4) International Statistical Classification of
Diseases and Related Health Problems (ICD) coding software, a
medical classification list by the World Health Organization (WHO).
iCoreConnect’s integrated software and service offering is
unique in the healthcare space as it enables doctors to comply with
the increasing regulatory burden associated with secure HIPAA
compliant medical records transport with no change in healthcare
delivery workflows.
On
June 30, 2017, the Company effected a 1 for 1,781 reverse stock
split of its issued and outstanding shares of common stock, $0.001
par value, whereby 17,807,298,401 outstanding shares of the
Company’s common stock were combined into 10,000,000 shares
of the Company's common stock. All per share amounts and number of
shares (other than authorized shares) in the consolidated financial
statements and related notes have been retroactively restated to
reflect the reverse stock split. Also on June 30, 2017, immediately
following the reverse split, the Company’s Articles of
Incorporation were amended and restated to provide that the Company
is authorized to issue 600,000,000 shares of Common stock, of which
45,124,853 shares were issued and outstanding at June 30, 2018, and
10,000,000 shares of Preferred stock, none of which were issued and
outstanding at June 30, 2018.
OUR TECHNOLOGY-BASED SOLUTIONS
The
Exchange is designed to place mission critical tools and features
in the hands of physicians and their staff, especially in the areas
of interoperability and secure communications. The Exchange allows
medical practices to reduce cost and increase healthcare to
patients through upgraded, HIPAA compliant modern communication
technology. The Exchange provides a HIPAA compliant interoperable
communications network that moves electronic patient health
information and images regardless of the system in which they
originated. It allows for peer collaboration, expansion of the
physician’s referral network and the ability to create
communities.
The
Exchange offers hospital systems, State Health Information
Exchanges (HIEs), Independent (Physician) Practice Associations
(IPAs) and, stand-alone doctors and dentists the extensive
functionality needed to demonstrate the Interoperability provisions
of “Meaningful Use” as defined by the US Department of
Health and Human Services Office of the National Coordinator (ONC).
The Exchange provides an immediate, low-cost solution for an
interoperable health information infrastructure that allows
healthcare providers to become interconnected.
iCoreConnect
employs a proprietary technology that allows for the exportation of
documents and images from any Electronic Health Records system,
thus addressing the issue of Interoperability. iCoreConnect also
facilitates the exchange of CCDA’s (Continuity of Care
Documents) and CCR’s (Continuity of Care Records), which have
become the standard for Interoperability between Electronic Medical
Records users. As a use-case-scenario, specialists can send a CCR /
CCDA from their Electronic Health Records to a patient’s
primary care physician instantaneously so that both physicians can
immediately have available the most up-to-date records for the
patient, and can collaborate on the patient’s care in a more
efficient manner.
iCoreConnect
incorporated a National Health Information Network (NHIN) Direct
Project Solution within iCoreConnect’s HIPAA-compliant
Exchange and now acts as a secure Health Information Service
Provider (HISP). Thus, hospitals, health information exchanges
(local, regional and statewide), physicians and other healthcare
professionals who have access to iCoreConnect’s iCoreExchange
will not only be able to send and receive secure messages within
the iCoreExchange, but also will be able to communicate in a secure
environment with other physicians and professionals outside the
network. The NHIN Direct Project Solution assures that all
point-to-point and point to multipoint transmittal of health
information will adhere to
the
highest standards and specifications required by the Office of the
National Coordinator for Health Information Technology (ONC). Now,
with its advanced NHIN Direct service added to the core services of
the iCoreExchange, any hospital, health information exchange or
health organization can access our National HIE (Health Information
Exchange) which is low cost and quick to disseminate health
information, while also addressing 100% of the ONC Meaningful Use
requirements for interoperability between disparate Electronic
Health Record systems.
iCoreConnect's
iCoreExchange provides a market leading secure, HIPAA-compliant
solution for interoperable medical information exchanges, coupled
with a professional network, for physicians, healthcare providers
and patients. Using iCoreConnect’s iCoreExchange, health
information can be exchanged across disparate Electronic Health
Record systems to communicate with physicians, collaborate, make
referrals and enhance communication with patients. With the
addition of iCoreConnect’s Electronic Health Records and
Meaningful Use divisions, we believe that iCoreConnect’s
unique package of solutions does not exist anywhere
else.
iCoreConnect
determined that the current Electronic Health Records (EHR) systems
in the marketplace were not meeting the expectations of the medical
and dental community. The Company developed our own fully
customizable, cloud-based, EHR system. This provides doctors with
powerful tools at their fingertips to make management of healthcare
delivery more efficient and less costly with reduced errors and,
ultimately, generate better patient outcomes. Our customers
continued to tell us that the “one-size-fits-all”
Electronic Health Record systems available in the marketplace today
were not serving their needs. They were too cumbersome or did not
provide the specific functionality required by medical practice
groups. iCoreConnect responded with its product, iCoreMD, that it
launched July 31, 2014, and launched its second proprietary and
customizable EHR system for the Dental community on August 5,
2014
iCoreMD
is a cloud based Medical EHR that is customizable-on-demand, for a
practice group's requests for specific functionality within the
practice's EHR software. The ability to customize the platform for
incremental and specific provider-group requirements is a key
differentiator to other EHR systems currently available. iCoreMD
includes a sophisticated practice management system, e-prescription
functionality, an integrated laboratory information system,
electronic claims processing, patient reminders, comprehensive
medical billing, patient scheduling with notifications, rules-based
clinical decision making algorithms and more. We believe, based on
extensive research and discussions with customers and other
healthcare professionals, that we have built a multi-faceted
product with substantial marketplace demand. All sensitive patient
information is transmitted securely in a HIPAA-compliant manner via
iCoreExchange, iCoreConnect's flagship secure email transport
network that uses NHIN DIRECT protocol, allowing providers to apply
for Meaningful Use Federal Incentive funds, currently available to
qualified doctors.
All
development has been completed by our own in-house development team
which gives us the ability to make changes very rapidly in order to
facilitate customers’ requests. We intend to continue to
build vertical, specialized EHR’s to meet the demand of the
marketplace requesting alternatives to one size fits all products
currently in the marketplace. iCoreConnect has its own in-house
development team which gives iCoreConnect the ability to quickly
adapt to market demands for present and future
products.
Company History
iCoreConnect
, a Nevada Corporation, was incorporated on July 17, 2001. The
initial business model was a desk top video, audio and data
delivery system using standard hardware and a broadband connection
to the internet to deliver a proprietary broadcast quality,
video/audio system through a personal computer. The Company decided
to shift its focus to the medical community shortly thereafter
based on the size and demographics of the medical community. In
2013 the Company decided after 10 years to bring in a new CEO with
experience in building, developing and creating value in companies
similar to iCoreConnect. Our new CEO restructured the financial
structure and operations, and focused the Company on a few core
competencies and brought in a new Management Team in the areas of
Sales, Finance, Operations and Technology.
The
Company continues to require substantial additional funding to
execute the business plan. Therefore, the new CEO focused on
restructuring the financial structure of the Company, that included
issuance of additional common stock, bridge loan debt raises and a
reverse stock split and Recapitalization completed on June 30,
2017.
iCoreConnect,
Inc., builds secure cloud-based communications systems, currently
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.
Our focus is threefold. First, iCoreConnect’s iCoreExchange
(Health Information Exchange), allows physicians and other
healthcare providers 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 NHIN Direct
protocol. Our solutions allow physicians 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
launched its iCoreExchange in May 2014 and can connect any
healthcare organization to any other healthcare organization,
regardless of which EMR, HIE or HIS (Hospital Information System)
is used. The iCoreExchange is vendor agnostic and therefore can
connect multiple disparate medical record and HIE applications. For
many years, providers of Electronic Health Records Systems have
been resistant in allowing or participating in Interoperability and
will continue to do so until regulations force a change in
behavior. iCoreConnect has solved this problem by allowing EHR
systems to aggressively compete, while iCoreConnect provides the
interoperable, secure network.
The
easy deployment of our iCoreExchange does not require partnering or
permission of any kind from EHR, or HISP companies, but functions
as an overall communication system that connects disparate end
points into one cohesive, secure communication network. Our
iCoreExchange offers the benefits of low-cost, ease-of-use and
rapid deployment that meets the
requirements
of each stage of meaningful use as well as being HIPAA compliant.
The Exchange operates seamlessly to send records with any ONC
(Office of the National Coordinator) certified electronic health
record vendor and is available without costly integration or
upgrading of technical infrastructure and without any additional
equipment costs, all within a HIPAA compliant structure. The
iCoreExchange can send Electronic Patient Health information
anytime, anywhere to anyone while maintaining a HIPAA compliant
structure.
The
technology represented by iCoreConnect’s iCoreExchange gives
physicians and other healthcare professionals the ability to
transfer personal health information electronically in a manner
which satisfies federal HIPAA regulations and meets the new
“Direct” national standards for Healthcare
Communications and similar privacy regulations in targeted
countries throughout the world. Until the launch of our
iCoreExchange, federal regulations made it exceedingly difficult
for records or images and discreet data to be transmitted using the
Internet. Standard email services that all other vertical markets
employ today are not HIPAA compliant and do not protect the privacy
of individual patient records. This consideration has made the
internet, as a communications tool, largely irrelevant to
healthcare organizations except for limited use with the assistance
of virtual private networks that may exist within a specific EMR /
HIE / HIS system. iCoreConnect has set a precedent by opening up
the internet to physicians and healthcare professionals to freely
exchange personal health information within a HIPAA compliant
environment, that includes the new national standards for
healthcare communications.
The
underlying proprietary technology used in launching iCoreExchange
can be customized to address other similar vertical markets
delivering the same professional secure portal services to the
legal, financial, education, insurance and other industries.
Wherever secure transmission of personal or professional records
are required, the Company’s core technology will allow the
Company to take a leadership role within these vertical markets in
the future.
Our
second focus, but directly related to our iCoreExchange, is
consulting with medical practices and dental practices to assist
them in becoming “Meaningful Use” compliant to receive
the federal incentive funds to underwrite the transition from a
paper to an electronic health records system. iCoreConnect began
this service as an official agent of the NJ-HITEC / REC project
working with primary care practices. Recently, iCoreConnect has
expanded into specialists and dental practices. iCoreConnect
provides this consulting service on a commission based success fee.
The Company charges the customer 20% of the money received as a
success fee. The fee is due within 7 days of the client receiving
funds from the Meaningful Use program. We presently have four to
six year agreements in place depending on whether the client is
qualified to receive Medicaid or Medicare Meaningful Use incentive
program funding.
The
Company’s third focus is a customizable ONC (Office of
National Coordinator) approved EHR (Electronic Heath Records)
software that meets Meaningful Use guidelines and requirements and
can provide practice management for a doctor or dentist. We
presently have launched two EHR’s, our iCoreMD and
iCoreDental.
Each
of our products complement each of our other products and can be
combined, but can also be purchased as separate products that
create value and efficiency for our customer base.
Ultimately,
we are offering productivity tools and “Must Have”
services to physicians, an audience representing a highly desirable
demographic with high disposable income. iCoreConnect is becoming a
trusted source to this targeted market and has developed a
non-intrusive manner to reach those members of this audience who
would be willing to pay for that access.
SECURE COMMUNICATION
iCoreConnect’s
iCoreExchange is an information exchange platform that offers NHIN
Direct secure messaging services within a professional networking
architecture. It is a flexible communication and health information
transport system that features interoperability between disparate
EHR, HIE and HISP systems, PPOs, and MCOs. The communication
features of the exchange platform can easily be applied to
establish a secure communication link between healthcare providers,
healthcare facilities, and patients. This communications network
can;
●
Provide
secure communication between all healthcare stakeholders including
patients;
●
Reduce
communication cost while increasing the quality of the encounter
providing better health outcomes;
●
Replace
direct mail, e-mail blasts and faxing to communicate with the
network’s user base;
●
Increase
the business/service opportunities to clients at all levels by
using modern communication methods linked to secure messaging with
attachments;
●
Deliver
a wide variety of communication options inside or outside our HIPAA
compliant network;
●
Provide
interoperable communication to its partners’ healthcare
providers in support of the ONC’s Meaningful Use Regulations;
and
●
Reduce
communication and marketing costs while increasing and providing
additional and valuable communication options to the users of the
network
INTEROPERABILITY
iCoreConnect’s
iCoreExchange provides a unique tool within today’s HIPAA
compliant environment that enhances the use of EHR systems at all
levels of the healthcare spectrum. In a word that tool is
“interoperability.” With almost 2,400
disparate
EHR systems currently in the market, it has become increasingly
common for a practitioner to find that despite a significant fiscal
and operational investment in an electronic health system, a
practitioner is unable to use the EHR system to satisfy one of the
most basic clinical care management functions: communicating with
another provider. Why? Because most EHR systems are designed and
built to be functional only for those providers using the same EHR
system. If another practitioner (or hospital system or ancillary
service) has a different EHR system, communication is
difficult.
iCoreConnect
has solved this problem with its design of its iCoreExchange.
Recently, iCoreConnect has integrated the federal
government’s “Direct” technology and placed it
into its own network. By integrating the iCoreConnect iCoreExchange
platform into the service set provided by any of its partners,
providers have a cutting-edge tool for making intra-provider
communication a reality.
Most
EHR networks have semi-qualified secure systems that are mostly
designed for those practices within their own network. The real
challenge of efficiently transitioning to an EHR system is the
ability to transmit medical data outside an established EHR
network. For example, a hospital may have one of the Hospital
Information Systems (HIS) that serves as a transport and
communication network to its referral network of medical practices.
Our EHR and /or HIE healthcare partner community can reap the
direct benefits of iCoreConnect’s iCoreExchange which
include:
●
A
combination of low-cost and easy-to-use technology offering an
interoperable health information infrastructure that allows for all
providers, including those outside the provider’s EHR system,
to become interconnected (a primary requirement of Meaningful Use
certification and one of the last steps in qualifying for federal
incentive funds.)
●
A
HIPAA-compliant platform offering the speed and efficiency of the
internet to transmit, transport and communicate patient-specific
information including records, files, images and any other
attachments to users of its secure messaging system (all structured
within the NHIN Direct Solution).
●
Organized
Strategic Alliances that create a value-added proposition that can
benefit an individual practice, IPA or healthcare facility. These
alliances include EHR services, Crossover EHR technologies, and
Interoperability of CCDA / CCR / CDC files all with a secure
communications environment.
●
The
opportunity to leverage the many advantages that professional-based
networks offer in terms of growth and rapid adoption:
■
Creating
a private communications network;
■
Emulating
real-time day-to-day clinical workflow using secure
communications;
■
Sending
and receiving referrals electronically;
■
Access
to other communities, work groups and referral groups within
iCoreConnect’s iCoreExchange platform; and
■
Attracting
new healthcare providers, facilities and insureds.
Simply
put, iCoreConnect can:
●
Provide
secure communication to the entire healthcare community regardless
of which EHR, HIS, or HIE system is currently used by the local
practice, hospital or healthcare facility;
●
Provide
the interoperable solution required for providers to become
Meaningful Use Compliant and, in most cases, qualify for Meaningful
Use Incentive funds; and
●
Offer
a private label network to EHR companies, medical centers, local,
state and regional Health Information Exchanges that is truly
interoperable.
PATIENT PORTAL
The
move to Electronic Health Records adds a new dimension that
enhances patients as participants in their own decisions,
treatments and care processes. As patients become more involved in
the healthcare process they will need and want more immediate
access to their records. Patient portals are in use today on a
limited basis, but the real security and protection of patient
specific information is still suspect within these portals.
iCoreConnect has built a patient portal designed to provide secure
access to patient records thereby assisting in the process of
involving patients in their healthcare decisions and making access
to their own records easier, efficient and timely. The iCoreConnect
Portal uses encrypted communications within the portal that far
exceed the current mandate by the ONC, making it the most secure
solution for the transmission of patient’s records currently
available in the marketplace.
The
iCoreConnect iCoreMD and iCoreDental networks have patient portals
already built into the basic service provided by the exchange. This
portal has a basic design that provides the following:
●
Immediate
access to patient records which is one of the foundation blocks
that prompted the transition from paper to electronic medical
records aimed at reducing healthcare costs through better
communication, elimination of duplicate tests, and providing more
accurate diagnosis regardless of time or distance from the
originating entity - physician, lab or imaging center;
●
Patient
access to their medical records 24 hours per day 7 days per
week;
●
Patients can download, print or transfer the
health records at their discretion to whomever they
choose;
and
●
Patient having the ability to electronically
communicate with their doctor via the patient portal in a HIPAA
secure
manner
ATTRIBUTES OF OUR PRODUCTS AND SERVICES
REVENUE
Revenue
is derived from the following sources:
Network Subscriptions
The
iCoreExchange is a HIPAA compliant messaging exchange that adheres
to and exceeds industry compliancy for security and HIPAA
regulations. It is a cloud based product with an annual
subscription billed monthly.
EHR Sales and Service
We
have developed two electronic health records software systems (EHR)
and have added them to our product portfolio. iCoreMD is specific
to medical doctors and has Practice Management tools as well as
Meaningful Use reporting requirements embedded into the software.
The doctor can purchase or lease the software, with software
license pricing varying depending on the options selected, ranging
from $12,000 - $50,000 per user.
Meaningful Use Consulting
iCoreConnect
has developed a Meaningful Use Consulting Division assisting both
medical and dental healthcare providers becoming “Meaningful
Use” compliant to qualify for federal incentive funds under
the Federal Meaningful Use Incentive Funds Program. The Meaningful
Use program pays providers up to $63,750 and iCoreConnect receives
approximately 20% of what the doctor is paid that year. The
contract is generally for 6 years which correlates to the
Meaningful Use time line.
ICD Coding Software
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.
Industry Overview and the Company’s Operating
Environment
Competition
The
Company experiences competition from a variety of sources with
respect to virtually all of its products and services. The Company
knows of no single entity that competes with it across the full
range of its products and systems; however, each of the lines of
business in which the Company is engaged is highly competitive.
Competition in the markets served is based on a number of
considerations, which may include price, technology, applications,
experience, know-how, reputation, service and distribution. While
we believe we offer a unique combination of products and services,
such as the iCoreExchange and our customizable Practice Management
software a number of competitors offer one or more similar products
and services in one or more of our niche markets.
Health
Information Exchanges (HIEs) are products that facilitate the
dissemination of healthcare information electronically across
organizations within a region or community. An HIE provides the
capability to electronically move clinical information among
disparate health care information systems while maintaining the
data integrity of the information being exchanged. The goal of an
HIE is to facilitate access to and retrieval of clinical data to
provide safer, more timely, efficient, effective, equitable,
patient centered care. An HIE is also useful to state public health
authorities to assist in the analyses of the
population.
We
compete with most HIE companies in that their applications
typically encapsulate certain of the functionality that
iCoreConnect offers in addition to their core function of more
primary data exchange. These products and services are secure
messaging, electronic referrals and CCR/CCD exchange. The
additional functions we offer are the ability to integrate fully
with EMRs and to centralize data pulled from multiple, disparate
information systems. Most HIE systems or projects are still focused
on interoperability and exchange of patient specific information
within their organizations. iCoreConnect offers HIEs the
opportunity to provide a comprehensive interoperability that can
extend beyond their membership thereby making the transition from
paper to electronic health records more relevant to their
membership. Although the HIEs could be considered competitors, we
believe that we can work together with the HIEs to enhance their
offerings to members and non-members by making their service
valuable-added and function as originally intended.
Competitive Strengths
The key advantages of our products and services
include:
Secure, private, scalable and reliable.
Our
services have been designed to provide our customers with privacy
and high levels of performance, reliability and security. We have
built, and continue to invest in, a comprehensive security
infrastructure, including firewalls, intrusion detection systems,
and encryption for transmissions over the Internet, which we
monitor and test on a regular basis. We have built and maintain a
multi-tenant application architecture that has been designed to
enable our service to scale securely, reliably and cost
effectively. Our multi-tenant application architecture maintains
the integrity and separation of customer data while still
permitting all customers to use the same application functionality
simultaneously.
Rapid deployment and lower total cost of ownership.
Our
services can be deployed rapidly since our customers do not have to
spend time procuring, installing or maintaining the servers,
storage, networking equipment, security products or other hardware
and software. We enable customers to achieve up-front savings
relative to the traditional enterprise software model. Customers
benefit from the predictability of their future costs since they
generally pay for the service on a per subscriber basis for the
term of the subscription contract.
High levels of user adoption.
We
have designed our products and services to be intuitive and easy to
use. Our products and services contain many tools and features
recognizable to users of popular consumer web services, so users
have a more familiar user experience than typical EHR applications.
As a result, our users can often use and gain benefit from our
solutions with minimal training. We have also designed our products
and services to be used on popular mobile devices, making it
possible for people to conduct business from their
phones.
Competitive Strategy
Key
elements of our strategy include:
Extending existing service offerings.
We
offer multiple patient claims billings, processing and coding
functions to meet the needs of customers with differing health care
disciplines and we have designed our solutions to easily
accommodate new features and functionality. We intend to continue
to expand all of our products and services with new features,
functions and increased security through our own development,
acquisitions and partnerships.
Cross selling and upselling.
We
see significant opportunity to deepen our relationships with our
existing customers. As our customers realize the benefits of our
products and services, we aim to upgrade the customer to sell more
value-added products and services, ultimately becoming our
customers' trusted advisors, inspiring health care service
transformation.
Expanding into new horizontal markets.
As
part of our growth strategy, we are delivering innovative solutions
in new categories, including analytics, claims coding and
processing. We drive innovation both organically and through
acquisitions.
Targeting vertical markets.
In
order to meet the needs of our customers in certain industries, we
also provide solutions specifically built for certain vertical
industries, such as financial services and government.
Extending go to market capabilities.
We
believe that our offerings provide significant value for businesses
of any size. We will continue to pursue businesses of all sizes in
the health care, financial and government agency businesses,
primarily through our direct sales force and partnerships. We have
steadily increased and plan to continue to increase the number of
direct sales professionals we employ, and we intend to develop
additional distribution channels for our products and
services.
In
addition to the key elements of our business strategy described
above, from time to time, we evaluate opportunities to acquire or
invest in complementary businesses, services and technologies, and
intellectual property rights.
SALES AND MARKETING
iCoreConnect Marketing
Our
marketing strategy consists of building our brand by creating a
company and product presence in the healthcare industry through our
partner relationships as well as direct outreach to physicians,
physician associations and dentists and our presence at conferences
and events in order to raise our visibility within the industry. We
conduct product demonstrations and consult with potential customers
such as physicians and dentists by means of on-line presentations,
in person sales calls, trade shows, speaking engagements, on-line
seminars and national medical association meetings. We have also
developed programs to expand the iCoreConnect user base through
invitations by existing users to their colleagues to communicate
through the iCoreConnect Exchange.
iCoreConnect
markets with a direct sales force that covers the nation. Our
target market ranges from a single doctor to hospital groups
covering many states. We also have expanded our marketing efforts
to trade shows as well as educational speaking engagements to
educate the marketplace on the HIPAA regulations and security
requirements in the healthcare field. Our products solve problems
created by many of the HIPAA regulations and security concerns that
are prevalent in our industry.
EMPLOYEES
As
of June 30, 2018, December 31, 2017, June 30, 2017 and 2016, the
Company had 19, 17, 12 and 16 full-time employees,
respectively.
Item 1A. Risk Factors.
The risks and uncertainties described below are those that we
believe are the material risks and uncertainties related to our
business. If any of the following risks and uncertainties occur,
our business, prospects, financial condition, operating results and
cash flows could be adversely affected in amounts that could be
material.
