We have audited the accompanying balance sheets of iCoreConnect, Inc. (the “Company”) as of December 31, 2018 and 2017, and the related statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2018, the six month period ended December 31, 2017 and the year ended June 30, 2017, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the periods presented in conformity with accounting principles generally accepted in the United States of America.
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.
As discussed in Note 3 to the financial statements, effective January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Topic 606, Revenue from Contracts with Customers, and the related FASB Accounting Standard Updates using the full retrospective transition method.
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.
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS
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 the practice’s particular medical discipline such as ophthalmology, dentistry, orthopedic and other specialties, (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 12). 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.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the twelve month period ended December 31, 2018, the Company generated an operating loss of $3,218,000. In addition, the Company has an accumulated deficit, total stockholders’ deficit and net working capital deficit of $71,344,000, $958,000 and $2,289,000 at December 31, 2018, respectively. The Company’s activities were primarily financed through private placements of equity securities. The Company intends to raise additional capital through the issuance of debt or equity securities to fund its operations. The Company is reliant on future fundraising to finance operations in the near future. The financing may not be available on terms satisfactory to the Company, if at all. In light of these matters, there is substantial doubt that the Company will be able to continue as a going concern.
Currently, management intends to develop a 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.
Cash and Cash Equivalents
The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at United States banks are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. 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 $12,000 and $5,000 at December 31, 2018 and 2017, respectively.
Property, Equipment and Depreciation
Property, equipment, and leasehold improvements are recorded at their historical cost. Depreciation and amortization have been determined using the straight line method over the estimated useful lives of the assets which are computers and office equipment (3 years) and for office furniture and fixtures (7 years). The cost of repairs and maintenance is charged to operations in the period incurred.
Software Development Costs and Acquired Software
The Company accounts for software development costs, including costs to develop software products or the software component of products to be sold to external users. In accordance with ASC 985-730, Computer Software Research and Development, research and planning phase costs are expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs are capitalized.
We have determined that technological feasibility for our products to be marketed to external users was reached before the release of those products. As a result, the development costs and related acquisition costs after the establishment of technological feasibility were capitalized as incurred. Capitalized costs for software to be sold to external users and software acquired in a business combination are amortized based on current and projected future revenue for each product with an annual minimum equal to the 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.
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”)
|
|
|
|
|
|
|
·
|
ICD Coding Software
|
|
|
|
|
|
|
·
|
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 revenue for the six months ended December 31, 2017 and twelve months ended June 30, 2017 is as follows:
|
|
|
Previously
Recorded
|
|
|
ASC 606 Adjustment
|
|
|
Adjusted
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2017
|
|
$
|
206,000
|
|
|
$
|
44,000
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2017
|
|
|
568,000
|
|
|
|
85,000
|
|
|
|
653,000
|
|
A summary of the impact of the full retrospective transition implementation adjustment on deferred revenue as of December 31, 2017 and Accumulated deficit as of December 31, 2017, June 30, 2017 and July 1, 2016 is as follows:
|
|
|
Previously
Recorded
|
|
|
ASC 606 Adjustment
|
|
|
Adjusted
Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue as of December 31, 2017
|
|
$
|
356,000
|
|
|
$
|
(270,000
|
)
|
|
$
|
86,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
(66,424,000
|
)
|
|
$
|
270,000
|
|
|
$
|
(66,154,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
(64,719,000
|
)
|
|
|
226,000
|
|
|
|
(64,493,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2016
|
|
|
(60,144,000
|
)
|
|
|
141,000
|
|
|
|
(60,003,000
|
)
|
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.
ICD coding services are provided on a fee basis as SaaS arrangements and are recognized as revenue ratably over the contract terms beginning on the date the Company’s solutions are made available to the customer. The length of a customer service period varies from multi-year annually renewed to monthly over which such customer has the right to use the Company’s ICD coding software solution.
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.
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 $47,000, $50,000 and $19,000, for the twelve month period December 31, 2018, the six month period ended December 31, 2017 and the twelve month period ended June 30, 2017, 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.
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.
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 $8,300,000.
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 anti-dilutive were excluded from the computation of diluted earnings per share which consisted of all outstanding common stock options and warrants.