Risks Related to the Company’s Internal Control Over
Financial Reporting
Our
management has identified material weaknesses in the
Company’s internal control over financial reporting which
could, if not remediated, result in material misstatements in our
financial statements. We may not be able to fully address the
material weaknesses in our internal controls or provide assurance
that remediation efforts will prevent future material weaknesses.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, and the
Sarbanes-Oxley Act of 2002 and SEC rules require that our
management report annually on the effectiveness of the
Company’s internal control over financial reporting and our
disclosure controls and procedures. Among other things, our
management must conduct an assessment of the Company’s
internal control over financial reporting to allow management to
report on the effectiveness of the Company’s internal control
over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act. Our management determined that we have material
weaknesses in the Company’s internal control over financial
reporting related to (i) the oversight and monitoring of operating
unit compliance with accounting and reporting policies and
procedures (ii) controls to ensure accurate and complete financial
statement disclosures and (iii) lack of GAAP
expertise.
A
“material weakness” is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected on a timely basis. We are conducting a thorough review
of our internal controls procedures in order to develop a
remediation plan to address our internal control weaknesses.
However, future additional material weaknesses in the
Company’s internal control over financial reporting may also
be identified in the future. Any failure to implement or maintain
required new or improved controls, or any difficulties we encounter
in their implementation, could result in additional material
weaknesses, or could result in material misstatements in our
consolidated financial statements. The possibility of such future
additional misstatements could cause us to delay filing our
financial statements on a timely basis and result in noncompliance
with covenants in our credit facilities, which could limit or
suspend our access to working capital, which in turn could cause us
to curtail or cease doing business altogether. Any such future
misstatements in our publicly filed financial statements may impose
upon us a requirement to restate such financial results. In
addition, if we are unable to remediate successfully the material
weaknesses in our internal controls or if we are unable to produce
accurate and timely financial statements, our stockholders could
lose confidence in our ability to effectively protect their
investments in us.
Although
we are working to remedy the ineffectiveness of the Company’s
internal control over financial reporting, there can be no
assurance as to when our changes in our internal controls will be
fully implemented, the aggregate cost of implementation or whether
the remediation plan will be adequate and effective. Prior to the
filing of this Form 10, the Company had not filed financial
statements with the SEC for any period following the quarter ended
March 31, 2015 as a result of which the SEC revoked the
registration of our securities on February 6, 2018. The
Company’s audited financial statements for the six month
period ended December 31, 2017 and the fiscal years ended June 30,
2017 and 2016, as well as its unaudited but reviewed financial
statements for the three and six month periods ended June 30, 2018
are included in this Form 10/A.
However,
until our remediation plan is fully implemented, our management
will continue to devote significant time and attention to these
efforts. If we do not complete our remediation in a timely fashion,
or at all, or if our remediation plan is inadequate or ineffective,
there will continue to be a risk that we may be unable to timely
file future periodic reports with the SEC. Further and continued
determinations that there are material weaknesses in the
effectiveness of the Company’s internal control over
financial reporting could also adversely affect our ability to
attract new investments, as well as severely adversely affect our
ability to retain existing financing or obtain, if at all, future
financing on reasonable or acceptable terms.
Our business is difficult to evaluate because we have a limited
operating history.
Because
we have a limited operating and revenue generating history, we do
not have significant historical financial information on which to
base planned revenues and operating expenses. Revenues for the six
months ended June 30, 2018, and December 31, 2017 were $623,000 and
$206,000, respectively, and revenues for the fiscal years ended
June 30, 2017 and June 30, 2016 were $568,000 and $442,000,
respectively. We expect to experience fluctuations in future
quarterly and annual operating results that may be caused by many
factors, including:
●
our
ability to achieve significant sales for our products and
services;
●
the
cost of technology, software and other costs associated with the
production and distribution of our products and
services;
●
the
size and rate of growth of the market for Internet products and
online content and services;
●
the
potential introduction by others of products that are competitive
with our products;
●
the
unpredictable nature of online businesses and e-commerce in
general; and
●
the
general economic conditions in the United States and
worldwide.
In
view of the foregoing, our results of operations and projections of
future operating results are not necessarily meaningful and should
not be relied upon as an indication of future
performance.
Our quarterly results are likely to fluctuate and our stock price
and the value of our common stock could decline
substantially.
Our
quarterly results are likely to fluctuate. For example, some of the
important factors that may cause our revenues, operating results
and cash flows to fluctuate from quarter to quarter
include:
●
our
ability to retain and increase sales to existing customers, attract
new customers and satisfy our customers’
requirements;
●
the
attrition rates for our services;
●
variations
in the revenue mix of our services and growth rates of our cloud
subscription and support offerings;
●
the
number of new employees;
●
changes
in our pricing policies and terms of contracts, whether initiated
by us or as a result of competition;
●
the
cost, timing and management effort for the introduction of new
features to our services;
●
the
costs associated with acquiring new businesses and technologies and
the follow-on costs of integration and consolidating the results of
acquired businesses;
●
the
rate of expansion and productivity of our sales force;
●
the
length of the sales cycle for our services;
●
new
product and service introductions by our competitors;
●
our
success in selling our services to large enterprises;
●
evolving
regulations of cloud computing and data transfer restrictions and
similar regulations; and
●
technical
difficulties or interruptions in our services.
Under the Health Insurance Portability and Accountability Act of
1996 (“HIPAA”), we face potential liability related to
the privacy of health information we obtain.
Most
health care providers, from which we may obtain patient
information, are subject to privacy regulations promulgated under
the Health Insurance Portability and Accountability Act of 1996, or
HIPAA. Although we are not directly regulated by HIPAA, we could
face substantial criminal penalties if we knowingly receive
individually identifiable health information from a health care
provider that has not satisfied HIPAA’s disclosure standards.
Further, we may face civil liability if our HIPAA compliant system
fails to satisfy its disclosure standards. Claims that we have
violated individuals’ privacy rights or breached our
contractual obligations, even if we are not found liable, could be
expensive and time-consuming to defend and could result in adverse
publicity that could harm our business.
We
believe that we meet the HIPAA requirements currently in effect
that are applicable to our internal operations and our clients.
However, if we are unable to deliver applications solutions that
achieve or maintain compliance with the applicable HIPAA rules in
effect, or as they may be modified or implemented in the future,
then customers may move their business to application solution
providers whose systems are, or will be, HIPAA compliant. As a
result, our business could suffer.
If our security measures or those of our third-party data center
hosting facilities, cloud computing platform providers, or
third-party service partners, are breached, and unauthorized access
is obtained to a customer’s data, our data or our IT systems,
our services may be perceived as not being secure, customers may
curtail or stop using our services, and we may incur significant
legal and financial exposure and liabilities.
Our
services involve the storage and transmission of our
customers’ patient’s health and other sensitive data,
including personally identifiable information. Security breaches
could expose us to a risk of loss of this information, litigation
and possible liability. While we have security measures in place,
they may be breached as a result of third-party action, including
intentional misconduct by computer hackers, employee error,
malfeasance or otherwise and result in someone obtaining
unauthorized access to our IT systems, our customers’ data or
our data, including our intellectual property and other
confidential business information. Additionally, third parties may
attempt to fraudulently induce employees or customers into
disclosing sensitive information such as user names, passwords or
other information in order to gain access to our customers’
data, our data or our IT systems. Because the techniques used to
obtain unauthorized access, or to sabotage systems, change
frequently and generally are not recognized until launched against
a target, we may be unable to anticipate these techniques or to
implement adequate preventative measures. In addition, our
customers may authorize third-party technology providers to access
their customer data, and some of our customers may not have
adequate security measures in place to protect their data that is
stored on our services. Because we do not control our customers or
third-party technology providers, or the processing of such data by
third-party technology providers, we cannot ensure the integrity or
security of such transmissions or processing. Malicious third
parties may also conduct attacks designed to temporarily deny
customers access to our services. Any security breach could result
in a loss of confidence in the security of our software, damage our
reputation, negatively impact our future sales, disrupt our
business and lead to legal liability.
Our ability to deliver our software is dependent on the development
and maintenance of the infrastructure of the Internet by third
parties.
The
Internet’s infrastructure is comprised of many different
networks and services that are highly fragmented and distributed by
design. This infrastructure is run by a series of independent third
party organizations that work together to provide the
infrastructure and supporting services of the Internet under the
governance of the Internet Corporation for Assigned Numbers and
Names (ICANN) and the Internet Assigned Numbers Authority (IANA),
now under the stewardship of ICANN.
Even
though the Internet has never experienced an outage, some providers
to portions of its infrastructure have experienced outages and
other delays as a result of damages, denial of service attacks or
related cyber incidents, and it could face outages and delays in
the future. These outages and delays could reduce the level of
Internet usage or result in fragmentation of the Internet,
resulting in multiple separate Internets. These scenarios are not
under our control and could reduce the availability of the Internet
to us or our customers for delivery of our Internet-based services.
Any resulting interruptions in our services or the ability of our
customers to access our services could result in a loss of
potential or existing customers and harm our business.
Our business will not succeed if we are unable to keep pace with
rapid technological changes.
Our
services and products are impacted by rapidly changing technology,
evolving industry standards, emerging competition and frequent new
use, software and other product introductions. There can be no
assurance that we can successfully identify new business
opportunities or develop and bring new services or products to
market in a timely and cost effective manner, or those services,
products or technologies developed by others will not render our
services or products non-competitive or obsolete. In addition,
there can be no assurance that our services, products or
enhancements will achieve or sustain market acceptance or be able
to address compatibility, interoperability or other issues raised
by technological changes or new industry standards.
If
we suffer system failures or overloading of computer systems, our
business and prospects could be harmed. The success of our online
offerings is highly dependent on the efficient and uninterrupted
operation of our computer and communications hardware systems.
Fire, floods, earthquakes, power fluctuations, telecommunications
failures, hardware “crashes,” software failures caused
by “bugs” or other causes, and similar events could
damage or cause interruptions in our systems. Computer viruses,
electronic break-ins or other similar disruptive problems could
also adversely affect our websites. If our systems, or the systems
of any of the websites on which we advertise or with which we have
material marketing agreements, are affected by any of these
occurrences, our business, results of operations and financial
condition could be materially and adversely affected.
The establishment of our brand is important to our future
success.
Establishing
and maintaining a brand name and recognition is critical for
attracting and expanding our client base. The promotion and
enhancement of our name depends on the effectiveness of our
marketing and advertising efforts and on our success in continuing
to provide high-quality services, neither of which can be assured.
If our brand marketing efforts are unsuccessful, our business could
fail.
Our business could suffer if we are unable to protect our
intellectual property rights or are liable for infringing the
intellectual property rights of others.
We
have certain trademarks, trade dress, trade secrets and other
similar intellectual property which are significant to our success,
and we rely upon related law, trade secret protection, and other
confidentiality and license agreements with our employees,
strategic partners, and others to protect our proprietary rights to
the extent such protection is available and enforceable. Such
protection has only limited effectiveness. The development of the
Internet has also increased the ease with which third parties can
distribute our copyrighted material without our
authorization.
We
may seek to pursue the registration of additional trademarks, trade
dress and trade secrets in the United States and, based upon
anticipated use, in certain other countries. We may not be entitled
to the benefits of any such registration for an extended period due
to the cost and delay in effecting such registration. In addition,
effective trademark and trade secret protection may not be
available in every country in which our products are available. We
expect that we may license, in the future, elements of our
trademarks, trade dress and other similar proprietary rights to
third parties. Further, we may be subject to claims in the ordinary
course of our business, including claims of alleged infringement of
the trademarks and intellectual property rights of third parties by
us and our licensees.
Other
parties may assert claims of infringement of intellectual property
or other proprietary rights against us. These claims, even if
without merit, could require us to expend significant financial and
managerial resources. Furthermore, if claims like this were
successful, we might be required to change our trademarks, alter
our content or pay financial damages, any of which could
substantially increase our operating expenses. We also may be
required to obtain licenses from others to refine, develop, market
and deliver new services. We may be unable to obtain any needed
license on commercially reasonable terms or at all, and rights
granted under any licenses may not be valid and
enforceable.
Our financial statements are prepared assuming we are a going
concern. We require substantial additional capital to continue as a
going concern which if not obtained could result in a need to
curtail or cease operations.
The
Company has historically funded operations through debt financing
arrangements and the sale of stock. We require substantial
additional funding to execute on our business plan successfully and
provide for our future operating and capital expenditure
requirements. The exact amount of funds raised, 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 not able to raise additional capital, our business will
suffer or we could be forced to cease operations.
Our
financial statements have been prepared assuming that we will
continue as a going concern, which contemplates continuity of
operations, realization of assets, and liquidation of liabilities
in the normal course of business. We have sustained recurring net
losses and have deficits in working capital and total
stockholders’ equity. These factors raise substantial doubt
about our ability to continue as a going concern.
Our success will be limited if we are unable to attract, retain and
motivate highly skilled personnel.
Our
future success will depend on our ability to attract, retain and
motivate highly skilled programing, management, sales and other key
personnel. Competition for such personnel is intense in the
Internet industry, and we may be unable to successfully attract,
integrate or retain sufficiently qualified personnel. In addition,
our ability to generate revenues relates directly to our personnel
in terms of both the numbers and expertise of the personnel we have
available to work on our projects. Moreover, competition for
qualified employees may require us to increase our cash or equity
compensation, which may have an adverse effect on
earnings.
We
are also dependent on the services of our executive officers and
key consultants and independent agents. There can be no assurance,
however, that we can obtain executives of comparable expertise and
commitment in the event of death, or that our business would not
suffer material adverse effects as the result of the death,
disability or voluntary departure of any such executive officer.
Further, the loss of the services of any one or more of our key
employees or consultants could have a materially adverse effect on
our business and our financial condition. In addition, we will also
need to attract and retain other highly skilled technical and
managerial personnel for whom competition is intense. If we are
unable to do so, our business, results of operations and financial
condition could be materially adversely affected.
Any system failure or slowdown could significantly harm our
reputation and damage our business.
System
failures would harm our reputation and reduce our attractiveness to
customers. In addition, the users of the services we maintain for
our customers depend on Internet service providers, online service
providers and other web site operators for access to our web sites.
Some of these providers and operators have experienced significant
outages in the past, and they could experience outages, delays and
other difficulties due to system failures unrelated to our
systems.
We compete in a highly competitive market and many of our
competitors have greater financial resources and established
relationships with major corporate customers.
Our
future profitability depends on our ability to compete successfully
by continuing to differentiate our products and services from the
products and services of our competitors. If one or more of our
competitors begins to offer integrated, Internet Based, HIPAA
Compliant healthcare information collaboration solutions, there may
be a material adverse effect on our business, financial condition
or operating results. We believe that our ability to compete
successfully depends on a number of factors,
including:
●
our
ability to produce products that are superior in quality to that of
our competitors and get those products and services to market
first;
●
our
ability to deliver our products and services at a price that
remains competitive with that of our competitors;
●
our
ability to respond promptly and effectively to the challenges of
technological change, evolving standards, and our
competitors’ innovations;
●
the
scope of our products and services and the rate at which we and our
competitors introduce them;
●
customer
service and satisfaction; and
●
industry
and general economic trends.
We may be exposed to liability for publishing or distributing
content over the Internet.
We
may be subject to claims relating to content that is published on
or downloaded from our website or the websites we operate for our
customers. We also could be subject to liability for content that
is accessible from our website through links to other
websites.
We
presently carry no insurance policies that cover losses that may
occur due to failures or interruptions in our systems.
The disclosure or misuse of data we collect could harm our
business.
If
third parties are able to penetrate our network security or
otherwise misappropriate our users’ personal information, we
might be subject to liability. These could include claims for
impersonation or other similar fraud claims.
Regulatory developments in the future related to the Internet could
create a legal uncertainty; such developments could materially harm
our business.
We
are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable
to access to or commerce on the Internet. However, it is possible
that a number of laws and regulations will be adopted with respect
to the Internet, covering issues such as user privacy, pricing,
characteristics, e-mail marketing and quality of products and
services. Such laws and regulations could dampen the growth in use
of the Internet generally and decrease the acceptance of the
Internet as an communications and commercial medium, and could
thereby have a material adverse effect on our business, results of
operations and financial condition.
We may be required to issue more shares of Common Stock upon the
exercise of outstanding warrants, as part of raising additional
capital, resulting in dilution of the ownership of our existing
stockholders.
The
exercise of outstanding warrants could result in substantial
numbers of additional shares of Common Stock being issued, which
will dilute existing stockholders’ potential ownership
interests and may cause our stock price to decline.
As
of June 30, 2018, we had issued warrants to purchase an aggregate
of 8,837,980 shares of Common Stock. During the terms of the
warrants, the holders thereof are given an opportunity to benefit
from a rise in the market price of the Common Stock, with a
resultant dilution of the interests of existing stockholders. The
existence of these warrants could make it more difficult for us to
obtain additional financing while such securities are
outstanding.
We are vulnerable to changes in general economic
conditions.
We
are affected by certain economic factors that are beyond our
control, including changes in the overall economic
environment
Legal proceedings could lead to unexpected losses.
From
time to time during the normal course of carrying on our business,
we may be a party to various legal proceedings through private
actions, class actions, administrative proceedings, regulatory
actions or other litigations or proceedings. The outcome of
litigation, particularly class action lawsuits and regulatory
actions, is difficult to assess or quantify. In the event that
management determines that the likelihood of an adverse judgment in
a pending litigation is probable and that the exposure can be
reasonably estimated, appropriate reserves are recorded at that
time pursuant to the Financial Accounting Standards Board’s
(“FASB”) Accounting Standards Codification
(“ASC”) Topic 450, “Contingencies.” The
final outcome of any litigation could adversely affect operating
results if the actual settlement amount exceeds established
reserves and insurance coverage.
Risks Related to the Company’s Timely Filing of SEC filings
including financial statements
Prior
to 2018, the Company had not filed financial statements with the
SEC for any period following the quarter ended March 31, 2015 and
as a result the SEC revoked the registration of our securities. The
Company’s management has taken actions to remedy the material
weaknesses in our internal controls that were the cause of not
being able to timely file reports with the SEC that include the
hiring of a new Chief Financial Officer and a recapitalization of
the Company in June 2017. However, there are no assurances that we
have remediated all internal control issues fully and there is the
risk that we may not be able to file reports on a timely basis in
the future causing us not to be in compliance with the SEC filing
requirements, limiting our ability to register our shares and
possibly resulting in the SEC revoking the registration of our
securities.
We may engage in merger and acquisition activity from time to time
and may not achieve the contemplated benefits from such
activity.
Achieving
the contemplated benefits from such activity may be subject to a
number of significant challenges and uncertainties, including
integration issues, coordination between geographically separate
organizations, and competitive factors in the marketplace. We could
also encounter unforeseen transaction and integration-related costs
or other circumstances such as unforeseen liabilities or other
issues. Any of these circumstances could result in increased costs,
decreased revenue, decreased synergies and the diversion of
management time and attention. If we are unable to achieve our
objectives within the anticipated time frame, or at all, the
expected benefits may not be realized fully or at all, or may take
longer to realize than expected, which could have an adverse effect
on our business, financial condition and results of operations, or
cash flows. Any of these risks could harm our business. In
addition, to facilitate these acquisitions or investments, we may
seek additional equity or debt financing, which may not be
available on terms favorable to us or at all, which may affect our
ability to complete subsequent acquisitions or investments, and
which may affect the risks of owning our common stock.
A system failure or breach of system or network security could
delay or interrupt services to our customers or subject us to
significant liability.
We
have implemented security measures such as firewalls, virus
protection, intrusion detection and access controls to address the
risk of computer viruses and unauthorized access. However, there
can be no assurances that any of these efforts will be adequate to
prevent a system failure, accident or security breach, any of which
could result in a material disruption to our business. In addition,
substantial costs may be incurred to remedy the damages caused by
any such disruptions.
Item 2. Financial Information.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
This report contains “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to
expectations concerning matters that (a) are not historical facts,
(b) predict or forecast future events or results, or (c) embody
assumptions that may prove to have been inaccurate. These
forward-looking statements involve risks, uncertainties and
assumptions. When we use words such as “believe,”
“expect,” “anticipate” or similar
expressions, we are making forward-looking statements. Although we
believe that the expectations reflected in such forward-looking
statements are reasonable, we cannot give readers any assurance
that such expectations will prove correct. The actual results may
differ materially from those anticipated in the forward-looking
statements as a result of numerous factors, many of which are
beyond our control. Important factors that could cause actual
results to differ materially from our expectations include, but are
not limited to, the factors discussed in the sections entitled Item
1A, “Risk Factors” and “Critical Accounting
Policies and Estimates” within “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.” All forward-looking statements attributable to
us are expressly qualified in their entirety by the factors that
may cause actual results to differ materially from anticipated
results. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management’s
opinion only as of the date hereof. We undertake no duty or
obligation to revise or publicly release the results of any
revision to these forward-looking statements. Readers should
carefully review the risk factors described in Item 1A of this
document as well as in other documents we file from time to time
with the SEC for an understanding of the negative variables that
can affect our business and results of
operations
.
Company Overview
About the Company
The
Company has continued the successful development and enhancement of
our cloud based software solutions for medical and dental
practices, the development of the Company's internal processes and
staff, and the laying of a solid foundation for future market
penetration and growth. The Company’s current focus is on
four different revenue streams provided by: (1)
iCoreConnect’s cloud based messaging exchange, iCoreExchange
(the “Exchange”), which allows physicians, patients and
other members of the healthcare community to exchange patient
specific healthcare information securely via the internet, while
maintaining compliance with all current Health Insurance
Portability and Accountability Act (“HIPAA”)
regulations, (2) customized electronic health record platform
technology that is specifically tailored to provide specialized
medical and dental practices with a technology that conforms to
workflows of a particular medical discipline (3) the
Company’s Meaningful Use Consulting Division, that assists
both medical and dental healthcare providers becoming
“Meaningful Use” compliant to ultimately qualify for
federal incentive funds under the Federal Meaningful Use Incentive
Funds Program, and (4) International Statistical Classification of
Diseases and Related Health Problems (ICD) coding software, a
medical classification list by the World Health Organization (WHO).
iCoreConnect’s integrated software and service offering
enables doctors to comply with the regulatory burden associated
with secure HIPAAcompliant medical records transport with no change
in healthcare delivery workflows.
Software Products and Services
Due
to current HIPAA regulations, physicians and healthcare providers
have been prohibited from electronically exchanging unencrypted
personal health information. There has been no cost effective
platform for transferring this information in a HIPAA compliant
environment. We set out to solve this problem.
We
provide customizable secure cloud based software. iCoreConnect
currently markets four different software products: iCoreExchange,
iCoreSecure, iCoreMD, and iCoreDental. In addition, the Company has
a Meaningful Use division.
Meaningful
Use - The American Recovery Act of 2009 allocated $45 Billion for
Medicare and Medicaid Incentives. There is approximately 50% of the
allocation remaining through 2018. This represents a huge
opportunity to capture a large piece of market share. It is
estimated that less than 50% of Physicians, who have the ability to
do, so and less than 8% of Dentists have qualified for a Meaningful
Use incentive. The Federal Government has extended the deadline for
two additional years as they are unhappy with the deployment rate.
This gives iCoreConnect an opportunity to capitalize on the large
sum of Meaningful Use funds available. Further, we have developed a
program for dentists which is largely being ignored by most other
vendors.
With
the feedback from all the Meaningful Use consulting we have done,
we have determined that there is a huge opportunity to sell
electronic health records (EHR) software to physicians and
dentists. Practices that utilize an approved EHR software that is
ONC certified, allows a physician or dentist to qualify for
Meaningful Use incentive dollars up to a maximum of $63,750 per
physician or dentist.
Our
first product launch, our iCoreExchange, occurred in our fiscal
quarter ended March 31 2014 and our iCoreDental and iCoreMD
products were launched in our fiscal quarter ended September 30,
2014.
iCoreExchange
– The Health Insurance Portability and Accountability Act of
1996 (HIPAA) precludes the electronic transfer of personal health
information by unsecured means. Given that standard email has been
deemed insecure, a huge bottleneck exists in the flow of patient
information. Factor in the HIPAA fines that range from $50,000 up
to $1,500,000 per violation virtually mandates the need for our
iCoreExchange.
iCoreConnect’s
iCoreExchange offers Hospitals, IPAs, State HIEs, and doctor and
dental practices the extensive functionality needed to demonstrate
Meaningful Use as defined by the Federal Department of Health and
Human Services. Our iCoreExchange provides a secure, HIPAA
compliant email solution using the NHIN Direct protocol required by
Meaningful Use Stage 2, that allows doctors to send and receive
secure email, with attachments, to and from other healthcare
professionals in the network. Our iCoreExchange also provides a
secure email mechanism to communicate with users outside the
exchange - e.g. patients and referrals. The iCoreExchange gives its
users the ability to build a community, access other communities
and increase referrals and collaboration. Our exchange allows the
end user to email in a HIPAA compliant manner while also sending a
CCDA or CCR file with discrete data which then can be opened up on
any EHR system.
After
iCoreExchange, we launched our first fully developed EHR software
for the medical community called iCoreMD. iCoreMD was launched in
response to input from doctors telling us they wanted cloud based
software that had more flexibility than the current medical
products in the marketplace. We responded and launched iCoreMD in
the summer of 2014. Shortly thereafter we released our third
software product, iCoreDental, which was specifically tailored
toward the dental market.
iCoreMD
and iCoreDental are complete ONC, cloud based, certified ambulatory
EHRs that allow full practice management for the provider. The
software tracks patient demographics, scheduling, billing,
electronic medical records, electronic claims, e-prescriptions and
has multiple reporting capabilities.
We
achieved ONC certification for both iCoreMD and iCoreDental in
November of 2015. ONC certification allows our software to meet the
current Meaningful Use guidelines which allows doctors and dentists
to receive up to $63,750 from the Federal government. ONC
certification also confirms that our software meets all currently
required clinical measures as well as security measures and
interoperability that are required by the government. The
certificate number for our iCoreDental and iCoreMD software is
150120r0.
In
November 2017, we purchased ICD Coding Software that provides the
coding standards for the 10th revision of the International
Statistical Classification of Diseases and Related Health Problems
(ICD), a medical classification list 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.
Recent
newscasts have been replete with reporting regarding many breaches
of consumers personal information. We used our expertise and
development capabilities from our HIPAA compliant iCoreExchange and
developed a fifth product - iCoreSecure. iCoreSecure is an
encrypted email solution for anyone that needs encrypted email to
protect personal and financial data. iCoreSecure could be used in
the insurance, real estate, financial and many other industry
sectors that have a need for secure encrypted email.
We
will continue to develop and create cloud based products the
marketplace is requesting as we deem them financially
viable.
Operations
Financing
We
are currently funding the business capital requirements through
sales of our common stock and debt arrangements. While we intend to
seek this 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.
The
Company requires additional investment raised from the issuance of
additional common stock or debt financing to continue operations
for more than one month. Our cash needs are primarily attributable
to funding and expanding our development capabilities, sales and
marketing efforts, strengthening technical and helpdesk support,
satisfying existing obligations and building administrative
infrastructure, which includes the costs and professional fees
associated with being a public company.
As
of June 30, 2018, we required an investment of approximately
$160,000 per month to fund our operations. This amount may increase
as we expand our sales and marketing efforts and continue to
develop new products and services; however, if we are unable to, or
do not raise additional capital in the near future or if our
revenue does not begin to grow as we expect, we will have to
curtail our spending and downsize our operations.
The
Company obtained an investment of $1 million on August 9, 2018 for
the sale of additional shares of our common stock.
Additional information concerning this investment
is also disclosed in Footnote 10, in the accompanying financial
statements for the period ended June 30, 2018.
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.
Going Concern
The
accompanying audited 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. The
Company has incurred operating losses to date and has an
accumulated deficit, total stockholders’ deficit and net
working capital deficit at June 30, 2018. The Company’s
activities have been primarily financed through bridge loans,
convertible debentures, and private placements of equity
securities. The Company seeks to raise additional capital through
the issuance of equity securities to fund its operations. Such
financing may not be available on terms satisfactory to the
Company, if at all.
Management
has been able to develop an improved healthcare communications
system and has been able to attract alliances with strategic
partners to generate increased revenues which 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.
Revenue Recognition
We
have 4 primary sources of revenue:
●
Electronic
Health Records (EHR) licenses
●
Encrypted
& HIPAA Compliant Secure email
●
Meaningful
Use Consulting
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
are 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.
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 contract terms beginning on the date our
solutions are made available to clients. The length of a client
service period is monthly over which such client has the right to
use our SaaS Encrypted Secure email solution.
Meaningful
Use Consulting service revenues are recognized for consulting
services provided to physician and dental practices at the
successful submission of the Meaningful Use application to the
appropriate governmental agency. Revenue is recognized at the
contracted percentage of the Meaningful Use incentive program on
each annual government award received by the client and is required
to be paid when payment is received by the physician or dental
practice.
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.
Income Taxes
The
Company follows the asset and liability approach to accounting for
income taxes. Under this method, deferred tax assets and
liabilities are measured based on differences between the financial
reporting and tax bases of assets and liabilities measured using
enacted tax rates and laws that are expected to be in effect when
differences are expected to reverse. Valuation allowances are
established when it is necessary to reduce deferred income tax
assets to the amount, if any, expected to be realized in future
years.
ASC
740, Accounting for Income taxes (‘ASC 740’), requires
that deferred tax assets be evaluated for future realization and
reduced by a valuation allowance to the extent we believe a portion
more likely than not will not be realized. We consider many factors
when assessing the likelihood of future realization of our deferred
tax assets, including our recent cumulative loss experience and
expectations of future taxable income by taxing jurisdictions, the
carry-forwarding periods available to us for tax reporting purposes
and other relevant factors.
The
Company has not recognized a liability for uncertain tax positions.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits or penalties has not been provided since there has
been no unrecognized benefit or penalty. If there were an
unrecognized tax benefit or penalty, the Company would recognize
interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses. The Company files U.S.
Federal income tax returns and various returns in state
jurisdictions. The Company's open tax years subject to examination
by the Internal Revenue Service and the state Departments of
Revenue generally remain open for three years from the date of
filing.
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 restricted common stock units 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.
Impairment of Long-Lived Assets
We
review long-lived assets for impairment, whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable, in accordance with recently adopted accounting
practices. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by reducing
the carrying amount of the asset by the amount by which its
carrying amount exceeds its fair value.
Recently Issued Accounting Pronouncements
In
April 2015, the Financial Accounting Standards Board issued ASU No.
2015-03, “Interest – Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance Costs”
(“ASU 2015-03”). ASU 2015-03 requires debt issuance
costs to be presented as a direct deduction from the carrying
amount of the related debt rather than as an asset. The Company has
retrospectively adopted this update, as required, and the amounts
reclassified from other assets to a reduction of the carrying
amount of the related debt in the accompanying Balance
Sheets.
In
February 2016, the Financial Accounting Standards Board issued
Accounting Standards Update No. 2016-02, “Leases (Topic
842)” (“ASU 2016-02”) intended to improve
financial reporting about leasing transactions. The new guidance
will require entities that lease assets to recognize on their
balance sheets the assets and liabilities for the rights and
obligations created by those leases and to disclose key information
about the leasing arrangements. ASU 2016-02 is effective for
interim and annual periods beginning after December 15, 2018 with
early adoption permitted. We are currently evaluating the impact of
this accounting guidance, including the timing of
adoption.
In
January 2017, the Financial Accounting Standards Board issued ASU
2017-01, “Business Combinations” (“Topic
805”), Clarifying the Definition of a Business. This update
provides guidance concerning elements of an acquisition to qualify
as a business combination. The Company has followed this guidance
to analyze an acquisition that occurred in January 2018, as
disclosed in Footnote 9, in the accompanying financial statements
for the period ended June 30, 2018.
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 begun to evaluate the impact of the pronouncement on the
financial reports and has determined that it will not have a
significant impact on the financial reports.
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. We are currently
evaluating the impact of this accounting guidance, including the
timing of adoption.
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.
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:
|
|
|
|
|
|
|
|
Percentage Increase / (Decrease)
|
|
|
Percentage Increase / (Decrease)
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
272
|
$
170
|
60
%
|
$
623
|
$
354
|
76
%
|
Cost of
sales
|
122
|
95
|
29
%
|
228
|
168
|
36
%
|
General &
Administrative Expense
|
1,573
|
546
|
188
%
|
2,213
|
1,177
|
88
%
|
Depreciation &
Amortization
|
99
|
75
|
32
%
|
200
|
144
|
39
%
|
Loss
from operations
|
(1,522
)
|
(546
)
|
179
%
|
(2,018
)
|
(1,135
)
|
78
%
|
|
|
|
|
|
|
|
Interest
expense
|
(56
)
|
(610
)
|
-91
%
|
(110
)
|
(1,197
)
|
-91
%
|
Other
Expense
|
-
|
-
|
|
(1,750
)
|
(1
)
|
|
Net
loss
|
$
(1,578
)
|
$
(1,156
)
|
37
%
|
$
(3,878
)
|
$
(2,333
)
|
66
%
|
|
|
|
Percentage Increase / (Decrease)
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
Current
assets
|
$
425
|
$
191
|
123
%
|
|
|
|
Current
Liabilities
|
2,957
|
2,944
|
0
%
|
|
|
|
Working
Capital (Deficit)
|
(2,532
)
|
(2,753
)
|
-8
%
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
120
|
86
|
40
%
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Outstanding
|
45,124,853
|
34,318,198
|
|
|
|
|
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 June 30, 2018 (
“
2Q 2018
”
) Compared to Three
Month Period Ended June 30, 2017 (
“
2Q 2017
”
)
Revenues.
Net revenues of $272 for the 2Q 2018 increased
$102 or 60% compared to $170 for the 2Q 2017. The increase was
primarily due to a 234% increase in EHR software revenues and a 6%
increase in iCoreExchange revenues, somewhat offset by a 99%
decrease in Meaningful Use revenues, compared to the 2Q
2017.
Cost of sales.
Cost of sales of $122 for the 2Q 2018
increased 28% compared to the 2Q 2017 cost of sales of $95. The
primary reason for the increase was due to a 24% increase in
software implementation wages and related expenses compared to the
2Q 2017.
General and administrative expenses.
General and
administrative expenses of $1,573 for the 2Q 2018 increased $1,027
or 188% compared to$546 for the 2Q 2017. The increase was primarily
due to a 294% increase in employee salaries and stock compensation
expense and a 53% increase in Professional and Legal fees somewhat
offset by a 58% decrease in advertising expenses compared to the 2Q
2017.
Depreciation and amortization expenses.
Depreciation and
amortization expenses of $99 for the 2Q 2018 were $24 higher than
the $75 for the 2Q 2017. The increase is primarily due to
amortization of acquired technology assets.
Interest Expense.
Interest expense in the 2Q 2018 of $56 was
a decrease of $554 or 91% compared to $610 in the 2Q 2017. The
decrease is due to the decrease of long term debt to $1,529 as of
June 30, 2018 compared to long term debt of $15,133 as of June 30,
2017.
Six Month Period Ended June 30, 2018 Compared to Six Month Period
Ended June 30, 2017
Revenues.
Net
revenues of $623 for the six month period ended June 30, 2018
increased $269 or 76% compared to $354 for the six month period
ended June 30, 2017. The increase was primarily due to a 344%
increase in EHR software revenues and a 8% increase in
iCoreExchange revenues, somewhat offset by a 90% decrease in
Meaningful Use revenues compared to the six month period ended June
30, 2017.
Cost of
sales.
Cost of sales of $228
for the six month period ended June 30, 2018 increased 36% compared
to the six month period ended June 30, 2017 cost of sales of $168.
The primary reason for the increase was due to a 35% increase in
software implementation wages and related expenses compared to the
six month period ended June 30, 2017.
General and administrative expenses.
General and
administrative expenses of $2,213 for the six month period ended
June 30, 2018 increased $1,036 or 88% compared to $1,177 for the
six month period ended June 30, 2017. The increase was primarily
due to a 142% increase in employee salaries and stock compensation
expense and a 88% increase in Professional and Legal fees somewhat
offset by a 75% decrease in advertising expenses compared to the
six month period ended June 30, 2017.
Depreciation
and amortization expenses.
Depreciation and amortization expenses of $200 for
the six month period ended June 30, 2018 were $56 higher than the
$144 for the six month period ended June 30, 2017. The increase is
primarily due to amortization of acquired technology
assets.
Interest
Expense.
Interest expense in
the six month period ended June 30, 2018 of $110 was a decrease of
$1,087 or 91% compared to $1,197 in the six month period ended June
30, 2017. The decrease is due to the decrease of long term debt to
$1,529 as of June 30, 2018 compared to long term debt of $15,133 as
of June 30, 2017.
Other Expense.
Other expense of $1,750 in the six month
period ended June 30, 2018 is due to the acquisition of the
Electro-Fish Stock. See Note 9 of the accompanying condensed
consolidated financial statements.
LIQUIDITY AND CAPITAL
The
primary factors that influence our liquidity include, but are not
limited to, the amount and timing of our revenues, cash collections
from our customers, capital expenditures and investments in
research and development efforts. The change in our cash and cash
equivalents balance is reflective of the fact that we generated
positive cash flow from financing activities during the six month
period ending June 30, 2018 and 2017. Cash from financing
activities was used to fund operating activities, including
investing in software product development and general and
administrative expenses.
The
following table summarizes the impact of operating, investing and
financing activities on our cash flows for the six month periods
ending June 30, 2018 and June 30, 2017 related to our
operations:
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net
cash used in operating activities
|
$
(984
)
|
$
(920
)
|
|
|
|
Net
cash used in investing activities
|
(161
)
|
(161
)
|
|
|
|
Net
cash provided by financing activities
|
1,188
|
939
|
|
|
|
Net
Increase / (Decrease) in cash
|
43
|
(142
)
|
|
|
|
Cash
and cash equivalents at beginning of the period
|
52
|
185
|
|
|
|
Cash
and cash equivalents at the end of the period
|
$
95
|
$
43
|
Operating Activities:
Net cash used by operating activities
for the six month period ending June 30, 2018 of $984 was $64 more
than the $920 for the six month period ended June 30, 2017. The
decrease in cash utilized by operating activities compared to the
six month period June 30, 2017 was attributable to a $1,113
decrease in net loss and non cash adjustments to net loss, offset
by a $1,176 increase in the cash impact of changes in operating
assets and liabilities.
Investing Activities:
Net cash used by investing activities
for the six month period ending June 30, 2018 of $161 was primarily
due to software development costs compared to $161 for the June 30,
2017 period. Future spending on investing activities is expected to
be funded by additional borrowings.
Financing Activities:
Net cash provided by financing
activities was $1,188 for the six month period ending June 30,
2018, due to the issuance of additional common stock. Net cash
provided by financing activities was $938 for the six months ended
June 30, 2017, primarily the result of Bridge Loan financing that
was converted to common stock in connection with the
Recapitalization on June 30, 2017. Future cash provided by
financing activities to meet capital spending requirements is
expected to be funded by additional borrowings or the sale of
additional common stock.
Credit Facilities
Effective
October 29, 2013, the Company entered into a revolving line of
credit agreement in the amount of $250,000 which was increased to
$500,000 on March 12, 2014 and $750,000 on September 9, 2014. The
line of credit was reduced to $500,000 in May 2016 leaving $2,000
of availability as of June 30, 2018. The line of credit is
collateralized by all assets of the Company and a guarantee by a
stockholder of the Company. The line carries interest at the Wall
Street Journal Prime rate + 1.0% with a floor rate of 6.5% (6.5% at
June 30, 2018). Interest is payable monthly with all outstanding
principal and interest due on July 15, 2019.
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:
(In thousands)
|
|
|
|
|
|
Revenue
|
206
|
568
|
442
|
-64
%
|
28
%
|
Cost
of sales
|
226
|
296
|
222
|
-24
%
|
33
%
|
Gross
(loss) profit
|
(20
)
|
272
|
220
|
-107
%
|
24
%
|
Expenses
|
|
|
|
|
|
General
and administrative
|
1,410
|
2,319
|
2,387
|
-39
%
|
-3
%
|
Depreciation
and amortization
|
160
|
262
|
192
|
-39
%
|
37
%
|
Loss
from operations
|
(1,590
)
|
(2,309
)
|
(2,359
)
|
31
%
|
2
%
|
Interest
expense
|
(115
)
|
(2,265
)
|
(1,983
)
|
95
%
|
-14
%
|
Net
income (loss)
|
(1,705
)
|
(4,575
)
|
(4,337
)
|
63
%
|
-5
%
|
The accompanying “
Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
” provides a
comparison of the amounts listed above.
Six Month Period Ended December 31, 2017 (
“
Stub 2017
”
) Compared to Fiscal
Year Ended June 30, 2017 (
“
FY 2017
Period
”
)
Revenues.
Net revenues of $206 for the Stub 2017 decreased
$362 or 64% compared to $568 for the FY 2017 Period. The decrease
was primarily due to a 99% decrease in Meaningful Use revenues, a
39% decrease in EHR software revenues and a 46% decrease in
iCoreExchange revenues compared to FY 2017 Period.
Cost of sales.
Cost of sales of $226 decreased 24% compared
to the FY2017 Period cost of sales of $296. The primary reason for
the decrease was due to a 5% decrease in software implementation
wages and related expenses, a 25% decrease in amortization of the
software development costs, somewhat offset by a 18% increase in
royalty payments compared to the FY 2017 Period.
General and administrative expenses.
Selling, general and
administrative expenses of $1,410 decreased $909 or 39% for the
Stub 2017 compared to $2,319 for the FY 2017 Period. The decrease
was primarily due to lower employee salaries and stock compensation
expense that were 28% lower, Professional and Legal fees that were
43% lower and advertising expenses that were 70% lower than in the
FY 2017 Period.
Depreciation
and amortization expenses.
Depreciation and amortization expenses of $160
were $102 lower than the $262 for the FY 2017 period. The decrease
is primarily due to shorter period of time for amortization of
software development expenses in the stub
period.
Interest
Expense.
Interest expense of
$115 decreased $2,150 or 95% compared to $2,265 in the FY 2017
period. The decrease is due to the decrease of long term debt to
$1,400 as of June 30, 2017 compared to long term debt of $16,200
prior to the Recapitalization.
Fiscal Year Ended June 30, 2017 (“FY 2017 Period”)
Compared to Fiscal Year Ended June 30, 2016 (“FY 2016
Period”)
Revenues.
Net
revenues of $568 for the FY 2017 Period increased $126 or 28%
compared to $442 for the FY 2016 Period. The increase was primarily
due to more than a 245% increase in EHR software revenues and a 61%
increase in iCoreExchange revenues compared to the FY 2016
Period.
Cost of
sales.
Cost of sales of $296
increased 33% compared to the 2016 Period cost of sales of $222.
The increase in the cost of sales as a percentage of revenues of
52% was a 2% increase compared to the 50% rate for the FY 2016
Period. The primary reason for the increase was due to higher
software implementation costs.
General and
administrative expenses.
Selling, general and administrative expenses of
$2,319 decreased $68 or 3% for the FY 2017 Period compared to
$2,387 for the FY 2016 Period. The reduction was primarily due to
lower salary and wage costs that were 16% lower than in the FY 2016
Period that were somewhat offset by a 45% increase in advertising
costs.
Depreciation
and amortization expenses.
Depreciation and amortization expenses of $262
were $70 higher than the $192 for the FY 2016 Period. The increase
is primarily due to amortization of software development costs
associated with the iCoreExchange and EHR software
systems.
Interest
Expense.
Interest expense of
$2,265 increased $282 or 14% compared to $1,983 in the FY 2016
Period. The increase is due to an increase of pre-Recapitalization
long term debt to $16,200 as of June 30, 2017 compared to $11,000
as of June 30, 2016.
LIQUIDITY AND CAPITAL
The
primary factors that influence our liquidity include, but are not
limited to, the amount and timing of our revenues, cash collections
from our customers, capital expenditures and investments in
research and development efforts. The change in our cash and cash
equivalents balance is reflective of the following: We generated
positive cash flow from financing activities during the six month
period ending December 31, 2017 and the fiscal years ended June 30,
2017 and 2016. Cash from financing activities was used to fund
operating activities, including investing in software product
development and general and administrative expenses.
The
following table summarizes the impact of operating, investing and
financing activities on our cash flows for the six month period
ending December 31, 2017 and the fiscal years ended June 30, 2017
and 2016 related to our operations:
|
|
|
(In thousands)
|
|
|
|
Net
cash used in operating activities
|
$
(850
)
|
$
(1,747
)
|
$
(1,614
)
|
Net
cash used in investing activities
|
(194
)
|
(322
)
|
(261
)
|
Net
cash provided by financing activities
|
1,053
|
1,998
|
1,740
|
Net
increase (decrease) in cash
|
9
|
(71
)
|
(135
)
|
Cash
and cash equivalents at beginning of the period
|
43
|
114
|
249
|
Cash
and cash equivalents at the end of the period
|
52
|
43
|
114
|
Operating Activities:
Net cash required by operating
activities for the six month period ending December 31, 2017
decreased by $897 to $850 compared to $1,747 utilized in the FY
2017 period. The decrease in cash utilized by operating activities
compared to the FY 2017 Period was attributable to a $3,083
decrease in net loss and non cash adjustments to net loss, offset
by a $ 2,186 increase in the cash impact of changes in operating
assets and liabilities.
Net
cash required by operating activities increased by $133 to $1,747
utilized in the FY 2017 Period compared to $1,614 utilized in the
FY 2016 Period. The increase in cash utilized by operating
activities compared to the FY 2016 Period was attributable to a
$452 decrease in the cash impact of changes in operating assets and
liabilities, offset by a $585 increase in net loss and noncash
adjustments to net loss.
Investing Activities:
Net cash used by investing activities
for the six month period ending December 31, 2017 of $194 was
primarily due to software development costs of $193 compared to
$322 for the FY 2017 period. Net cash used by investing activities
of $322 and 261 for the fiscal years ended June 30, 2017 and 2016,
respectively, were for software development costs of the
company’s iCoreExchange, iCoreMD and iCoreDental software
products. Spending on investing activities is expected to be funded
by additional borrowings.
Financing Activities:
Net cash provided by financing
activities was $1,053 for the six month period ending December 31,
2017, was due to the issuance of additional common stock. Net cash
provided by financing activities was $1,998 and $1,740 for the
fiscal years June 30, 2017 and 2016 periods, respectively,
primarily the result of convertible debt and Bridge Loan financing
that was converted to common stock during the Recapitalization as
of June 30, 2017. Future cash provided by financing activities to
meet capital spending requirements is expected to be funded by
additional borrowings or the sale of additional common
stock.
Credit Facilities
Effective
October 29, 2013, the Company entered into a revolving line of
credit agreement in the amount of $250,000 which was increased to
$500,000 on March 12, 2014 and $750,000 on September 9, 2014. The
line of credit was reduced to $500,000 in May 2016 leaving $2,000
of availability as of June 30, 2018. The line of credit is
collateralized by all assets of the Company and a guarantee by a
stockholder of the Company. The line carries interest at the Wall
Street Journal Prime rate + 1.0% with a floor rate of 6.5% (6.5% at
June 30, 2018). Interest is payable monthly with all outstanding
principal and interest due on July 15, 2019.
Long-Term Debt
The
Company completed a Recapitalization Plan on June 30, 2017 that
converted $273 of promissory notes, $6,624 of convertible debt,
35.75 shares of Series A Preferred Convertible Voting Stock, 63
shares of Series B Preferred Convertible Voting Stock and $8,236 of
Bridge Loan debt to common equity.
Our
notes payable are summarized as follows (In
thousands):
|
|
|
|
|
|
|
|
|
Note payable
bearing interest at 8.5 - 12.0% per annum, in default
|
$
106
|
$
106
|
Note bearing
interest at 8% per annum, in default
|
482
|
471
|
Non-interest
bearing note, in default
|
10
|
10
|
Related Party
Promissory notes, bearing interest at 8%, due April 15,
2021
|
110
|
-
|
Related Party
Convertible Promissory notes, bearing interest at 18%, due December
31, 2018
|
563
|
657
|
Stockholder
Convertible notes bearing interest at 18%, due September 15,
2018
|
257
|
217
|
|
1,529
|
1,461
|
|
|
|
Less current
maturities
|
(1,419
)
|
(1,461
)
|
|
|
|
Total
Long-term debt
|
$
110
|
$
-
|
Item 3. Properties.
The
Company operates from its 4,100 square foot office located in
Winter Garden, Florida. The office space is leased by the Company
through October 31, 2020 and the Company has an option to renew the
lease for a period of one year. The Company intends to exercise the
option for the additional year.
Item 4. Security Ownership of Certain Beneficial Owners and
Management.
Prior
to the Recapitalization event of June 30, 2017, we had three
classes of voting securities: our common stock (“Common
Stock”), Series A Preferred Convertible Voting Stock (the
“Series A Preferred Stock”), and Series B Preferred
Convertible Voting Stock (the “Series B Preferred
Stock”) (collectively the Series A Preferred Stock and Series
B Preferred Stock, the “Preferred Stock”). The Series B
Preferred Stock was subordinated to the Series A Preferred Stock
with respect to liquidation rights only. Each share of both series
of the Preferred Stock was convertible into one percent of the then
outstanding Common Stock Equivalents giving effect to the then
outstanding: (i) Common Stock; (ii) Common Stock Purchase Warrants;
and (iii) outstanding debt convertible into Common Stock. The
voting rights of each series was equivalent to the number of shares
of common stock into which each series could be
converted.
At June
30, 2018, there were 45,124,853 shares of common stock issued and
outstanding.
The
following tables set forth information with respect to the
beneficial ownership of shares of each class of our voting
securities held as of June 30, 2018 by:
●
each
person known by us to beneficially own 5% or more of the
outstanding shares of such class of stock, based on filings with
the Securities and Exchange Commission and certain other
information,
●
each
of our current “named executive officers” and
directors, and all of our current executive officers and directors
as a group.
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes voting and investment power. In addition, under SEC rules,
a person is deemed to be the beneficial owner of securities which
may be acquired by such person upon the exercise of options and
warrants or the conversion of convertible securities within 60 days
from the date on which beneficial ownership is to be
determined.
The
term “named executive officers” is defined in the SEC
rules as those persons who are required to be listed in the Summary
Compensation Table provided under Item 5 of this Form
10/A
.
Except
as otherwise indicated in the notes to the following table, we
believe that all shares are beneficially owned, and investment and
voting power is held by, the persons named as owners, and the
address for each beneficial owner listed in the tables in this Item
4 is c/o iCoreConnect, Inc., 13506 Summerport Village Parkway,
#160, Windermere, FL 34786.
|
|
|
Name and Address of Stockholder
|
|
|
|
|
|
Jerry
Smith (1)
|
13,781,091
|
26.6
%
|
Robert
McDermott (2)
|
7,027,956
|
13.6
%
|
JD
Smith (3)
|
297,837
|
0.6
%
|
Jeff
Stellinga (4)
|
527,343
|
1.0
%
|
Samuel
B Fortenbaugh III (5)
|
1,225,172
|
2.4
%
|
Don
Douglas (6)
|
448,647
|
0.9
%
|
David
Fidanza (7)
|
496,256
|
1.0
%
|
Murali
Chakravarthi (8)
|
325,462
|
0.6
%
|
Scott
Malmanger (9)
|
258,125
|
0.5
%
|
All
executive officers and directors as a group (8
persons)
|
10,606,798
|
20.5
%
|
(1)
Consists of: 10,449,757 shares of Common Stock
owned by Jerry D. Smith, JD Investments, Inc., Sonoran Pacific
Resources, LLP, JDS Trust, WESCO Energy Corporation, SH114, LLP,
Insurance Endowment Strategies, LLP and 75t
h
Street Holdings, LLC and 2,886,890
shares of Common Stock issuable upon exercise of Common Stock
Purchase Warrants and 444,444 shares of Common Stock issuable upon
conversion of convertible debt.
(2)
Consists of: 5,293,432 shares of Common Stock
owned by Mr. McDermott, 1,429,054 restricted shares that Mr.
McDermott has the ability to vote, but is restricted from
transferring until their vesting date, 136,064 shares of Common
Stock issuable upon exercise of Common Stock Purchase Warrants and
169,406 shares issuable upon exercise of vested
options.
(3)
Consists of 197,837 shares of Common Stock owned
by Mr. JD Smith, 100,000 restricted shares that Mr. Smith has the
ability to vote, but is restricted from transferring until their
vesting date.
(4)
Consists of 330,121 shares of Common Stock owned
by Mr. Stellinga, 100,000 restricted shares that Mr. Stellinga has
the ability to vote, but is restricted from transferring until
their vesting date and 75,000 shares of Common Stock issuable upon
exercise of Common Stock Purchase Warrants.
(5)
Consists of 438,505 shares of Common Stock owned
by Mr. Fortenbaugh and 786,667 restricted shares that Mr.
Fortenbaugh has the ability to vote, but is restricted from
transferring until their vesting date.
(6)
Consists of: 372,161 shares of Common Stock owned
by Mr. Douglas, 74,632 shares of Common Stock issuable upon
exercise of Common Stock Purchase Warrants and 1,854 shares
issuable upon exercise of vested options.
(7)
Consists of 299,862 shares of Common Stock owned
by Mr. Fidanza, 120,000 restricted shares that Mr. Fidanza has the
ability to vote, but is restricted from transferring until their
vesting date and 76,394 shares of Common Stock issuable upon
exercise of Common Stock Purchase Warrants.
(8)
Consists of 156,072 shares of Common Stock owned
by Mr. Chakravarthi, 133,334 restricted shares that Mr.
Chakravarthi has the ability to vote, but is restricted from
transferring until their vesting date and 36,056 shares of Common
Stock issuable upon exercise of Common Stock Purchase
Warrants.
(9)
Consists of 155,833 shares of Common Stock owned
by Mr. Malmanger, 66,667 restricted shares that Mr. Malmanger has
the ability to vote, but is restricted from transferring until
their vesting date and 35,625 shares of Common Stock issuable upon
exercise of Common Stock Purchase Warrants.
Item 5. Directors and Executive Officers.
Set
forth below are the names, ages, titles, principal occupations and
certain biographical information, as of December 31, 2017,
concerning the Company’s directors and executive officers.
All of our officers are elected annually by our Board and hold
office at the pleasure of the Board and serve until their
successors are elected and qualified. Certain directors are
executives of the Company for a contractual term pursuant to
employment agreements. See the Compensation Discussion and Analysis
section for summarized terms of these agreements.
NAME
|
AGE
|
POSITION
|
J. D. Smith
|
47
|
Director and Chairman
|
Robert P McDermott
|
50
|
President, Chief Executive Officer and Director
|
Jeff Stellinga
|
48
|
Director
|
Samuel B Fortenbaugh III
|
84
|
Director
|
Don B Douglas
|
48
|
Chief Operating Officer
|
David Fidanza
|
55
|
Chief Information Officer
|
Murali Chakravarthi
|
38
|
Chief Technology Officer
|
Scott A Malmanger
|
62
|
Chief Financial Officer
|
J.D. Smith,
Director
, has been a member of
our Board of Directors since April 2011 and has been Chairman of
our Board of Directors since November 2013. Mr. Smith is the
Chairman of WESCO Energy Corporation, a company owned by Sonoran
Pacific Resources, LLP, one of the largest investors in
iCoreConnect, Inc. WESCO owns the patents on a number of new
technologies in the oil and gas business, such as the gas to liquid
conversion of stranded gas, heavy oil upgrading, and a process for
producing environmentally friendly tailings from oil and tar sands.
He recently facilitated the negotiation and signing of agreements
concerning projects in the USA, Canada, China, and Russia. He is
presently overseeing new prospective projects in Thailand, Nigeria,
Madagascar, Ecuador, Dubai and other parts of the world. Mr. Smith
advises and assists Sonoran Pacific Resources on numerous projects
in which it has venture capital and real estate investments. Mr.
Smith is a Director and was recently elected the Chairman of the
Board of Command Center Inc., a staffing company headquartered in
Lakewood, Colorado.
Robert P McDermott, Chief
Executive Officer and Director.
Mr. McDermott is Chief Executive Officer and
President of iCoreConnect and is a member of the company’s
board of directors since July 2013. He is a 25-year veteran in
sales, operations and finance. Mr. McDermott has had a successful
career as an entrepreneur while demonstrating strong leadership
skills in running these organizations. Mr. McDermott's company
(AXSA Document Solutions Inc.) made the prestigious Inc. 500 list
and was listed as the 173rd fastest growing company in America
while he was CEO. He joined iCoreConnect in 2013, bringing more
than 25 years of technology industry leadership, and executive
management experience to his role with the company. Mr. McDermott
has held positions in various companies as either CEO or President.
He has a Bachelor’s degree majoring in Finance from Dowling
College, NY.
Jeff Stellinga,
Director
, has been a member of
our Board of Directors since May 2014. Mr. Stellinga is a 25 year
veteran of sales and finance and has spent most of his career in
finance and capital markets. Mr. Stellinga spent 18 years at US
Bank rising through the ranks and becoming a Senior Regional Sales
Director. After a successful 18 years, Mr. Stellinga took a job
with Saxon Business Systems – A Xerox company as a Branch
Manager for two years. He has since worked for CoActiv Capital
Partners as Regional Sales Director for their Southeast Territory
and is presently employed at Everbank Commercial Finance as
it’s Eastern Sales Manager.
Samuel B Fortenbaugh III,
Director
, has been a member of
our Board of Directors since August 2017. Mr. Fortenbaugh has over
50 years experience as a lawyer. He was Chairman of Morgan, Lewis
& Bockius, one of the largest international law firms
headquartered in the United States. He retired from Morgan, Lewis
in 2002 and has continued to practice law specializing in general
corporate matters with a particular emphasis on corporate
acquisitions and mergers, general security matters and corporate
governance. Mr. Fortenbaugh served on the Boards of Directors of
Western Publishing Group, Inc. (NASDAQ), Baldwin Technology, Inc.
(NYSE Amex) and Security Capital Corporation (Amex) as well as a
number of privately held corporations. He is presently a member of
the Board of Advisors of a private buy-out fund focused primarily
on middle market companies and has served as counsel to the Company
for a number of years.
Donald B Douglas, Chief
Operating Officer and Secretary.
Mr. Douglas is an established 20-year professional
with a focus in operations and administration. Mr. Douglas joined
iCoreConnect Inc. in January 2014. After serving in the United
States Navy, Mr. Douglas began his career with Pitney Bowes. In
1996, he joined AXSA Document Solutions - an INC 500 company.
During his 15-year tenure, Mr. Douglas was promoted to various
positions and managed many departments including Customer Service,
Training, Operations and Administration. Mr. Douglas’ last
position held at AXSA was Vice President of
Administration.
David Fidanza, Chief
Information Officer.
Mr.
Fidanza is a 30-year veteran in Technology. His focus over the past
15 years has been on the design, implementation and support of
Enterprise Level Software solutions that focus on managing,
securing, and delivering data. Over the last few years, Mr. Fidanza
held three different positions. In November 2010, he became the
Regional Technology Specialist with Light Source Business Systems
(Acquired by Total Document Management, Acquired by +ImageNet
Consulting). In April 2015, Mr. Fidanza started working with
iMedicor (now iCoreConnect) as the Director of Software
Implementation. In September 2017, he was promoted to Chief
Information Officer. Mr. Fidanza oversees the IT Department,
Customer Support Team, Implementation Specialists and Content
Development Initiatives.
Murali Chakravarthi, Chief
Technology Officer.
Mr.
Chakravarthi brings nearly 20 years in research and development
experience to iCoreConnect. Mr. Chakravarthi joined iCoreConnect
Inc. in October, 2013 and is currently responsible for
understanding the business needs and managing the successful
design, development and deployment of iCoreConnect’s products
and services. Mr. Chakravarthi has extensive experience in
designing, developing and deploying multiple products and solutions
to market. He was previously the Chief Software Architect for
Nasplex Datacenters from 2010 through 2013, wherein it was acquired
by Transformyx Technologies. His job duties at Nasplex were to
manage the design and development of various products and services.
His role also included identifying key solutions for certain market
spaces. He was also a cofounder of Team Cajunbot (University of
Louisiana) - One of the teams that participated and was selected to
run in the finals in the DARPA grand challenge for autonomous
vehicle research (2004 - 2006). He holds a Master of Science in
Computer Science from Southern Illinois
University.
Scott A Malmanger, Chief
Accounting and Financial Officer.
Mr. Malmanger joined iCoreConnect in June 2017,
after serving as Chief Accounting Officer and VP of Finance at
American K-9 Detection Services, LLC. He resigned from American K-9
Detection after the sale of the business in January 2015. He was
responsible for establishing accounting procedures, internal
controls, financial reporting and treasury functions. Mr. Malmanger
has served in various accounting, financial reporting and financial
analyst capacities for companies such as Renewable Energy Group
(NASDAQ), The Principal Financial Group (NASDAQ), Electrolux NA and
Meredith Corporation (NYSE). He has both Certified Public
Accountant and Certified Management Accountant professional
designations, as well as an MBA with an emphasis in Finance from
Minnesota State University, Mankato.
CORPORATE GOVERNANCE
Board Oversight of Risk
Our
Board bears the responsibility for maintaining oversight over our
exposure to risk. Our Board, itself and through its committees,
meets with various members of management regularly and discusses
our material risk exposures, the potential impact on us and the
efforts of management it deems appropriate to deal with the risks
that are identified. The Audit Committee considers our risk
assessment and risk management practices including those relating
to regulatory risks, financial liquidity and accounting risk
exposure, reserves and our internal controls. The Nominating and
Governance Committee considers the risks associated with our
corporate governance principles and procedures with the guidance of
corporate and outside counsel. Our Compensation Committee, in
connection with the performance of its duties, considers risks
associated with our compensation programs.
Board Independence
Our
Board has determined that our directors, J.D. Smith, the Chairman
of the Board, and Jeff Stellinga are independent directors under
the listing standards of The OTC Stock Market. Robert McDermott is
our Chief Executive Officer and Samuel B Fortenbaugh serves as
counsel to iCoreConnect. Neither are considered to be independent
directors. Our independent directors and our governance practices
provide independent oversight of management. The independent
directors meet in periodic executive sessions, the results of which
are discussed by the Chairman of the Board with the Chief Executive
Officer.
Procedure for recommending nominees to the Board of
Directors
The
Company’s By-Laws state:
Section
3.7 Vacancies. Newly Created Directorships. Subject to the rights
of the holders of preferred stock, if any, any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, or other cause, and newly
created directorships resulting from any increase in the authorized
number of directors, may be filled by a majority vote of the
directors then in office or by a sole remaining director, in either
case though less than a quorum, and the director(s) so chosen shall
hold office for a term expiring at the next annual meeting of
stockholders and when their successors are elected or appointed, at
which the term to which he or she has been elected expires, or
until his or her earlier resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall
shorten the term of any incumbent directors.
Section
3.8 Annual and Regular Meetings. Immediately following the
adjournment of, and at the same place as, the annual or any special
meeting of the stockholders at which directors are elected, the
Board of Directors, including directors newly elected, shall hold
its annual meeting without call or notice, other than this
provision, to elect officers and to transact such further business
as may be necessary or appropriate. The Board of Directors may
provide by resolution the place, date, and hour for holding regular
meetings between annual meetings, and if the Board of Directors so
provides with respect to a regular meeting, notice of such regular
meeting shall not be required.
Audit Committee
Members
Chairman – Jeff
Stellinga
Member
– J.D. Smith
Nominating/Corporate Governance Committee Members
Chairman
– J.D. Smith
Member
– Jeff Stellinga
Compensation Committee Members
Chairman
– J.D. Smith
Member
– Jeff Stellinga
AUDIT COMMITTEE
Our
Audit Committee is composed of two directors, each of whom is
independent, as required by the Audit Committee charter, the
Securities Exchange Act of 1934 and the listing requirements for
The OTC Stock Market and the SEC rules. The current members are
Jeff Stellinga (Chair) and J.D. Smith.
Our
Audit Committee, among other things:
●
Considers
the qualifications of and appoints and oversees the activities of
our independent registered public accounting firm, i.e., our
independent auditor;
●
Reviews
with the independent auditor any audit problems or difficulties
encountered in the course of audit work;
●
Preapproves
all audit and non-audit services provided by the independent
auditor;
●
Discusses
with the independent auditor the overall scope and plans for its
audits, including the adequacy of staffing and budget or
compensation;
●
Reviews
our financial statements and reports and meets with management and
the independent auditor to review, discuss and approve our
financial statements ensuring the completeness and clarity of the
disclosures in the financial statements;
●
Monitors
compliance with our internal controls, policies, procedures and
practices;
●
Reviews
management's report on its assessment of the effectiveness of
internal control over financial reporting as of the end of each
fiscal year and the independent auditor's report on the
effectiveness of internal control over financial
reporting;
●
Reviews
the performance of our internal audit function and approves our
annual internal audit plan and all major changes to the
plan;
●
Discusses
our policies on risk assessment and risk management, our major
financial risk exposures and the steps management has taken to
monitor and control such exposures;
●
Reviews
our compliance and ethics programs, including legal and regulatory
requirements, and reviews with management our periodic evaluation
of the effectiveness of such programs;
●
Reviews
and approves related-party transactions; and
●
Undertakes
such other activities as our Board from time to time may delegate
to it.
NOMINATING AND GOVERNANCE COMMITTEE
Our
Nominating and Governance Committee is composed of: J. D. Smith
(Chair) and Jeff Stellinga. The Nominating and Governance Committee
meets as often as necessary to perform its duties and
responsibilities..
Our
Nominating and Governance Committee has the following
responsibilities:
●
To
evaluate the qualifications of candidates for Board membership and,
following consultation with the Chief Executive Officer, recommend
to our Board nominees for open or newly created director
positions;
●
To
consider nominees recommended by stockholders as long as such
recommendations are received at least 120 days before the
stockholders meet to elect directors;
●
To
periodically review the composition of our Board to determine
whether it may be appropriate to add or subtract individuals with
different backgrounds or skill sets from those already on our
Board, and submit to our Board on an annual basis a report
summarizing its conclusions regarding these matters;
●
To
provide an orientation and education program for
directors;
●
To
develop and make recommendations to our Board regarding governance
principles applicable to us;
●
To
periodically assess the structure and operations of the committees
of our Board, develop and recommend corporate governance guidelines
and review such guidelines at least annually;
●
To
develop and recommend procedures for the evaluation and
self-evaluation of our Board and its committees and to oversee the
evaluation process;
●
To
perform an evaluation of the committee's performance at least
annually;
●
To
review the compensation of our Board and recommend changes to our
Board; and
●
To
perform such other duties as our Board may assign to the
committee.
COMPENSATION COMMITTEE
The
Company has a Compensation Committee that presently consists of two
directors. The current members are J.D. Smith (Chair) and Jeff
Stellinga. The Board has determined that each member of the
Committee is “independent” as that term is defined
under the rules of the OTC Stock Market. The Compensation Committee
meets as often as necessary to perform its duties and
responsibilities.
The
principal duties and responsibilities of our Compensation Committee
include:
●
Reviewing
and approving compensation principles that apply generally to our
employees;
●
Establishing
and reviewing corporate goals and objectives relevant to the
compensation of the Chief Executive Officer and the other executive
officers of the Company and evaluating their performances in light
of the established goals and objectives and approving their annual
compensation;
●
Reviewing,
based primarily on the evaluations and recommendations of the Chief
Executive Officer, the performance of the other executive officers
and all direct reports of our Chief Executive Officer;
●
Overseeing
our compliance with the requirements under the NASDAQ Marketplace
Rules, with respect to our long-term incentive compensation plans;
and
●
Reviewing
and discussing compensation programs that may create incentives
that can affect our risk and management of that risk.
Code of Ethics
We have adopted a Code of Ethics, as supplemented
by a Code of Conduct, which applies to all of our directors,
officers (including our Chief Executive Officer, Chief Accounting
and Financial Officer) and employees. The Code of Financial Ethics
has been posted to our Internet website at
http://www.iCoreConnect.com
.
The Company intends to satisfy disclosure requirements regarding
amendments to, or waivers from, any provisions of its Code of
Financial Ethics on its website.
Item 6. Executive Compensation.
Compensation Discussion and Analysis
Our
compensation program has been designed to attract, reward and
retain capable executives and to provide incentives for the
attainment of short-term performance objectives and strategic
long-term performance goals. A number of key principles guide
management and our Compensation Committee in determining
compensation for hiring, motivating, rewarding and retaining
executive officers who create both short- and long-term stockholder
value for us, including:
●
A
significant amount of compensation should be linked to measurable
success in business performance;
●
Management's
interests should be aligned with those of the
stockholders';
●
Both
short and long-term financial and business objectives should be
incentivizing; and
●
Compensation
should be set at levels that will be competitive with the
compensation offered by the local market and to the extent possible
companies against whom we compete for executive talent so that we
are able to attract and retain talented and experienced
executives.
In
an effort to balance the need to retain executive talent yet
motivate executives to achieve superior performance, we have
adopted a compensation philosophy that contains both fixed and
variable elements of compensation. Our Compensation Committee uses
its judgment in allocation of compensation between long- and
short-term Incentives and cash and non-cash components. Although
long-term incentive is considered of great significance in aligning
performance with stockholder interests, it has traditionally been a
smaller component of aggregate compensation. The elements of our
total executive compensation are base salary, cash bonus and stock
incentives.
Base Salary
Salary
is intended to compensate our executives for performance of core
job responsibilities and duties.
The
salaries of Robert McDermott, Don Douglas and Scott Malmanger are
fixed by employment agreements that were negotiated between Messrs.
McDermott, Douglas, Fidanza, Chakravathi and Malmanger and our
Compensation Committee. The amount and components of aggregate
compensation for comparable positions in the local market as well
as the preferences of Mr. McDermott, Douglas, Fidanza, Chakravathi
and Malmanger were taken into account by our Compensation Committee
in determining their compensation.
In
determining Mr. McDermott's salary, our Compensation Committee took
into account Mr. McDermott's long-standing executive role with us,
his extensive knowledge of and experience in the software industry
and his role in directing our growth. Our Compensation Committee
views Mr. McDermott as the most successful and experienced
executive with the ability to manage the profitable growth of the
Company.
In
determining Mr. Douglas's salary our Compensation Committee took
into account his role in developing, structuring and implementing
our administrative and operations functions and to enable
profitable growth initiatives. Our Compensation Committee also
considered Mr. Douglas's role in assisting Mr. McDermott in various
aspects of our business growth.
In
determining Mr. Fidanza's salary our Compensation Committee took
into account his role in developing and structuring the technology
platform hosting our software products and managing our product
implementation functions to enable profitable growth. Our
Compensation Committee also considered his role in assisting Mr.
McDermott in various aspects of our product development strategy
and business growth initiatives.
In
determining Mr. Chakravathi's salary our Compensation Committee
took into account his role in designing and developing new software
products to enable profitable growth initiatives. Our Compensation
Committee also considered his role in assisting Mr. McDermott in
various aspects of our business growth.
In
determining Mr. Malmanger's salary our Compensation Committee took
into account his role in developing, structuring and implementing
internal controls and financial reporting functions to enable
timely filing of our financial statements. Our Compensation
Committee also considered his role in assisting Mr. McDermott in
various aspects of our efforts to achieve profitable business
growth.
Non-Equity Incentive Plan Compensation (Annual Cash
Bonus)
Non-equity
incentive plan compensation is intended to compensate an executive
for achievement of specific performance goals for a specified
performance period. Mr. McDermott's employment agreement included
an annual cash bonus, with a minimum equal to 100% of his base
salary. The annual bonus may be more than 100% of his base salary,
if certain business performance metrics are achieved.
Equity Compensation
Equity
compensation is intended to incentivize employees and to promote a
closer identity of interest between our employees and our
stockholders. Additionally, restricted stock is also aimed at
retention as the vesting period generally ranges from one to three
years. Our Compensation Committee granted restricted stock to
Robert McDermott, Donald Douglas, David Fidanza, Murali
Chakravarthi and Scott Malmanger in connection with the terms of
their respective employment agreements.
|
|
|
|
|
|
|
|
Robert
McDermott
|
Stub
2017
|
$
112,500
|
$
291,875
|
$
15,897
|
$
14,223
|
$
19,524
|
$
454,019
|
Chief
Executive Officer and
|
|
|
|
|
|
|
|
President
|
Fiscal
2017
|
225,000
|
49,137
|
43,233
|
57,255
|
38,070
|
412,695
|
Fiscal
2016
|
225,000
|
89,269
|
16,455
|
115,378
|
34,464
|
480,566
|
Donald Douglas
|
Stub 2017
|
$
60,000
|
$
45,000
|
|
$
-
|
$
3,000
|
$
108,000
|
Chief
Operating Officer
|
Fiscal
2017
|
120,000
|
|
|
12,497
|
6,000
|
138,497
|
Fiscal
2016
|
120,000
|
|
|
24,995
|
6,000
|
150,995
|
David
Fidanza
|
Stub
2017
|
$
44,167
|
$
15,000
|
$
2,746
|
|
$
3,000
|
$
64,913
|
Chief
Information Officer
|
Fiscal
2017
|
75,000
|
|
6,461
|
|
6,000
|
87,461
|
Fiscal
2016
|
75,000
|
|
|
|
6,000
|
81,000
|
Murali
Chakravarthi
|
Stub
2017
|
$
55,000
|
$
16,667
|
|
|
|
$
71,667
|
Chief
Technology Officer
|
Fiscal
2017
|
110,000
|
|
|
|
|
110,000
|
Fiscal
2016
|
103,000
|
|
|
|
|
103,000
|
Scott
Malmanger
|
Stub
2017
|
$
60,000
|
$
8,333
|
|
|
$
7,500
|
$
75,833
|
Chief
Accounting and Financial
|
|
|
|
|
|
|
|
Officer
|
Fiscal
2017
|
6,364
|
|
|
|
|
6,364
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
|
|
|
|
|
(1)
Represents
the aggregate grant date fair value of the Common and Series B
Preferred shares awarded to Mr. McDermott as determined under
Financial Accounting Standards Board Accounting Standards
Codification Topic No. 718-20, Awards Classified as Equity. For
information, including assumptions, regarding the valuation of
these awards refer to Note 4 to the Company's Financial Statements
as a part of this filing.
(2)
The
grant date fair value of the performance award options and
restricted common stock included in this column is the awarded
employment agreement terms determined as of the grant
date.
(3)
These
amounts are for Health Care Insurance re-imbursement and automobile
allowances as per the terms of the respective employment
agreements. Mr. McDermott’s July 1, 2015 employment agreement
also included Non-equity incentive bonus compensation of $225,000
per year, that the Company has accrued but not paid and therefore
is not included in the table above. See Note 12 to the accompanying
Financial Statements.
Item 7. Certain Relationships and Related Transactions, and
Director Independence.
Certain Relationships
Effective
October 29, 2013, the Company entered into a revolving line of
credit agreement in the amount of $250,000 which was increased to
$500,000 on March 12, 2014 and $750,000 on September 9, 2014. The
line of credit was reduced to $500,000 in May 2016 leaving $2,000
availability as of June 30, 2018. The line of credit is
collateralized by of the all assets of the Company and a guarantee
by Jerry D Smith, and who owns approximately 27% of the shares of
common stock and common stock equivalents of the Company as of June
30, 2018, and is the father of J. D. Smith, Chairman of the
Company’s Board of Directors. The line carries interest at
the Wall Street Journal Prime rate + 1.0% with a floor rate of 6.5%
(6.5% at June 30, 2018). Interest is payable monthly and all
outstanding principal and interest due on July 15,
2019.
Related-Party Transactions
Our
policies and procedures regarding transactions with related persons
are set forth in writing in our Code of Ethics, as supplemented by
our Code of Conduct, which requires that our Audit Committee must
review and approve any “related party” transaction, as
defined in Item 404(a) of Regulation S-K, before it is consummated.
The Audit Committee of our Board is responsible for reviewing such
policies and procedures pursuant to its charter, which states that
the Audit Committee will “review and approve related-party
transactions submitted by management after management’s
evaluation of the terms of such transaction.”
Item 8. Legal Proceedings.
The
Company from time to time, may be party to various litigation,
claims and disputes, arising in the ordinary course of business.
While the ultimate effect 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 9. Market Price of and
Dividends on the Registrant’s Common Equity and Related
Stockholder Matters.
(a) Market
Information.
(a)
Market Information.
Our
common stock previously quoted on OTC Link (previously “Pink
Sheets”) operated by OTC Markets Group Inc. (“OTC
Link”), had 6 market makers and was eligible for the
“piggyback” exception of Exchange Act Rule
15c2-11(f)(3) under the symbol “VMCI”. However, because
we had not filed any periodic reports with the Securities and
Exchange Commission since the period ended March 31, 2015,
effective as of February 14, 2018, pursuant to Section 12(j) of the
Securities and Exchange Act of 1934, the registration of our common
stock pursuant to Section 12 of the Exchange Act was
revoked.
(b)
Holders.
As of
June 30, 2018, there were 45,124,853 shares of our common stock
issued and outstanding, held by 310 stockholders of record. Once
this registration statement has been effective for 60 days, all
shares held by shareholders that are not affiliates of the Company
will be able to be sold, depending upon market conditions and
market development.
(c)
Warrants
We
have issued warrants in connection with issuing common stock and
raising bridge loan debt financing. We have also issued stock
options as executive compensation described in the attached
financial statements.
(d)
Dividends.
We
have not declared or paid dividends on our common stock since our
formation, and we do not anticipate paying dividends in the
foreseeable future. Declaration or payment of dividends, if any, in
the future, will be at the discretion of our Board of Directors and
will depend on our then current financial condition, results of
operations, capital requirements and other factors deemed relevant
by the Board of Directors. There are no contractual restrictions on
our ability to declare or pay dividends.
Item 10. Recent Sales of Unregistered Securities.
On
January 19, 2018, iCoreConnect Inc. acquired all of the outstanding
common stock of Electro Fish Media Inc., a Texas corporation, in
exchange for 3,400,000 shares of our Common Stock.
On
April 1, 2018, the Company reached an agreement with a Director of
the Company, to issue 1,000,000 shares of restricted common stock
as a retainer for future merger and acquisition services. The terms
of the agreement include a vesting schedule through May 15, 2020,
as defined.
On
May 22, 2018, the Company’s Board of Directors approved the
grant of 4,287,161 shares of restricted common stock to the Chief
Executive Officer, for services rendered, of which 2,143,580 shares
vested upon issuance and 2,143,581 shares vesting ratably through
May 22, 2020.
On August 9, 2018, the Company reached an
agreement with an investor for the sale of 4,000,000 shares of our
common stock for an investment of $1 million. The agreement also
included the issuance of warrants to purchase 2,365,000 shares of
common stock with an exercise price of $1.35 per share that will
expire on June 30, 2020
.
Item 11. Description of Registrant’s Securities to be
Registered.
The
following description of our capital stock is a summary and is
qualified in its entirety by the provisions of our Amended
Certificate of Incorporation, which has been filed as an exhibit to
this registration statement.
Common Stock
This
registration statement on Form 10/A is to register shares of our
common stock. We are authorized to issue 600
,000,
000 shares of common
stock, par value $0.001, of which 45,124,853 shares are issued and
outstanding as of June 30, 2018. Each holder of shares of our
common stock is entitled to one vote for each share held of record
on all matters submitted to the vote of stockholders, including the
election of Directors. The holders of shares of common stock have
no preemptive, conversion, subscription or cumulative voting
rights. There is no provision in our Certificate of Incorporation
or By-laws that would delay, defer, or prevent a change in control
of our Company.
Non-cumulative Voting
Holders
of shares of our common stock do not have cumulative voting rights,
which means that the holders of more than 50% of the outstanding
shares, voting for the election of directors, can elect all of the
directors to be elected, if they so choose, and, in such event, the
holders of the remaining shares will not be able to elect any of
our directors.
Preferred Stock
We
are authorized to issue 10,000,000 shares of undesignated preferred
stock, par value $0.001, of which no shares are issued and
outstanding as of June 30, 2018.
Transfer Agent
Pacific
Stock Transfer, Inc.
6725
Via Austi Parkway, Suite 300
Las
Vegas, NV 89119
Main:
800 785 - 7782
Fax:
702 433 - 1979
Item 12. Indemnification of Directors and Officers.
Our
officers and directors are indemnified as provided by the Nevada
Business Corporation Act and our Amended and Restated Articles of
Incorporation. Under the Nevada Business Corporation Act, director
immunity from liability to a company or its shareholders for
monetary liabilities applies automatically unless it is
specifically limited by a company’s Articles of
Incorporation. Our Amended and Restated Articles of Incorporation
contain provisions which:
Limits on
Liability
.
No
Director or, to the extent specified from time to time by the Board
of Directors, officer of the Corporation will be liable to the
Corporation or its stockholders for damages for breach of fiduciary
duty as a director or officer, excepting only (a) acts or omissions
which involve intentional misconduct, fraud or a knowing violation
of law, or (b) the payment of dividends in violation of Section
78.300 General Corporation Law.
Limits on
Indemnification
.
The
Corporation shall indemnify its officers and directors to the full
extent permitted by the laws of the State of Nevada. However, such
indemnity shall not apply if the director (a) did not act in good
faith and in a manner the director reasonably believed to be in or
not opposed to the best interests of the Corporation, and (b) with
respect to any criminal action or proceeding, had reasonable cause
to believe the director's conduct was unlawful. The Corporation
shall advance expenses for such persons pursuant to the terms set
forth in the bylaws, or in a separate Board of Directors resolution
or contract The Corporation may. in the sole discretion of the
Board of Directors, indemnify any other person who may be
indemnified pursuant to the laws of the State of Nevada to the
extent the Board of Directors deems advisable.
We
have entered into indemnification agreements with each of our
executive officers and directors which provide that the Company
will indemnify the indemnitee against expenses, including
reasonable attorney fees, judgements, penalties, fines and amounts
paid in settlement, actually and reasonably incurred by him or her
in connection with any civil or criminal action or administrative
proceeding arising out of the performance of his or her duties as
our director, officer, employee or agent. Such indemnification is
available if the acts of the indemnitee were in good faith, if the
indemnitee acted in a manner he or she reasonably believed to be in
or not opposed to the Company’s best interests and, with
respect to any criminal proceeding, the indemnitee had no
reasonable cause to believe his or her conduct was
unlawful.
|
Page
|
FINANCIAL STATEMENTS
–
June 30, 2018
(UNAUDITED)
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
33
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
34
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT
|
35
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
36
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
37-40
|
Item 13. Financial Statements and Supplementary Data.
iCoreConnect
Inc.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
AS
OF JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017
(AUDITED)
|
|
|
|
|
(In thousands except share amounts)
|
|
|
ASSETS
|
|
|
Cash
and cash equivalents
|
$
95
|
$
52
|
Accounts
receivable, net of allowance for doubtful accounts
|
314
|
122
|
Prepaid
expenses
|
16
|
17
|
Total
current assets
|
425
|
191
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
8
|
10
|
Software
development costs, net of accumulated amortization
|
509
|
484
|
Acquired
technology, net of accumulated amortization
|
581
|
630
|
Goodwill
and Intangible assets, net of accumulated amortization
|
438
|
451
|
Total
long-term assets
|
1,536
|
1,575
|
|
|
|
|
$
1,961
|
$
1,766
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
Accounts
payable and accrued expenses
|
$
1,040
|
$
985
|
Line of
credit
|
498
|
498
|
Current
maturities of long-term debt
|
1,419
|
1,451
|
Total
current liabilities
|
2,957
|
2,934
|
|
|
|
Long-term
debt, net of current maturities
|
110
|
10
|
Deferred
revenue
|
120
|
86
|
Total
long-term liabilities
|
230
|
96
|
|
|
|
TOTAL
LIABILITIES
|
3,187
|
3,030
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
Preferred
Stock, Undesignated par value $.001; Authorized 10,000,000 shares;
None issued or outstanding
|
-
|
-
|
Common
stock par value $.001;
|
|
|
Authorized:
600,000,000 shares; Issued and Outstanding: 45,124,853 as
of
|
|
|
June
30, 2018 and 34,318,198 as of December 31, 2017
|
44
|
34
|
Additional
Paid-In-Capital
|
68,762
|
64,856
|
Accumulated
Deficit
|
(70,032
)
|
(66,154
)
|
TOTAL
STOCKHOLDERS' DEFICIT
|
(1,226
)
|
(1,264
)
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
1,961
|
$
1,766
|
|
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
(In thousands except share amounts)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
272
|
$
170
|
$
623
|
$
354
|
Cost of
sales
|
122
|
95
|
228
|
168
|
Gross
profit
|
150
|
75
|
395
|
186
|
|
|
|
|
|
Expenses
|
|
|
|
|
General
and administrative
|
1,573
|
546
|
2,213
|
1,177
|
Depreciation
and amortization
|
99
|
75
|
200
|
144
|
Total
operating expenses
|
1,672
|
621
|
2,413
|
1,321
|
|
|
|
|
|
Loss from
operations
|
(1,522
)
|
(546
)
|
(2,018
)
|
(1,135
)
|
|
|
|
|
|
Other
expense
|
|
|
|
|
Interest
expense
|
(56
)
|
(610
)
|
(110
)
|
(1,197
)
|
Other
expense
|
-
|
-
|
(1,750
)
|
(1
)
|
Total
other expense
|
(56
)
|
(610
)
|
(1,860
)
|
(1,198
)
|
|
|
|
|
|
Net
loss
|
$
(1,578
)
|
$
(1,156
)
|
$
(3,878
)
|
$
(2,333
)
|
|
|
|
|
|
Net loss per share
available to common stockholders, basic and diluted
|
$
(0.04
)
|
$
(1.45
)
|
$
(0.10
)
|
$
(2.46
)
|
|
|
|
|
|
Weighted average
number of shares, basic and diluted
|
42,249,367
|
797,230
|
40,377,925
|
949,192
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
|
|
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT
|
FOR
THE SIX MONTH PERIOD ENDED JUNE 30, 2018
|
|
(In thousands except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at
January 1, 2018 (Revised - See Note 1)
|
34,318,198
|
$
34
|
$
64,856
|
$
(66,154
)
|
$
(1,264
)
|
Stock issued for
cash
|
1,867,000
|
2
|
543
|
|
545
|
Stock issued for employee
services
|
3,400,000
|
3
|
1,697
|
|
1,700
|
Stock compensation
expense
|
|
|
31
|
|
31
|
Net loss
|
|
|
|
(2,300
)
|
(2,300
)
|
Balances at
March 31, 2018
|
39,585,198
|
$
39
|
$
67,127
|
$
(68,454
)
|
$
(1,288
)
|
|
|
|
|
|
|
Stock issued for
cash
|
2,173,215
|
2
|
732
|
|
734
|
Stock issued for
services
|
3,366,440
|
3
|
871
|
|
874
|
Vesting of employee restricted
stock
|
-
|
-
|
32
|
|
32
|
Net loss
|
|
|
|
(1,578
)
|
(1,578
)
|
Balances at June
30, 2018
|
45,124,853
|
$
44
|
$
68,762
|
$
(70,032
)
|
$
(1,226
)
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
(In thousands)
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITTIES:
|
|
|
Net
loss
|
(3,878
)
|
(2,333
)
|
Adjustments
to reconcile net (loss) to net cash used in operating
activities:
|
|
|
Depreciation
|
2
|
2
|
Amortization
of software development costs
|
198
|
141
|
Shares
issued for employee services
|
-
|
-
|
Change
in allowance for doubtful accounts
|
4
|
(10
)
|
Stock
compensation expense
|
2,640
|
53
|
Decrease
(increase) in:
|
|
|
Accounts
receivable
|
(196
)
|
(49
)
|
Prepaid
expenses
|
1
|
(1
)
|
Accounts
payable and accrued expenses
|
211
|
1,260
|
Deferred
revenue
|
34
|
17
|
NET
CASH USED IN OPERATING ACTIVITIES
|
(984
)
|
(920
)
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
Amounts
paid for capitalized software development costs
|
(161
)
|
(161
)
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(161
)
|
(161
)
|
|
|
|
FINANCING
ACTIVITES
|
|
|
Proceeds
from long term debt
|
20
|
1,164
|
Payments
on long term debt
|
(62
)
|
(226
)
|
Proceeds
from issuance of common stock
|
1,230
|
-
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
1,188
|
939
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
43
|
(142
)
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
|
52
|
185
|
CASH
AND CASH EQUIVALENTS AT END OF THE PERIOD
|
$
95
|
$
43
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
Cash
paid during the period for interest
|
$
77
|
$
54
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements
|
iCoreConnect Inc.
Notes to Condensed Consolidated Financial Statements
June
30, 2018.
(In
thousands except share amounts)
iCoreConnect
Inc. (“iCoreConnect” or the “Company”), a
Nevada corporation, builds cloud based healthcare software. The
Company’s focus presently is on four different revenue
streams: (1) iCoreConnect’s cloud based exchange, the
iCoreExchange, which allows physicians, patients and other members
of the healthcare community to exchange patient specific healthcare
information securely via the internet, while maintaining compliance
with all current Health Insurance Portability and Accountability
Act (“HIPAA”) regulations, (2) customized EHR platform
technology that is specifically tailored to provide specialized
medical practices with a technology that conforms to workflows of
that particular medical discipline such as ophthalmology,
dentistry, orthopedic and other specialty practices, (3)
iCoreConnect’s Meaningful Use Consulting Division assisting
both medical and dental healthcare providers becoming compliant to
ultimately qualify for federal incentive funds under the Federal
Meaningful Use Incentive Funds Program, and (4) International
Statistical Classification of Diseases and Related Health Problems
(ICD) coding software, a medical classification list by the World
Health Organization (WHO). iCoreConnect’s integrated software
and service offering is unique in the healthcare space as it
enables doctors to meet the increasing regulatory burden associated
with secure HIPAA compliant medical records transport with no
change in healthcare delivery workflows.
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
regulation. These unaudited condensed financial statements should
be read in conjunction with the audited financial statements and
notes thereto for the fiscal year ended June 30, 2017 and the six
month period ended December 31, 2017, which are included in the
Company’s Registration Statement filed on Form 10/A with the
SEC on August 17, 2018. The accompanying condensed balance sheet as
of December 31, 2017 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 six month period ended June 30, 2018
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/A filed with the SEC.
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
six month period ended June 30, 2018, the Company generated an
operating loss of $3,878. In addition, the Company has an
accumulated deficit and net working capital deficit of $70,032 and
$2,532 at June 30, 2018, respectively. The Company
’
s activities were
historically financed through private placements of equity and
convertible debt securities. The Company intends to raise
additional capital through the issuance of debt or equity
securities to fund its operations. The Company is reliant on future
fundraising to finance operations in the near future and on August
9, 2018, reached an agreement with an investor for the sale of
4,000,000 shares of our common stock for an investment of $1
million. Future financing may not be available on terms
satisfactory to the Company, if at all
.
In light
of these matters, there is substantial doubt that the Company will
be able to continue as a going concern.
Currently,
management intends to develop a vastly improved healthcare
communications system and intends to develop alliances with
strategic partners to generate revenues that will sustain the
Company. While management believes in the viability of its strategy
to increase revenues and in its ability to raise additional funds,
there can be no assurances to that effect. Management’s
ability to continue as a going concern is ultimately dependent upon
its ability to continually increase the Company’s customer
base and realize increased revenues from signed contracts. The
financial statements do not include any adjustments related to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going
concern.
iCoreConnect Inc.
Notes to Condensed Consolidated Financial Statements
June
30, 2018.
(In
thousands except share amounts)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable and Allowance for Doubtful Account
Accounts receivable
are customer obligations due under normal trade terms. We maintain
an allowance for doubtful accounts for estimated losses resulting
from the potential inability of certain customers to make required
future payments on amounts due us. Management determines the
adequacy of this allowance by periodically evaluating the aging and
past due nature of individual customer accounts receivable balances
and considering the customer’s current financial situation as
well as the existing industry economic conditions and other
relevant factors that would be useful in assessing the risk of
collectability. If the future financial condition of our customers
were to deteriorate, resulting in their inability to make specific
required payments, additions to the allowance for doubtful accounts
may be required. In addition, if the financial condition of our
customers improves and collections of amounts outstanding commence
or are reasonably assured, then we may reverse previously
established allowances for doubtful accounts. The Company has
recorded an allowance for doubtful accounts of $9 and $5 at June
30, 2018 and December 31, 2017, respectively.
Revenue Recognition
The
Company has four primary sources of revenue:
●
Electronic
Health Records (EHR) licenses and rental services
●
Encrypted
Secure & HIPPA Compliant email services (“Encrypted
Secure email”)
●
Meaningful
Use Consulting Services
Effective January 1, 2018, the Company adopted
Financial Accounting Standards Board (FASB) Accounting Standards
Codification 606 (ASC 606),
Revenue from Contracts with
Customers
, utilizing a full
retrospective transition approach reflecting the application of the
standard in each prior reporting period. A summary of the impact of
the full retrospective transition implementation adjustment on EHR
license revenues for the six months ended June 30, 2017 is as
follows:
(In thousands)
|
|
|
Full
Retrospective Revenue
|
|
|
|
|
EHR License revenue
|
37
|
29
|
66
|
A
summary of the impact of the full retrospective transition
implementation adjustment on EHR license deferred revenues and
stockholders’ deficit as of December 31, 2017 is as
follows:
(In thousands)
|
|
|
|
Deferred EHR Revenues
|
356
|
(270
)
|
86
|
Stockholders' Deficit
|
(66,424
)
|
270
|
(66,154
)
|
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 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. 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.
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 contract terms beginning on the date our
solutions are made available to the customer. The length of a
customer service period is monthly over which such customer has the
right to use the Company’s SaaS Encrypted Secure email
solution.
Meaningful
Use consulting service revenue is recognized in the period that the
services are completed and the submission of the customer’s
underlying application for Federal Meaningful Use Incentive Funds
is received from the relevant taxing authority.
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 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.
iCoreConnect Inc.
Notes to Condensed Consolidated Financial Statements
June
30, 2018.
(In
thousands except share amounts)
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 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 antidilutive were
excluded from the computation of diluted earnings per share which
consisted of all outstanding common stock options and warrants and
shares from conversion of debt.
4.
COMMON STOCK AND PREFERRED STOCK
Common Stock
The
Company is authorized to issue up to 600,000,000 shares of common
stock and as of June 30, 2018 had 45,124,853 shares of common stock
outstanding.
Preferred Stock
The
Company is authorized to issue up to 10,000,000 shares of preferred
stock. None were outstanding at either June 30, 2018 or December
31, 2017.
Stock Issuances
During
the six month period ended June 30, 2018, the Company issued
3,877,690 shares of common stock for cash proceeds of $1,233 and
issued 162,525 shares of common stock in exchange of $47 of
accounts payable. The Company also issued 3,400,000 shares of
common stock for the purchase of all of Electro-Fish, LLC’s
outstanding shares of common stock (See Note 9).
Stock Options
No
options were granted, forfeited, vested or exercised during the six
month period ended June 30, 2018.
Restricted Stock for Services
On
November 3, 2017, our Board of Directors authorized the issuance of
2,500,000 restricted shares of common stock to directors of the
Company and certain employees according to the terms of the 2016
Employee Long Term Incentive Compensation Plan. Compensation
expense related to this grant for the six month period ended June
30, 2018 was $48 based on the estimated grant date fair value of
our common stock of $0.25 per share. Of the 2,500,000 restricted
shares of common stock authorized on November 3, 2017, there were
1,731,667 shares vested and 762,333 shares unvested, as of June 30,
2018. Compensation expense of approximately $144 will be recognized
in future periods, related to this grant of restricted shares of
common stock.
On May
22, 2018. our Board of Directors authorized the issuance of
5,462,161 shares of restricted common stock to certain officers and
directors of the Company in exchange for past and future services.
Of the 5,462,161 restricted shares of common stock authorized on
May 22, 2018, there were 3,366,440 shares vested and 2,095,721
shares unvested, as of June 30, 2018. Compensation expense related
to this grant for the six month period ended June 30, 2018 was $874
based on the estimated grant date fair value of our common stock of
$0.25 per share. Compensation expense of approximately $491 will be
recognized in future periods, related to this grant of restricted
shares of common stock.
Warrants
During
the six month period ended June 30, 2018, the Company issued
1,267,646 warrants related to subscriptions of common stock with an
exercise price of $1.35 per share that will expire on June 30,
2020. During the six month period ended June 30, 2018, no warrants
were exercised or forfeited and 56,157 warrants expired
.
5.
SOFTWARE DEVELOPMENT COSTS
The
Company continued to develop its software products with significant
features and enhancements during the six month period ended June
30, 2018 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:
|
|
|
|
|
|
|
|
|
Development
costs
|
$
1,336
|
$
1,176
|
Less
Accumulated amortization
|
(827
)
|
(692
)
|
|
$
509
|
$
484
|
iCoreConnect Inc.
Notes to Condensed Consolidated Financial Statements
June
30, 2018.
(In
thousands except share amounts)
Effective October
29, 2013, the Company entered into a revolving line of credit
agreement in the amount of $250, which was increased to $500 on
March 12, 2014. The line of credit is collateralized by all of the
assets of the Company. The line carries interest at the Wall Street
Journal Prime rate + 1.0% with a floor rate of 6.5% (6.5% at
December 31, 2017). The outstanding balance on the line of credit
was $498 and there was no accrued interest outstanding on the line
of credit as of June 30, 2018 and December 31, 2017. Interest is
payable monthly and all outstanding principal and unpaid interest
is due on July 15, 2019.
Outstanding Debt and Other Financing Arrangements
|
|
|
|
|
|
|
|
|
Note payable
bearing interest at 8.5 - 12.0% per annum, in default
|
$
106
|
$
106
|
Note bearing
interest at 8% per annum, in default
|
482
|
471
|
Non-interest
bearing note, in default
|
10
|
10
|
Related Party
Promissory notes, bearing interest at 8%, due April 15,
2021
|
110
|
-
|
Related Party
Convertible Promissory notes, bearing interest at 18%, due December
31, 2018
|
563
|
657
|
Stockholder
Convertible notes bearing interest at 18%, due September 15,
2018
|
257
|
217
|
|
1,529
|
1,461
|
|
|
|
Less current
maturities
|
(1,419
)
|
(1,461
)
|
|
|
|
Total
Long-term debt
|
$
110
|
$
-
|
8.
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 six months ended June 30, 2018 and 2017 and
the accounts receivable concentrations at June 30, 2018 and
December 31, 2017 are as follows:
|
Net Sales for the six months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
30
%
|
0
%
|
18
%
|
40
%
|
Customer B
|
14
%
|
0
%
|
26
%
|
0
%
|
Customer C
|
14
%
|
0
%
|
27
%
|
0
%
|
Customer D
|
5
%
|
0
%
|
10
%
|
0
%
|
Customer E
|
0
%
|
11
%
|
0
%
|
0
%
|
Customer F
|
0
%
|
0
%
|
0
%
|
20
%
|
9.
ACQUISITIONS
On
January 19, 2018, the Company acquired all of the outstanding
common stock of Electro Fish Media Inc., a Texas corporation, in
exchange for 3,400,000 shares of our Common Stock (at an agreed
upon price of $0.50 per share).
On June
4, 2018, our Board of Directors approved a new employment agreement
for the Company’s Chief Executive Officer, for a term of
three years beginning July 1, 2018. The terms of the new employment
agreement include an option to acquire 700,000 shares of the
Company’s Common Stock (granted on July 1, 2018) at an
exercise price equal to the ten (10) day average closing price of a
share of the Company’s Common Stock prior to July 1, 2018 and
that the options will vest over the three year term of the
employment agreement
On August 9, 2018, the Company reached an agreement with an
investor for the sale of 4,000,000 shares of our common stock for
an investment of $1 million. The agreement also included the
issuance of warrants to purchase 2,365,000 shares of common stock
with an exercise price of $1.35 per share that will expire on June
30, 2020
.
for such 700,000
shares of the Company’s Common Stock shall vest on the dates
set forth
On June 4, 2018,
our Board of Directors approved a new employment agreement for the
Company’s Chief Executive Officer, for a term of three years
beginning July 1, 2018. The terms of the new employment agreement
include an option to acquire 700,000 shares of the Company’s
Common Stock at an exercise price equal to the ten (10) day average
closing price of a share of the Company’s Common Stock prior
to July 1, 2018 and that the options will vest over the three year
term of the employment agreement.
|
Page
|
FINANCIAL STATEMENTS
–
FOR THE SIX MONTH PERIOD ENDED
DECEMBER 31, 2017 AND
THE FISCAL YEARS ENDED JUNE 30, 2017 AND JUNE 30, 2016
(AUDITED)
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
42
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
43
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
44
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT
|
45
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
46
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
47-62
|
Report
of Independent Registered Public Accounting Firm
To the Board of
Directors and Stockholders of iCoreConnect, Inc.
Opinion
on the Financial Statements
We have audited the
accompanying balance sheets of iCoreConnect, Inc. (the
“Company”) as of December 31, 2017, June 30, 2017 and
June 30, 2016, and the related statements of operations,
stockholders’ deficit, and cash flows for the six month
period ended December 31, 2017 and the years ended June 30, 2017
and June 30, 2016, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017, June 30,
2017 and June 30, 2016, and the results of its operations and its
cash flows for each of the periods then ended in conformity with
accounting principles generally accepted in the United States of
America.
Substantial
Doubt about the Company's Ability to Continue as a Going
Concern
The accompanying
financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has recurring losses and negative
cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management’s
evaluations of the events and conditions and management’s
plans regarding those matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis
for Opinion
These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board of the United States of America
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our
audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of
our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
We have served as
the Company’s auditors since 2017.
/s/ Cherry Bekaert
LLP
Tampa,
Florida
May 8,
2018
iCoreConnect
Inc.
BALANCE
SHEETS
(In
thousands except share amounts)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Cash
and cash equivalents
|
$
52
|
$
43
|
$
114
|
Accounts
receivable, net of allowance for doubtful accounts
|
122
|
185
|
112
|
Prepaid
expenses
|
17
|
17
|
44
|
Total
current assets
|
191
|
245
|
270
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
10
|
12
|
14
|
Software
development costs, net of accumulated amortization
|
484
|
448
|
386
|
Acquired
technology, net of accumulated amortization
|
630
|
-
|
-
|
Goodwill
and intangible assets, net of accumulated amortization
|
451
|
-
|
-
|
Total
long-term assets
|
1,575
|
460
|
400
|
|
|
|
|
TOTAL
ASSETS
|
$
1,766
|
$
705
|
$
670
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
Accounts
payable and accrued expenses
|
$
987
|
$
777
|
$
769
|
Line of
credit
|
498
|
522
|
498
|
Current
maturities of long-term debt
|
1,461
|
1,367
|
7,208
|
Total
current liabilities
|
2,946
|
2,666
|
8,475
|
|
|
|
|
Long-term
debt, net of current maturities
|
-
|
-
|
4,977
|
Deferred
revenue
|
356
|
297
|
175
|
Total
long-term liabilities
|
356
|
297
|
5,152
|
|
|
|
|
TOTAL
LIABILITIES
|
3,302
|
2,963
|
13,627
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
Preferred
Stock, Undesignated par value $.001; Authorized 10,000,000 shares;
None outstanding
|
-
|
-
|
-
|
Preferred
Stock, Convertible Series A par value $.001; Authorized 37
shares;
|
|
|
|
Issued
and Outstanding: 35.75 shares as of June 30, 2016
|
-
|
-
|
-
|
Preferred
Stock, Convertible Series B par value $.001; Authorized 63
shares;
|
|
|
|
Issued
and Outstanding: 57.08 shares as of June 30, 2016
|
-
|
-
|
-
|
Common
stock par value $.001;
|
|
|
|
Authorized:
600,000,000 shares; Issued and Outstanding: 34,318,198 as
of
|
|
|
|
December
31, 2017, 28,302,309 as of June 30, 2017 and 795,225
|
|
|
|
as
of June 30, 2016
|
34
|
28
|
-
|
Additional
Paid-In-Capital
|
64,854
|
62,433
|
47,187
|
Accumulated
Deficit
|
(66,424
)
|
(64,719
)
|
(60,144
)
|
TOTAL
STOCKHOLDERS' DEFICIT
|
(1,536
)
|
(2,258
)
|
(12,957
)
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
1,766
|
$
705
|
$
670
|
The accompanying notes are an integral part of these financial
statements
iCoreConnect
Inc.
STATEMENTS
OF OPERATIONS
(In thousands except share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
206
|
$
568
|
$
442
|
Cost of
sales
|
226
|
296
|
222
|
Gross (loss)
profit
|
(20
)
|
272
|
220
|
|
|
|
|
Expenses
|
|
|
|
General
and administrative
|
1,410
|
2,319
|
2,387
|
Depreciation
and amortization
|
160
|
262
|
192
|
Total
operating expenses
|
1,570
|
2,581
|
2,579
|
|
|
|
|
Loss from
operations
|
(1,590
)
|
(2,309
)
|
(2,359
)
|
|
|
|
|
Other income
(expense)
|
|
|
|
Interest
expense
|
(115
)
|
(2,265
)
|
(1,983
)
|
Other
income (expense)
|
-
|
(1
)
|
5
|
Total
other (expense)
|
(115
)
|
(2,266
)
|
(1,978
)
|
|
|
|
|
Net
loss
|
$
(1,705
)
|
$
(4,575
)
|
$
(4,337
)
|
|
|
|
|
Net loss per share
available to common stockholders, basic and diluted
|
(0.06
)
|
(5.74
)
|
(5.45
)
|
|
|
|
|
Weighted average
number of shares, basic and diluted
|
29,155,981
|
796,845
|
795,225
|
The accompanying notes are an integral part of these financial
statements
iCoreConnect
INC
STATEMENTS
OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR
THE SIX MONTH PERIOD ENDED DECEMBER 31, 2017 AND THE FISCAL YEARS
ENDED JUNE 30, 2017 AND 2016
(In thousands
except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at
July 1, 2015
|
35.75
|
$
-
|
52.08
|
$
-
|
795,225
|
$
-
|
$
46,920
|
$
(55,807
)
|
$
(8,887
)
|
Stock compensation
expense
|
-
|
-
|
-
|
-
|
-
|
-
|
178
|
-
|
178
|
Issuance of Preferred Series
B
shares for
services
|
-
|
-
|
5
|
-
|
-
|
-
|
89
|
-
|
89
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,337
)
|
(4,337
)
|
Balances at
June 30, 2016
|
35.75
|
-
|
57.08
|
-
|
795,225
|
$
-
|
$
47,187
|
$
(60,144
)
|
$
(12,957
)
|
Stock compensation
expense
|
-
|
-
|
-
|
-
|
2,005
|
4
|
6
|
-
|
10
|
Issuance of Preferred Series
B
shares for
services
|
-
|
-
|
6.00
|
-
|
-
|
-
|
49
|
-
|
49
|
Vesting of stock
options
|
-
|
-
|
-
|
-
|
-
|
-
|
82
|
-
|
82
|
Recapitalization and conversion of
long-term debt (Note 14)
|
(35.75
)
|
-
|
(63.08
)
|
-
|
27,505,079
|
24
|
15,109
|
-
|
15,133
|
Net loss
|
-
|
-
|
-
|
-
|
|
-
|
|
(4,575
)
|
(4,575
)
|
Balances at
June 30, 2017
|
-
|
-
|
-
|
-
|
28,302,309
|
$
28
|
$
62,433
|
$
(64,719
)
|
$
(2,258
)
|
Stock issued for
cash
|
-
|
-
|
-
|
-
|
2,344,222
|
2
|
1,008
|
-
|
1,010
|
Stock issued for acquisition of
ICDLogic
|
-
|
-
|
-
|
-
|
1,940,000
|
2
|
968
|
-
|
970
|
Stock compensation
expense
|
-
|
-
|
-
|
-
|
-
|
-
|
14
|
-
|
14
|
Vesting of employee restricted
stock
|
-
|
-
|
-
|
-
|
1,731,667
|
2
|
431
|
-
|
433
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,705
)
|
(1,705
)
|
Balances at
December 31, 2017
|
-
|
$
-
|
$
-
|
-
|
34,318,198
|
$
34
|
$
64,854
|
$
(66,424
)
|
$
(1,536
)
|
The accompanying notes are an integral part of these financial
statements
iCoreConnect
Inc.
Statements
of Cash Flows
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITTIES:
|
|
|
|
Net
loss
|
(1,705
)
|
(4,575
)
|
(4,337
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization
|
3
|
7
|
13
|
Amortization
of software development costs
|
157
|
255
|
179
|
Amortization
of deferred loan costs
|
-
|
2
|
292
|
Change
in allowance for doubtful accounts
|
3
|
(8
)
|
(8
)
|
Stock
compensation expense
|
447
|
141
|
268
|
Decrease
(increase) in:
|
|
|
|
Accounts
receivable
|
60
|
(64
)
|
(79
)
|
Prepaid
expenses
|
-
|
27
|
(4
)
|
Accounts
payable and accrued expenses
|
126
|
2,346
|
1,912
|
Deferred
revenue
|
59
|
122
|
150
|
NET
CASH USED IN OPERATING ACTIVITIES
|
(850
)
|
(1,747
)
|
(1,614
)
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
Purchase
of property & equipment
|
(1
)
|
(5
)
|
(4
)
|
Amounts
paid for capitalized software development costs
|
(193
)
|
(317
)
|
(257
)
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(194
)
|
(322
)
|
(261
)
|
|
|
|
|
FINANCING
ACTIVITES
|
|
|
|
Payments
on line of credit
|
-
|
-
|
(250
)
|
Proceeds
from long term debt
|
150
|
2,117
|
2,082
|
Payments
on long term debt
|
(107
)
|
(119
)
|
(89
)
|
Payment
of deferred loan costs
|
-
|
-
|
(3
)
|
Proceeds
from issuance of common stock
|
1,010
|
-
|
-
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
1,053
|
1,998
|
1,740
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
9
|
(71
)
|
(135
)
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
|
43
|
114
|
249
|
CASH
AND CASH EQUIVALENTS AT END OF THE YEAR
|
$
52
|
$
43
|
$
114
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
Cash
paid during the period for interest
|
63
|
68
|
51
|
Stock
issued for acquisition
|
970
|
-
|
-
|
Issuance
of Common Stock during recapitalization for extinguishment
of
|
|
|
|
long
term debt and conversion of preferred stock
|
-
|
15,133
|
-
|
The accompanying notes are an integral part of these financial
statements
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
iCoreConnect Inc.,
(“iCoreConnect” or the “Company”), a Nevada
Corporation, builds cloud based healthcare software. The
Company’s focus presently is on four different revenue
streams: (1) iCoreConnect’s cloudbased exchange, the
iCoreExchange, which allows physicians, patients and other members
of the healthcare community to exchange patientspecific
healthcare information securely via the internet, while maintaining
compliance with all current Health Insurance Portability and
Accountability Act (“HIPAA”) regulations, (2)
Customized EHR platform technology that is specifically tailored to
provide specialized medical practices with a technology that
conforms to workflows of that particular medical discipline such as
ophthalmology, dentistry, orthopedic and other specialty practices,
(3) iCoreConnect has developed a Meaningful Use Consulting Division
assisting both medical and dental healthcare providers becoming
compliant to ultimately for federal incentive funds under the
Federal Meaningful Use Incentive Funds Program, and
(4)
International Statistical Classification of Diseases and Related
Health Problems (ICD) coding software, a medical classification
list by the World Health Organization (WHO)(See Note 13).
iCoreConnect’s integrated software and service offering
enables doctors to meet the regulatory burden associated with
secure HIPAA compliant medical records transport with no
change in healthcare delivery workflows.
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 six month
period ended December 31, 2017, the Company generated an operating
loss of $1,705. In addition, the Company has an accumulated
deficit, total stockholders’ deficit and net working capital
deficit of $66,424, $1,536 and $2,755 at December 31, 2017,
respectively. The Company’s activities were primarily
financed through private placements of equity and convertible debt
securities. The Company intends to raise additional capital through
the issuance of debt or equity securities to fund its operations.
The company is reliant on future fundraising to finance operations
in the near future. The financing may not be available on terms
satisfactory to the Company, if at all
.
In light of these matters, there is
substantial doubt that the Company will be able to continue as a
going concern.
Currently,
management intends to develop a 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.
Change in Fiscal Year End
On
December 15, 2017, the Board of Directors of the Company approved a
change in the Company’s fiscal year end from June 30 to
December 31 of each year. This change to the calendar year
reporting cycle began January 1, 2018. As a result of the change,
the accompanying financial statements include the results of
operations, statement of changes in stockholder’s deficits
and cash flows for the six months ended December 31, 2017 and the
balance sheet as of December 31, 2017.
The
following table provides unaudited, condensed financial information
related to operations for the six month periods ending December 31,
2017and December 31, 2016:
|
|
|
|
|
|
|
(In
thousands except share amounts)
|
|
|
|
|
|
|
|
|
Revenue
|
$
206
|
$
242
|
Cost
of sales
|
226
|
127
|
Gross
(loss) profit
|
(20
)
|
115
|
|
|
|
Expenses
|
|
|
General
and administrative
|
1,410
|
1,510
|
Depreciation
and amortization
|
160
|
119
|
Total
operating expenses
|
1,570
|
1,628
|
|
|
|
Loss
from operations
|
(1,590
)
|
(1,513
)
|
|
|
|
Other
(expense)
|
|
|
Interest
expense
|
(115
)
|
(1,068
)
|
|
|
|
Net
loss
|
$
(1,705
)
|
$
(2,581
)
|
|
|
|
Net
loss per share available to common stockholders, basic and
diluted
|
(0.06
)
|
(3.24
)
|
|
|
|
Weighted
average number of shares, basic and diluted
|
30,213,851
|
796,195
|
|
|
|
The accompanying notes are an integral part of these financial
statements
|
|
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. The
Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risk for cash on
deposit.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable
are customer obligations due under normal trade terms. We maintain
an allowance for doubtful accounts for estimated losses resulting
from the potential inability of certain customers to make required
future payments on amounts due us. Management determines the
adequacy of this allowance by periodically evaluating the aging and
past due nature of individual customer accounts receivable balances
and considering the customer’s current financial situation as
well as the existing industry economic conditions and other
relevant factors that would be useful in assessing the risk of
collectability. If the future financial condition of our customers
were to deteriorate, resulting in their inability to make specific
required payments, additions to the allowance for doubtful accounts
may be required. In addition, if the financial condition of our
customers improves and collections of amounts outstanding commence
or are reasonably assured, then we may reverse previously
established allowances for doubtful accounts. The Company has
estimated and recorded an allowance for doubtful accounts of $5, $2
and $10 at December 31, 2017, June 30, 2017 and June 30, 2016,
respectively.
Property, Equipment and Depreciation
Property,
equipment, and leasehold improvements are recorded at their
historical cost. Depreciation and amortization have been determined
using the straightline method over the estimated useful lives
of the assets which are computers and office equipment (3 years)
and for office furniture and fixtures (7 years). The cost of
repairs and maintenance is charged to operations in the period
incurred.
Software Development
Costs and
Acquired
Software
The Company
accounts for software development costs, including costs to develop
software products or the software component of products to be sold
to external users.
In accordance with
ASC 985-730, Computer Software Research and Development, research
and planning phase costs are expensed as incurred and development
phase costs including direct materials and services, payroll and
benefits and interest costs are capitalized.
We have determined
that technological feasibility for our products to be marketed to
external users was reached before the release of those products. As
a result, the development costs and related acquisition costs after
the establishment of technological feasibility were capitalized as
incurred. Capitalized costs for software to be sold to external
users and software acquired in a business combination are amortized
based on current and projected future revenue for each product with
an annual minimum equal to the straightline 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 was 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.
Loan Costs
In conjunction with
the issuance of certain debt, the Company incurred fees that were
capitalized as loan costs and are being amortized over the term of
the related debt using the effective interest method. Amortization
of loan costs included in amortization expense in the accompanying
consolidated statements of operations was zero, $2, and $292, for
the six month period ended December 31, 2017 and the fiscal years
ended June 30, 2017 and 2016, respectively. In accordance to ASU
No. 2015-03, “Interest – Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs” (“ASU 2015-03”), the Company has recorded
the capitalized debt issuance costs as a direct deduction from the
carrying amount of the related debt rather than as an
asset
Revenue Recognition
The Company has
four primary sources of revenue:
●
Electronic Health
Records (EHR) licenses and rental services
●
Encrypted Secure
& HIPPA Compliant email services ("Encrypted Secure
email")
●
Meaningful Use
Consulting Services
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
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 are 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 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. Due
to the fact that the Company’s EHR software product has only
been on the market since August of 2014, with standard license term
of 5 years, the Company has limited Vendor Specific Objective
Evidence (VSOE) for the price of the elements as required by GAAP.
Therefore, the Company recognizes revenue from the sale of its EHR
software as revenue on a straight line basis over the contract
period of 60 months.
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 contract terms beginning on the date our solutions
are made available to the customer. The length of a customer
service period is monthly over which such customer has the right to
use the Company’s SaaS Encrypted Secure email
solution.
Meaningful Use
consulting service revenue is recognized in the period that the
services are completed and the submission of the customer’s
underlying application for Federal Meaningful Use Incentive Funds
is received from the relevant taxing authority.
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 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 $50, $19 and $54 for the six month period ended December 31,
2017 and for the fiscal years ended June 30, 2017 and 2016,
respectively.
Accounting for Derivative Instruments
The Company
accounts for derivative instruments in accordance with ASC 815,
which requires additional disclosures about the
Company’s
objectives and strategies for using derivative instruments, how the
derivative instruments and related hedged items are accounted for,
and how the derivative instruments and related hedging items affect
the financial statements.
The Company does
not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risk. Terms of convertible debt and
preferred stock instruments are reviewed to determine whether or
not they contain embedded derivative instruments that are required
under ASC 815 to be accounted for separately from the host contract
and recorded on the balance sheet at fair value. The fair value of
derivative liabilities, if any, is required to be revalued at each
reporting date, with corresponding changes in fair value recorded
in current period operating results.
Freestanding
warrants issued by the Company in connection with the issuance or
sale of debt and equity instruments are considered to be derivative
instruments. Pursuant to ASC 815, an evaluation of specifically
identified conditions is made to determine whether the fair value
of warrants issued is required to be classified as equity or as a
derivative liability.
Fair Value Measurements
GAAP establishes a
fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three broad
levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to
unobservable inputs. The three levels of fair value
hierarchy defined by GAAP are described below:
Level
1
|
|
Quoted market
prices available in active markets for identical assets or
liabilities as of the reporting date.
|
Level
2
|
|
Pricing inputs
other than quoted prices in active markets included in Level 1,
which are either directly or indirectly observable as of the
reporting date.
|
Level
3
|
|
Pricing inputs that
are generally observable inputs and not corroborated by market
data.
|
The fair value
hierarchy gives the highest priority to quoted prices (unadjusted)
in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. If the inputs
used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on
the lowest level input that is significant to the fair value
measurement of the instrument.
The Company’s
Level 3 financial liabilities consist of derivative financial
instruments, including a warrant liability and compound embedded
derivative liability, for which there is no current market for
these securities such that the determination of fair value requires
significant judgment or estimation. See Note 9 for a
discussion of these financial instruments.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Income Taxes
The Company follows
the asset and liability approach to accounting for income taxes.
Under this method, deferred tax assets and liabilities are measured
based on differences between the financial reporting and tax bases
of assets and liabilities measured using enacted tax rates and laws
that are expected to be in effect when differences are expected to
reverse. Valuation allowances are established when it is necessary
to reduce deferred income tax assets to the amount, if any,
expected to be realized in future years.
ASC 740, Accounting
for Income taxes (‘ASC 740’), requires that deferred
tax assets be evaluated for future realization and reduced by a
valuation allowance to the extent we believe a portion more likely
than not will not be realized. We consider many factors when
assessing the likelihood of future realization of our deferred tax
assets, including our recent cumulative loss experience and
expectations of future taxable income by taxing jurisdictions, the
carryforwarding periods available to us for tax reporting
purposes and other relevant factors.
The Company has not
recognized a liability for uncertain tax positions. A
reconciliation of the beginning and ending amount of unrecognized
tax benefits or penalties has not been provided since there has
been no unrecognized benefit or penalty. If there were an
unrecognized tax benefit or penalty, the Company would recognize
interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses. The Company files U.S.
Federal income tax returns and various returns in state
jurisdictions. The Company's open tax years subject to examination
by the Internal Revenue Service and the state Departments of
Revenue generally remain open for three years from the date of
filing.
Changes in tax laws
and rates may affect recorded deferred tax assets and liabilities
and the Company’s effective tax rate in the future. On
December 22, 2017 the Tax Cuts and Jobs Act of 2017 (the “Tax
Act”) became law. The Tax Act enacted significant tax law
changes, largely effective for tax years beginning after December
31, 2017. The Tax Act reduces the corporate tax rate to 21%,
effective January 1, 2018, for all corporations. GAAP requires the
effect of a change in tax laws or rates to be recognized as of the
date of enactment, therefore we have revalued our tax assets and
liabilities as of December 22, 2017. As a result of the revaluation
of our deferred tax assets and liabilities, the impact of the
change in tax law reduced the value of our deferred tax asset and
the related valuation allowance as of December 31, 2017 by $8.3
million.
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 common shares outstanding for a period, if dilutive.
Common stock equivalents that are antidilutive were excluded
from the computation of diluted earnings per share which consisted
of all outstanding common stock options and warrants and shares
from conversion of debt.
Stock-Based Compensation
The Company
accounts for all stock-based payments and awards under the fair
value based method. Stock-based payments to non-employees are
measured at the fair value of the consideration received, or the
fair value of the equity instruments issued, or liabilities
incurred, whichever is more reliably measurable. The fair value of
stock-based payments to non-employees is periodically re-measured
until the counterparty performance is complete, and any change
therein is recognized over the vesting period of the award and in
the same manner as if the Company had paid cash instead of paying
with or using equity based instruments on an accelerated basis. The
cost of the stock-based payments to non-employees that are fully
vested and non-forfeitable as at the grant date is measured and
recognized at that date, unless there is a contractual term for
services in which case such compensation would be amortized over
the contractual term.
The Company
accounts for the granting of share purchase options to employees
using the fair value method whereby all awards to employees are
recorded at fair value on the date of the grant. Share based awards
granted to employees with a performance condition are measured
based on the probable outcome of that performance condition during
the requisite service period. Such an award with a performance
condition is accrued if it is probable that a performance condition
will be achieved. Compensation costs for stock-based payments to
employees that do not include performance conditions are recognized
on a straight-line basis. The fair value of all share purchase
options is expensed over their requisite service period with a
corresponding increase to additional capital surplus. Upon exercise
of share purchase options, the consideration paid by the option
holder, together with the amount previously recognized in
additional capital surplus, is recorded as an increase to share
capital.
The fair value of
restricted stock units issued are determined by the Company based
on the estimated fair value 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 that uses the
assumptions noted in the table below. The Company estimates the
fair value of its common stock using the closing stock price of its
common stock on the 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 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 any cash
dividends on its common stock and does not anticipate paying any
cash dividends in the foreseeable future. The Company did not issue
additional options for the six months ended December 31, 2017 or
for the fiscal year ended June 30, 2017 and used the following
assumptions for options granted during the fiscal year ended June
30, 2016:
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Equity
Incentive Plan Assumptions
|
June 30,
2016
|
|
|
Expected Term
(years)
|
2
years
|
Weighted average
volatility
|
100%
|
Weighted average
risk free rate
|
0.49%
|
Expected
dividends
|
$ 0
|
Recently Issued Accounting Pronouncements
From time to time,
new accounting pronouncements are issued by the Financial
Accounting Standards Board, or FASB, or other standard setting
bodies that are adopted by us as of the specified effective date.
Unless otherwise discussed, we believe that the impact of recently
issued standards that are not yet effective will not have a
material impact on our consolidated financial position or results
of operations upon adoption.
In May 2014, the
FASB issued Accounting Standards Update No.2014-09, Revenue from
Contracts with Customers (ASC 606), which supersedes nearly all
existing revenue recognition guidance under U.S. GAAP. The core
principle of ASU 2014-09 is to recognize revenues when promised
goods or services are transferred to customers in an amount that
reflects the consideration to which an entity expects to be
entitled for those goods or services. ASC 606 defines a five step
process to achieve this core principle and, in doing so, more
judgment and estimates may be required within the revenue
recognition process than are required under existing U.S.
GAAP.
The standard is effective for the
Company in the first quarter of the fiscal year ending December 31,
2018, using either of the following transition methods: (i) a full
retrospective approach reflecting the application of the standard
in each prior reporting period with the option to elect certain
practical expedients, or (ii) a retrospective approach with the
cumulative effect of initially adopting ASC 606 recognized at the
date of adoption (which includes additional footnote disclosures).
The Company has evaluated the impact of the pronouncement on the
financial reports which is required to be adopted January 1, 2018.
The adoption of ASC 606 will materially impact our current revenue
recognition policy for the sale of our EHR software solutions.
Currently, we defer a portion of the contract consideration related
to the software license. Under ASC 606, due to the elimination of
VSOE, we will recognize this revenue up-front. If ASC 606 had been
adopted on July 1, 2015, the impact of the change would have
increased revenues and decreased deferred revenue liabilities
approximately $44, $84
and $141
for the six month
period ended December 31, 2017 and the fiscal years ended June 30,
2017 and 2016, respectively.
In April 2015, the
Financial Accounting Standards Board issued ASU No. 2015-03,
“Interest – Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs”
(“ASU 2015-03”). ASU 2015-03 requires debt issuance
costs to be presented as a direct deduction from the carrying
amount of the related debt rather than as an asset. The Company has
retrospectively adopted this update, as required, and the amounts
reclassified from other assets to a reduction of the carrying
amount of the related debt in the accompanying Balance
Sheets.
In February 2016,
the FASB issued Accounting Standards Update No. 2016-02,
“Leases (Topic 842)” (“ASU 2016-02”)
intended to improve financial reporting about leasing transactions.
The new guidance will require entities that lease assets to
recognize on their balance sheets the assets and liabilities for
the rights and obligations created by those leases and to disclose
key information about the leasing arrangements. ASU 2016-02 is
effective for interim and annual periods beginning after December
15, 2018 with early adoption permitted. We are currently evaluating
the impact of this accounting guidance, including the timing of
adoption.
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. The Company has begun to evaluate
the impact of the pronouncement on the financial reports and has
determined that it will not have a significant impact on the
financial reports.
4.
COMMON STOCK AND PREFERRED STOCK
Common Stock
Pursuant to an
amendment and restated Articles of Incorporation on June 30, 2017,
the Company is authorized to issue up to 600,000,000 shares of
common stock and as of December 31, 2017 had 34,318,198 shares of
common stock outstanding.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Preferred Stock
Pursuant to an
amendment of the Articles of Incorporation on June 30, 2017, the
Company is authorized to issue up to 10,000,000 shares of
undesignated preferred stock.
Stock Issuances
During the six month period ended
December 31, 2017, the Company issued 2,344,222 shares of common
stock for cash proceeds of $1,010. The Company also issued
1,940,000 shares of common stock for the purchase of certain assets
of ICDLogic, LLC
(See Note 13)
. The Company also
issued 2,500,000 restricted stock units as compensation to certain
executives as part of the 2016 Long Term Employee Compensation
Plan, of which 1,731,667 shares have vested.
For the fiscal year
ended June 30, 2017, the Company did not have any sales of Common
Stock, but did issue 2,005 shares of Common Stock for compensation
with a value of $10. The Company did not have any sales of Common
Stock for the fiscal year ended June 30, 2016.
Stock Options
Certain executives
have been granted options or warrants outside of an employee option
plan that are compensatory in nature. A summary of option activity
for the six month period ended December 31, 2017 and the fiscal
years ended June 30, 2017 and 2016, is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding
- July 1, 2015
|
254,559
|
$
13.69
|
2.5
|
$
-
|
Exercisable - July
1, 2015
|
122,590
|
$
13.07
|
2.5
|
$
-
|
|
|
|
|
|
Granted
|
56,157
|
$
11.51
|
|
|
Exercised
|
-
|
$
-
|
|
|
Forfeited/expired
|
(14,039
)
|
$
-
|
|
|
Balance outstanding
- June 30, 2016
|
296,677
|
$
10.40
|
1.8
|
$
-
|
|
|
|
|
|
Exercisable - June
30, 2016
|
178,045
|
$
13.07
|
1.5
|
$
-
|
|
|
|
|
|
Granted
|
-
|
$
-
|
|
|
Exercised
|
-
|
$
-
|
|
|
Forfeited/expired
|
(42,118
)
|
$
-
|
|
|
Balance outstanding
- June 30, 2017
|
254,559
|
$
10.40
|
1.0
|
$
-
|
|
|
|
|
|
Exercisable - June
30, 2017
|
205,889
|
$
12.47
|
0.9
|
$
-
|
|
|
|
|
|
Granted
|
-
|
$
-
|
|
|
Exercised
|
-
|
$
-
|
|
|
Forfeited/expired
|
(56,157
)
|
$
11.51
|
|
|
Balance outstanding
- December 31, 2017
|
198,402
|
$
10.40
|
0.8
|
$
-
|
|
|
|
|
|
Exercisable -
December 31, 2017
|
179,683
|
$
7.81
|
0.7
|
$
-
|
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Nonvested
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested - July 1,
2015
|
131,969
|
$
12.36
|
2.5
|
Granted
|
56,157
|
$
12.36
|
|
Vested
|
(55,455
)
|
$
11.40
|
|
Forfeited/expired
|
(14,039
)
|
$
-
|
|
Nonvested - June
30, 2016
|
118,632
|
$
10.40
|
1.5
|
|
|
|
|
Granted
|
-
|
$
-
|
|
Vested
|
(27,844
)
|
$
10.57
|
|
Forfeited/expired
|
(42,118
)
|
$
-
|
|
Nonvested - June
30, 2017
|
48,670
|
$
10.40
|
0.9
|
|
|
|
|
Granted
|
-
|
$
-
|
|
Vested
|
(18,719
)
|
$
4.37
|
|
Forfeited/expired
|
(11,232
)
|
$
-
|
|
Nonvested -
December 31, 2017
|
18,719
|
$
10.40
|
0.7
|
Future compensation
related to nonvested awards expected to vest of $14 is estimated to
be recognized over the weighted average vesting period of
approximately 0.7 years.
Restricted Stock for Services
Our current
President and CEO, Mr. McDermott, was awarded five restricted
shares of Series B preferred stock under the terms of his
employment agreement dated July 1, 2013. The shares vest as
follows: one share on signing of the employment agreement at July
1, 2013 and one share for each yearly anniversary of the Employment
Agreement. The 5 shares of Series B restricted stock were valued at
a total of $58 by calculating the common stock equivalent value on
a diluted basis. Compensation expense related to this grant for the
fiscal years ended June 30, 2017 and 2016 was $23 and $12,
respectively.
On July 3, 2014,
our Board of Directors awarded Mr. McDermott, 9.125 restricted
shares of Series B preferred stock. The shares vest as follows: 50%
(4.5625 shares) on the date of Board of Director approval, with 25%
(2.28125 shares), for the next two anniversary dates of the Board
of Director approval. The 9.125 shares of Series B restricted stock
were valued at a total of $103 by calculating the common stock
equivalent value on a diluted basis. Compensation expense related
to this grant for the fiscal years ended June 30, 2017 and 2016 was
$26.
Mr. McDermott, was
awarded five restricted shares of Series B preferred stock under
the terms of his employment agreement dated July 1, 2015. The
shares vested immediately. The 5 shares of Series B restricted
stock were valued at a total of $52 by calculating the common stock
equivalent value on a diluted basis. Compensation expense related
to this grant for the fiscal year ended June 30, 2016 was $52. At
June 30, 2017, all of Mr. McDermott’s restricted shares of
Series B Preferred stock were converted to common equity in the
Recapitalization effective June 30, 2017. See Note 14 to the
accompanying Financial Statements.
On November 3,
2017, our Board of Directors authorized 2,500,000 restricted shares
of common stock to directors of the Company and certain employees
according to the terms of the 2016 Employee Long-Term Incentive
Compensation Plan. All shares for Mr. McDermott and Mr. Douglas
vested on the date of Board of Director approval, with all other
shares to vest as follows: 33% on the date of Board of Director
approval, with 33%, for the next two anniversary dates of the Board
of Director approval. Compensation expense related to this grant
for the six month period ended December 31, 2017 was $433 based on
the estimated fair value of our common stock of $0.25 per share. Of
the 2,500,000 restricted stock units authorized on November 3,
2017, there were 1,731,667 vested and 768,333 shares unvested, as
of December 31, 2017. Compensation expense
of approximately
$192 will be recognized in future periods, related to this grant of
restricted stock units.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Warrants
Common stock warrant issuances during
the six month period ended December 31, 2017 and the fiscal years
ending June 30, 2017 and 2016 were issued in conjunction with the
issuance of common stock, bridge loan financing and for the
settlement of a disputed note payable. During the six month period
ended December 31, 2017, the Company issued 1,009,900 warrants
related to subscriptions of common stock with an exercise price of
$1.35 per share
that
will expire on June 30, 2020. During
the fiscal year ended June 30, 2017, the Company settled a dispute
with a former employee for an outstanding note payable and warrants
issued related to debt. The terms of the settlement agreement
included the issuance of 28,078 warrants with an exercise price of
$1.35 per share
that
will
expire on June 30, 2020. During the six month period
ended December 31, 2017 and the fiscal years ended June 30, 2017
and 2016, no warrants were exercised. The Company issued warrants
to Bridge Loan investors of 2,253,426, and 2,073,929 for the fiscal
years ended June 30, 2017 and 2016,
respectively.
|
|
Weighted
Average
Exercise
Price
|
Outstanding at July
1, 2015
|
2,344,966
|
1.27
|
Issued
|
2,073,929
|
1.35
|
Exercised
|
-
|
|
Expired
|
(32,037
)
|
|
Outstanding at June
30, 2016
|
4,386,858
|
1.32
|
|
|
|
Issued
|
2,281,504
|
1.35
|
Exercised
|
-
|
|
Expired
|
(35,259
)
|
|
Outstanding at June
30, 2017
|
6,633,103
|
1.33
|
|
|
|
Issued
|
1,009,900
|
1.35
|
Exercised
|
-
|
|
Expired
|
-
|
|
Outstanding at
December 31, 2017
|
7,643,003
|
1.34
|
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
5.
PROPERTY
AND EQUIPMENT
Depreciation
expense on property and equipment for the six month period ended
December 31, 2017 and the fiscal years ended June 30, 2017 and 2016
was $3, $7 and $13 respectively. The cost and related accumulated
depreciation of disposed assets are removed from the applicable
accounts and any gain or loss is included in income in the period
of disposal. Property and equipment are stated at cost and consist
of the following:
|
|
|
|
|
|
|
|
|
|
|
Furniture and
fixtures
|
$
8
|
$
8
|
$
8
|
Leasehold
improvements
|
26
|
26
|
26
|
Equipment
|
11
|
10
|
5
|
|
$
45
|
$
44
|
$
39
|
Less Accumulated
depreciation
|
35
|
32
|
25
|
|
$
10
|
$
12
|
$
14
|
6.
SOFTWARE DEVELOPMENT
COSTS
Prior to 2014, the Company developed
iCoreExchange as well as iCoreMD and iCoreDental. The iCoreExchange
software was placed into service in April 2014 and
was
amortized over three years. iCoreMD and
iCoreDental were placed in service during the first quarter of
fiscal 2015 and are being amortized over their estimated useful
lives of three years. The Company has continued to develop
its
software
products with significant features and enhancements during the six
month period ended December 31, 2017, and fiscal years 2016 and
2017 and has continued to capitalize development costs during those
periods. A summary of the capitalization and amortization of the
software development costs is as follows
|
|
|
|
|
|
|
|
|
|
|
Development
costs
|
$
1,176
|
$
983
|
$
665
|
|
|
|
|
Less Accumulated
amortization
|
692
|
535
|
279
|
|
$
484
|
$
448
|
$
386
|
Amortization of the
software development costs and acquired technology for the six
month period ended December 31, 2017 and the fiscal years 2017 and
2016 were $157, $255 and $179, respectively.
7.
LINE
OF CREDIT
Effective October
29, 2013, the Company entered into a revolving line of credit
agreement in the amount of $250, which was increased to $500 on
March 12, 2014. The line of credit is collateralized by all assets
of the Company. The line carries interest at the Wall Street
Journal Prime rate + 1.0% with a floor rate of 6.5% (6.5% at
December 31, 2017). Interest is payable monthly with all
outstanding principal and unpaid interest due on July 15,
2018.
8.
LONG-TERM DEBT
The Company
completed a Recapitalization Plan on June 30, 2017 that converted
$15,133 of long term debt to shares of common stock (See Note
14).
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Outstanding Debt and Other Financing Arrangements
Our notes payable
(including accrued interest)
are
summarized as follows:
|
|
|
|
|
|
|
|
|
(1
)
|
Note payable
bearing interest at 8.5 - 12.0% per annum - due July 1,
2018
|
$
106
|
$
100
|
$
115
|
(2
)
|
Stockholder
Convertible note bearing interest at 18% per annum
|
-
|
-
|
2,576
|
(3
)
|
Stockholder
Convertible note bearing interest at 18% per annum
|
-
|
-
|
2,845
|
(4
)
|
Note bearing
interest at 8% per annum, in default
|
471
|
460
|
437
|
(5
)
|
Note bearing
interest at 8% per annum
|
-
|
-
|
441
|
(6
)
|
Non-interest
bearing note, in default
|
10
|
10
|
10
|
(7
)
|
Note bearing
interest at 18%
|
-
|
-
|
156
|
(8
)
|
Related Party
Convertible Promissory notes, bearing interest at 18%, due July 1,
2018
|
657
|
747
|
628
|
(9
)
|
Stockholder
Convertible notes bearing interest at 18%, due September 15,
2018
|
217
|
50
|
2,953
|
(10
)
|
Bridge loans
bearing interest at 18%
|
-
|
-
|
2,023
|
|
|
1,461
|
1,367
|
12,184
|
|
|
|
|
|
|
(1,461
)
|
(1,367
)
|
(7,208
)
|
|
|
|
|
|
|
$
-
|
$
-
|
$
4,976
|
(1)
The
Company entered into a settlement agreement and issued a promissory
note dated June 30, 2014 to Schneller in the principal amount of
$100 bearing interest at a rate of 8.5% per annum with an original
maturity date of June 30, 2017. Interest payments in the amount of
$2 were payable at the end of each calendar quarter starting
September 30, 2014. A new promissory note dated June 30, 2017 was
issued to Schneller in the principal amount of $100 bearing
interest at a rate of 12.0% per annum with a maturity date of July
1, 2018.
(2)
This
note was originated by Sonoran Pacific Resources (An entity owned
by the Company's majority shareholder) to perform similar to a line
of credit in order to assist the Company with its cash flow
requirements. The Company converted this note to common equity in
the Recapitalization effective June 30, 2017. (See Note 14 to the
accompanying Financial Statements.)
(3)
Effective October
2009, the Company entered into a convertible line of credit
agreement with Sonoran Pacific Resources (An entity owned by the
Company's majority shareholder) The Company converted this note to
common equity in the Recapitalization effective June 30, 2017. (See
Note 14 to the accompanying Financial Statements.)
(4)
An
unsecured note, with an annual rate of 8% per annum. The debt is in
default as of December 31, 2017.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
(5)
One of the
Company’s former directors loaned the Company funds in
varying amounts beginning in November 5, 2010. The Company disputed
the amount outstanding and reached a settlement agreement for the
amount outstanding in exchange for 79,743 shares of common stock as
a part of the Recapitalization effective June 30, 2017. (See Note
14 to the accompanying Financial Statements).
(6)
An unsecured, non
interest bearing note. The debt is in default as of December 31,
2017.
(7)
Genesis Finance
Corporation (“Genesis”) loaned the Company $155 during
fiscal 2012. The note accrued interest at a rate of 18%. This note
was paid in full on February 23, 2017.
(8)
The Company
executed a promissory note to Mr. McDermott on July 1, 2014 for
$200 with an annual rate of 8.5% per annum with a default rate of
18%, with principal and accrued interest due on July 1, 2015. The
Company defaulted on the note and accrued interest at the 18%
default rate during the fiscal year 2015 period. On June 30, 2015,
the Company issued a second note (that replaced the first $200
note) with a principal amount of $390 with an annual rate of 8.5%
per annum with a default rate of 18%, with principal and accrued
interest due on December 1, 2016. The Company defaulted on the
terms of the second note and accrued interest at the defaultrate of
18% for the term of the note agreement. On June 30, 2016, the
Company issued a third note with a principal amount of $225 with an
annual rate of 18%, with principal and accrued interest due on June
30, 2017. On June 30, 2017, the Company issued a fourth note with a
principal amount of $747, that replaced all previous notes, with an
annual rate of 18%, with principal and accrued interest due on June
30, 2018. The outstanding balance on the note as of December 31,
2017 was $657,128 and there was no accrued interest outstanding on
the note at December 31, 2017.
(9)
The Company
executed a convertible promissory note to Mr. Smith, the
Company’s majority shareholder, on June 15, 2017 for $50 with
an annual rate of 18% per annum, with principal due on September
15, 2017 and accrued interest payable monthly. On December 31,
2017, the Company issued a second convertible promissory note with
an annual rate of 18%, with principal and accrued interest due on
September 15, 2018 that replaced the first note.
(10)
The Company issued
Bridge notes beginning on October 10, 2014. The Bridge notes
accrued interest at 18% per annum The Company converted the Bridge
notes to common equity in the Recapitalization effective June 30,
2017. (See Note 14 to the accompanying Financial
Statements).
9.
DERIVATIVE FINANCIAL
INSTRUMENTS
The Company evaluates its convertible
debt, warrants or other contracts to determine if those contracts
or embedded components of those contracts qualify as derivatives to
be separately accounted for in accordance with paragraph
810-10-05-4 of the FASB Accounting Standards Codification and
paragraph 815-40-25 of the FASB Accounting Standards Codification.
The result of this accounting treatment is that the fair value of
the embedded derivative is marked
to market each balance
sheet date and recorded as a liability. The change in fair value is
recorded in the Statements of Operations as other income or
expense. Upon conversion or exercise, as applicable, of a
derivative instrument, the instrument is marked to fair value at
the conversion date and then that fair value is reclassified to
equity.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Certain of the
Company’s convertible debt and warrants issued associated
with common stock subscriptions included embedded conversion
features or other embedded derivative instruments that were
determined to require bifurcation and liability classification and
the value of which was nominal. As such, no accounting treatment
has been given to these derivative liabilities.
10.
INCOME
TAXES
The Company has
incurred net losses since inception. As of December 31, 2017, the
Company had federal net operating loss carry forwards of
approximately $69,800, which at the latter date may be carried
forward for tax years ending through December 31, 2037. Utilization
of NOL carryforwards may be limited under various sections of the
Internal Revenue Code depending on the nature of the
Company’s operations. The Company’s income tax returns
are subject to examination by the Internal Revenue Service and
applicable state taxing authorities, generally for a period of
three years from the date of filing.
Deferred taxes
comprise the following as of December 31, 2017, June 30, 2017 and
June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax
Assets
|
13,328
|
21,102
|
19,457
|
Valuation
Allowance
|
(13,328
)
|
(21,102
)
|
(19,457
)
|
Net Deferred Tax
Asset
|
-
|
-
|
-
|
|
|
|
|
Reconciliation of
the effective income tax rate to the federal statutory
rate:
|
|
|
|
Federal Income Tax
Rate
|
21
%
|
34
%
|
34
%
|
Change in valuation
allowance including the effect of the rate change
|
-21
%
|
-34
%
|
-34
%
|
Effective income
tax rate
|
0
%
|
0
%
|
0
%
|
11. 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 six months ended December 31, 2017 and the
fiscal years ended June 30, 2017 and 2016 and the accounts
receivables concentrations at December 31, 2017, June 30, 2017 and
2016 are as follows:
|
Net Sales for the
periods ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
10
%
|
11
%
|
7
%
|
40
%
|
39
%
|
2
%
|
Customer
B
|
9
%
|
5
%
|
7
%
|
20
%
|
19
%
|
37
%
|
Customer
C
|
8
%
|
5
%
|
6
%
|
0
%
|
12
%
|
0
%
|
12.
COMMITMENTS
AND CONTINGENCIES
(A) LEASE
COMMITMENTS
On November 15,
2017 the Company signed a three-year lease agreement for
approximately 4,100 square feet of office space located in Winter
Garden, Florida in which the Company has its headquarters. The
lease provides for a one-year renewal term at the option of the
Company. Future lease obligations for the office space are as
follows:
Year
Ended
|
|
|
|
December 31,
2018
|
$
91
|
December 31,
2019
|
93
|
December 31,
2020
|
78
|
|
$
262
|
Total rent expense
for the six month period ended December 31, 2017 and the fiscal
years ended June 30, 2017 and 2016 were approximately $42, $80 and
$78, respectively.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
(B) EMPLOYMENT
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
On July 1, 2015,
Robert McDermott entered into a second Employment Agreement (the
'McDermott 2015 Agreement') with the Company. The McDermott 2015
Agreement is a threeyear Employment Agreement wherein Mr.
McDermott is to receive an annual base salary of $225 plus an
annual bonus up to 100% of his base salary, which bonus is to be
determined by the Board. At both June 30, 2017 and 2016, the
Company has accrued $225 for amounts due to Mr. McDermott under his
second employment agreement which is included in accrued expenses
on the accompanying balance sheets, with an accrued expense balance
of $113 for the six month period ended December 31, 2017. The
Company has not paid Mr. McDermott for the bonuses accrued for the
6 months ended December 31, 2017 and the fiscal years ended June
30, 2017 and June 30, 2016. In addition, Mr. McDermott was awarded
an option to acquire 56,157 shares of the Company’s Common
Stock. Thirtythree percent of the option award (18,719
options) was vested on July 1, 2016. The remaining options are to
be vested at the rate of 18,719 each on the subsequent anniversary
dates of the date of the McDermott 2015 Agreement. The Common Stock
option has an exercise price equal to the average of the ten (10)
trading day closing price of the Common Stock prior to the
Effective Date (the effective date being June 1, 2015) and contains
a provision for 'cashless exercise' at the discretion of Mr.
McDermott. Further, In the event of termination of employment due
to change in control, as defined, Mr. McDermott will continue to
receive his base salary and annual bonus computed at 100% of base
salary for 24 months following the date of termination. In
addition, the stock options will become fully vested as of the date
of termination. In the event of termination during the initial
three year term of the agreement without cause, Mr. McDermott will
receive his base salary for the 18 month period after date of
termination. In the event of termination of employment due to death
or disability, Mr. McDermott or his estate will continue to receive
the base salary Mr. McDermott was receiving for six months
following the date of termination and the stock options will become
fully vested as of the date of termination.
On January 1, 2014,
Donald Douglas entered into an Employment Agreement with the
Company (the “Douglas Agreement”). Pursuant to the
terms of the Agreement, Mr. Douglas was appointed by the Board of
Directors as the Chief Operating Officer of the Company. The
Douglas Agreement is a two year Employment Agreement wherein Mr.
Douglas is to receive an annual base salary of $120 and is eligible
to receive annual incentive bonus compensation, which bonus is to
be determined by the Board. In addition, Mr. Douglas was awarded an
option to acquire 1,853 shares of common stock. The Douglas
Agreement includes terms for an automatic annual extension, unless
either party provides a 30 day written notice.
In the event of
termination of employment due to change in control, as defined, Mr.
Douglas will continue to receive his base salary and annual bonus
computed at 100% of base salary for 24 months following the date of
termination. In addition, the stock options will become fully
vested as of the date of termination.In the event of termination
during the initial two year term of the agreement without cause,
Mr. Douglas will receive his base salary for the 18 month period
after date of termination. In the event of termination of
employment due to death or disability, Mr. Douglas or his estate
will continue to receive the base salary Mr. Douglas was receiving
for six months following the date of termination and the stock
options will become fully vested as of the date of
termination.
On May 23, 2017,
Scott A Malmanger entered into an Employment Agreement with the
Company (the “Malmanger Agreement”). Pursuant to the
terms of the Agreement, Mr. Malmanger was appointed by the Board of
Directors as the Chief Financial Officer of the Company. The
Malmanger Agreement is a one year Employment Agreement wherein Mr.
Malmanger is to receive an annual base salary of $120. The
Malmanger Agreement includes terms for an automatic annual
extension, unless either party provides a 30 day written
notice.
In addition, Mr.
Malmanger was awarded an option to acquire 100,000 shares of the
Company’s Common Stock. Twentyfive percent of the option
award (25,000 options) vested on June 15, 2017. The remaining
options vest at the rate of 25,000 shares each on the subsequent
anniversary dates of the date of the first award. The Common Stock
option has an exercise price equal to the average of the ten (10)
trading day closing price of the common stock prior to the
Effective Date (the effective date being May 23,
2017).
In the event of
termination of employment due to change in control, as defined, Mr.
Malmanger will continue to receive his base salary for six months
following the date of termination. In addition, the stock options
will become fully vested as of the date of termination. In the
event of termination during the initial one year term of the
agreement without cause, Mr. Malmanger will receive his base salary
for the six month period after date of termination. In the event of
termination of employment due to death or disability, Mr. Malmanger
or his estate will continue to receive the base salary Mr.
Malmanger was receiving for six months following the date of
termination and the stock options will become fully vested as of
the date of termination.
On November 3,
2017, our Board of Directors authorized 2,500,000 restricted shares
of common stock to directors of the Company and certain employees
according to the terms of the 2016 Employee Long-Term Incentive
Compensation Plan. Mr. Malmanger agreed to receive 100,000 shares
of restricted stock units, with the vesting schedule approved by
the Company’s Board of Directors, in leui of the options
provided for in the terms of the employment agreement described
above.
On September 1,
2017, Dave Fidanza entered into an Employment Agreement with the
Company(the “Fidanza Agreement”). Pursuant to the terms
of the Agreement, Mr. Fidanza was appointed by the Board of
Directors as the Chief Information Officer of the Company. The
Fidanza Agreement is a one year Employment Agreement wherein Mr.
Fidanza is to receive an annual base salary of $95. The Fidanza
Agreement includes terms for an automatic annual extension, unless
either party provides a 30 day written notice.
In addition, Mr.
Fidanza was awarded an option to acquire 180,000 shares of the
Company’s Common Stock. Fifty percent of the option award
(90,000 options) vested on September 1, 2017. The remaining options
vest at the rate of 45,000 shares each on the subsequent
anniversary dates of the date of the first award. The Common Stock
option has an exercise price equal to the average of the ten (10)
trading day closing price of the common stock prior to the
Effective Date (the effective date being September 1,
2017).
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
In the event of
termination of employment due to change in control, as defined, Mr.
Fidanza will continue to receive his base salary for six months
following the date of termination. In addition, the stock options
will become fully vested as of the date of termination. In theevent
of termination during the initial one year term of the agreement
without cause, Mr. Fidanza will receive his base salary for the six
month period after date of termination. In the event of termination
of employment due to death or disability, Mr. Fidanza or his estate
will continue to receive the base salary Mr. Fidanza was receiving
for six months following the date of termination and the stock
options will become fully vested as of the date of
termination.
On November 3,
2017, our Board of Directors authorized 2,500,000 restricted shares
of common stock to directors of the Company and certain employees
according to the terms of the 2016 Employee Long-Term Incentive
Compensation Plan. Mr. Fidanza agreed to receive 180,000 shares of
restricted stock units, with the vesting schedule approved by the
Company’s Board of Directors, in leui of the options provided
for in the terms of the employment agreement described
above.
On September 1,
2017, Murali Chakravarthi entered into an Employment Agreement with
the Company (the “Chakravarthi Agreement”). Pursuant to
the terms of the Agreement, Mr. Chakravarthi was appointed by the
Board of Directors as the Chief Technology Officer of the Company.
The Chakravarthi Agreement is a oneyear Employment Agreement
wherein Mr. Chakravarthi is to receive an annual base salary of
$120. The Chakravarthi Agreement includes terms for an automatic
annual extension, unless either party provides a 30 day written
notice.
In addition, Mr.
Chakravarthi was awarded an option to acquire 200,000 shares of the
Company’s Common Stock. Fifty percent of the option award
(100,000 options) vested on September 1, 2017. The remaining
options vest at the rate of 50,000 shares each on the subsequent
anniversary dates of the date of the first award. The Common Stock
option has an exercise price equal to the average of the ten (10)
trading day closing price of the common stock prior to the
Effective Date (the effective date being September 1,
2017).
In the event of
termination of employment due to change in control, as defined, Mr.
Chakravarthi will continue to receive his base salary for six
months following the date of termination. In addition, the stock
options will become fully vested as of the date of termination. In
the event of termination during the initial one year term of the
agreement without cause, Mr. Chakravarthi will receive his base
salary for the six month period after date of termination. In the
event of termination of employment due to death or disability, Mr.
Chakravarthi or his estate will continue to receive the base salary
Mr. Chakravarthi was receiving for six months following the date of
termination and the stock options will become fully vested as of
the date of termination.
On November 3,
2017, our Board of Directors authorized 2,500,000 restricted shares
of common stock to directors of the Company and certain employees
according to the terms of the 2016 Employee Long-Term Incentive
Compensation Plan. Mr. Chakravarthi agreed to receive 200,000
shares of restricted stock units, with the vesting schedule
approved by the Company’s Board of Directors, in leui of the
options provided for in the terms of the employment agreement
described above.
(C)
LITIGATION
From time to time,
the Company may become involved in various lawsuits and legal
proceedings that arise in the ordinary course of business.
Litigation is, however, subjective to inherent uncertainties and an
adverse result in these or other matters may harm the
Company’s business. The Company is not aware of any legal
proceedings or claims that it believes would or could have,
individually or in the aggregate, a material adverse effect on its
operations or financial position.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
13.
BUSINESS
COMBINATIONS
On November 30,
2017 iCoreConnect Inc., acquired substantially all of the assets
and business of ICDLogic LLC, a New York limited liability company,
in exchange for 1,940,000 shares of the Company’s Common
Stock, subject to adjustment, and the assumption of certain
specified debts, liabilities and obligations of ICDLogic LLC, all
upon the terms and conditions set forth in an Asset Purchase
Agreement dated as of November 30, 2017 (the “ICDLogic Asset
Purchase Agreement”).
Pursuant to the guidance in FASB
Accounting Standards Codification (“ASC”) Topic 805,
Business Combinations, the Company performed a qualitative and
quantitative assessment to determine the valuation of certain
intangible assets and goodwill. Based on an independent
third party
valuation, we have included intangible assets of $710, including
goodwill of $371, related to this acquisition.
The following table
summarizes the consideration paid and the fair value of the assets
acquired and liabilities assumed as of November 30, 2017 (In
thousands):
Consideration
Paid:
|
|
|
|
Common
stock
|
$
970
|
|
$
970
|
|
|
Fair
values of identifiable assets acquired and liabilities
assumed:
|
|
|
Assets
acquired:
|
|
Cash
|
$
5
|
Accounts
receivable
|
41
|
Other
intangible assets
|
710
|
Goodwill
|
371
|
Total
assets acquired
|
1,127
|
|
|
Liabilities
assumed:
|
|
Accounts
payable
|
157
|
Total
Liabilities Assumed
|
157
|
|
|
Net Assets
Acquired
|
$
970
|
The consideration paid was 1,940,000
common shares valued at $0.50 per share.
Separately identifiable intangible
assets include technology and customer relationships and were
valued by a third party valuation specialist. The technology and
customer relationships were valued using discounted cash flow
and
replacement
cost
approaches.
iCoreConnect Inc.
Notes to Consolidated Financial Statements
December
31, 2017, June 30, 2017 and June 30, 2016.
(in
thousands except share amounts)
Accounting
Standards Codification (ASC) 805-10-50-2(h) requires registrants to
disclose certain pro forma information in the footnotes of a public
business entity’s financial statements when that entity has
completed a material business combination. The Company’s
financial information on a pro forma basis to reflect the business
combination
as if it had
occurred on July 1, 2016, is as
follows:
iCoreConnect
Inc.
PRO-FORMA
STATEMENTS OF OPERATIONS
UNADUITED
(In thousands
except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
355
|
$
927
|
$
703
|
Cost of
sales
|
243
|
441
|
403
|
Gross
profit
|
112
|
486
|
300
|
|
|
|
|
Expenses
|
|
|
|
General
and administrative
|
1,430
|
2,339
|
2,421
|
Depreciation
and amortization
|
169
|
262
|
192
|
Total
operating expenses
|
1,599
|
2,601
|
2,613
|
|
|
|
|
Loss from
operations
|
(1,487
)
|
(2,115
)
|
(2,313
)
|
|
|
|
|
Other Income
(Expense)
|
|
|
|
Interest
expense
|
(115
)
|
(2,265
)
|
(1,983
)
|
Other
income / (expense)
|
-
|
(1
)
|
5
|
Total
other expense
|
(115
)
|
(2,266
)
|
(1,978
)
|
|
|
|
|
Net
loss
|
$
(1,602
)
|
$
(4,381
)
|
$
(4,291
)
|
14.
RECAPITALIZATION
EVENT
On March 30, 2017,
stockholders of iCoreConnect Inc., holding not less than two thirds
of the outstanding shares of each of the Series A Preferred Stock
of the Company and the Series B Preferred Stock of the Company and
holders of Common Stock of the Company (who, together with the
holder of the Series A Preferred Stock and the Series B Preferred
Stock are entitled to vote upon matters submitted to stockholders
for a vote in the same manner and with the same effect as the
holders of Common Stock, voting together on an as converted basis
and, therefore, represent a majority of the voting power of the
Company), as well as the holders of convertible debt of the Company
(the “Convertible Debt Holders”) who held indebtedness
of the Company convertible into shares of Common Stock of the
Company (the “Convertible Debt”), entered into a
Recapitalization Agreement (the 'Recapitalization Agreement') for
the purpose of recapitalizing the Company (the
'Recapitalization').
The parties to the
Recapitalization Agreement agreed that the Recapitalization would
take place on such date as the Company would designate in a written
notice to all of the parties to the Recapitalization Agreement (the
"Recapitalization Date”). The Board of Directors designated
June 30, 2017 as the Recapitalization Date and written notice
thereof was given to all of the parties to the Recapitalization
Agreement.
The Company had, as
of June 30, 2017, 1,419,651,828 common shares outstanding prior to
the Recapitalization event. The Company converted convertible debt
with principal and accrued interest in the amount of $6,624,325 to
6,624,325,000 common shares prior to the conversion of the
Preferred B shares. The Company converted 63 shares of Preferred B
stock to 5,073,738,384 common shares prior to the conversion of
Preferred A shares. The Company converted 35.75 Preferred A shares
into 4,689,583,188 common shares prior to the reverse split. The
reverse split converted 17,807,298,401 common shares into
10,000,000 new shares of the Company’s common stock. The
Company then converted Bridge Loan debt with principal in the
amount of $6,522,355 and accrued interest in the amount of
$1,662,967 into 18,302,309 common shares to complete the
Recapitalization, with total shares issued and outstanding of
28,302,309 as of June 30, 2017.
Item
14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Engagement of Cherry Bekaert, LLP
On October 19,
2017, the Company, upon the Audit Committee’s approval,
engaged the services of Cherry Bekaert, LLP (“Cherry
Bekaert”) as the Company’s new independent registered
public accounting firm to audit the Company’s consolidated
financial statements as of December 31, 2017, June 30, 2017 and
2016, for the periods then ended.
There have been no
disagreements with Cherry Bekaert on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved
to Cherry Bekaert’s satisfaction, would have caused Cherry
Bekaert to make reference to the subject matter of such
disagreements in its reports on our consolidated financial
statements for such years. In addition, there were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K other than
at December 31, 2017, June 30, 2017, and 2016, where we reported a
material weakness in internal control.
Item
15. Exhibits and Financial Statement Schedules
The financial
statements included in this Registration Statement on Form 10 are
listed in Item 13.
1.1
Certificate of
Amended and Restated Articles of Incorporation of iMedicor, Inc.
filed with the Secretary of State of the State of Nevada on June
29, 2017, effective June 30, 2017, changing the name of iMedicor,
Inc. to iCoreConnect Inc.
1.2
Amended and
Restated By-Laws of the Company as amended and restated on June 30,
2017
2.1
Asset Purchase
Agreement dated as of November 30, 2017 between iCoreConnect Inc.
and ICDLogic LLC
2.2
Stock Purchase
Agreement dated as of January 19, 2018 among iCoreConnect Inc. and
Christopher L. Elley and Cile L. Spelce
3.1
Executive
Employment Agreement dated as of July 1, 2015 between iMedicor,
Inc. and Robert McDermott
3.2
Consulting and
Executive Employment Agreement dated as of January 1, 2013 between
iMedicor, Inc. and Donald Douglas, as amended
3.3
Executive
Employment Agreement dated as of May 22, 2017 between iMedicor,
Inc. and Scott Malmanger, as amended
3.4
Executive
Employment Agreement dated as of September 1, 2017 between
iCoreConnect Inc. and Murali Chakravarthi, as amended
3.5
Executive
Employment Agreement dated as of September 1, 2017 between
iCoreConnect Inc. and David Fidanza, as amended
3.6
Executive
Employment Agreement dated as of July 1, 2018 between iMedicor,
Inc. and Robert McDermott
4.1
iCoreConnect Inc.
2016 Long-Term Incentive Compensation Plan
4.2
Form of Restricted
Stock Award Agreement under the 2016 Long-Term Incentive
Compensation Plan
4.3
iCoreConnect Inc.
2016 Incentive Bonus Compensation Plan
5.1
Loan Agreement
dated as of October 31, 2013 between iCoreConnect Inc. and Western
State Bank, as amended
5.2
Lease Agreement
dated October 17, 2017 between iCoreConnect Inc. and Lake Butler
Plaza Properties, LLC.
5.3
Loan Agreement
dated as of July 24, 2018 between iCoreConnect Inc. and Western
State Bank, as amended
7.1
Subsidiaries of
iCoreConnect Inc.
8.1
iCoreConnect Inc.
Code of Ethics dated as of August 17, 2016
8.2
iCoreConnect Inc.
Code of Conduct dated August 17, 2016
8.3
Form of
Indemnification Agreement between iCoreConnect Inc. and each of its
Directors and Executive Officers
Notes to
exhibits:
iCoreConnect Inc.
will furnish a copy of any of the exhibits listed above upon
payment of $5.00 per exhibit to cover the cost of the Company
furnishing the exhibit.
SIGNATURES
Pursuant to the
requirements of Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized.
|
iCoreConnect Inc.
|
|
|
|
|
|
Date: August 17,
2018
|
By:
|
/s/ Robert
McDermott
|
|
|
|
Name:
Robert
McDermott
|
|
|
|
Title: Chief
Executive Officer
|
|
|
|
|
|
Date: August 17,
2018
|
By:
|
/s/ Scott
Malmanger
|
|
|
|
Name:
Scott
Malmanger
|
|
|
|
Title:
Chief
Financial Officer
|
|