Stock-Based Compensation
The Company accounts for 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 nonemployees 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 of 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 it’s 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 issued 1,300,000 options to certain officers of the Company during the twelve month period ended December 31, 2018 and did not issue options for the six months ended December 31, 2017 or for the fiscal year ended June 30, 2017. The Company used the following assumptions for options granted during the year ended December 31, 2018:
|
Equity Incentive Plan Assumptions
|
|
December 31,
2018
|
|
|
|
|
|
|
|
Expected Term (years)
|
|
|
2 years
|
|
|
Weighted average volatility
|
|
|
100
|
%
|
|
Weighted average risk free rate
|
|
|
2.76
|
%
|
|
Expected dividends
|
|
$
|
0
|
|
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
which requires a lessee, in most leases, to initially recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The guidance requires adoption using a modified retrospective transition approach with either 1) periods prior to the adoption date being recast or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. The Company adopted this standard on January 1, 2019 using the cumulative-effect adjustment method and elected certain practical expedients allowed under the standard. Upon adoption, the Company estimates assets and liabilities will increase by approximately $43,000. The Company does not expect to recognize a material cumulative-effect adjustment to retained earnings upon 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. ASU 2017-11 is effective for interim and annual periods beginning after December 15, 2018. The Company has evaluated the impact of the pronouncement on the financial statements and has determined that it will not have a significant impact on the financial statements.
In June 2018, the Financial Accounting Standards Board issued ASU No. 2018-07, “Compensation-Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting.” This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. ASU 2018-07 is effective for interim and annual periods beginning after December 15, 2018. The Company has evaluated the impact of the pronouncement on the financial statements and has determined that it will not have a significant impact on the financial statements.
The Company does not believe that any other issued, but not yet effective accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations and cash flows.
4. COMMON STOCK AND PREFERRED STOCK
Common Stock
The Company is authorized to issue up to 600,000,000 shares of common stock and as of December 31, 2018 had 50,864,131 shares of common stock outstanding.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of undesignated preferred stock, and as of December 31, 2018 had no shares of preferred stock outstanding.
Stock Issuances
During the twelve month period ended December 31, 2018, the Company issued 9,265,801 shares of common stock for cash proceeds of $2,649,000. The Company also issued 3,400,000 shares of common stock for the purchase of all of the outstanding common stock of Electro-Fish Media (See Note 12). The Company also issued 340,525 shares of common stock as compensation to certain directors and vendors for services performed. The Company also issued 5,287,161 shares of restricted common stock as compensation to certain executives and directors for services performed, of which 3,539,607 shares have vested.
During the six month period ended December 31, 2017, the Company issued 2,344,222 shares of common stock for cash proceeds of $1,010,000. The Company also issued 1,940,000 shares of common stock for the purchase of certain assets of ICDLogic, LLC (See Note 12). The Company also issued 2,500,000 restricted shares of common stock as compensation to certain employees as part of the 2016 Long Term Employee Compensation Plan, of which 2,079,834 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 $10,000. (See Note 13 with respect to the recapitalization of the Company.)
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 twelve month period ended December 31, 2018, the six month period ended December 31, 2017 and the twelve month period ended June 30, 2017 are presented below:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Options Outstanding
|
|
of Options
|
|
|
Price
|
|
|
Term in Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding - July 1, 2016
|
|
|
296,677
|
|
|
$
|
10.40
|
|
|
|
1.8
|
|
|
$
|
-
|
|
|
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
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding - July 1, 2017
|
|
|
254,559
|
|
|
$
|
10.40
|
|
|
|
1.0
|
|
|
$
|
-
|
|
|
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
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - January 1, 2018
|
|
|
198,402
|
|
|
$
|
10.40
|
|
|
|
0.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,300,000
|
|
|
$
|
0.25
|
|
|
|
10.2
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(142,245
|
)
|
|
$
|
9.05
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2018
|
|
|
1,356,157
|
|
|
$
|
0.31
|
|
|
|
9.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - December 31, 2018
|
|
|
489,490
|
|
|
$
|
0.29
|
|
|
|
9.1
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
Number
of
|
|
|
grant date
|
|
|
Years
|
|
|
Nonvested Options
|
|
Options
|
|
|
Fair Value
|
|
|
to vest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested - July 1, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested - June 30, 2017
|
|
|
48,670
|
|
|
$
|
-
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
Vested
|
|
|
(18,719
|
)
|
|
$
|
4.37
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(11,232
|
)
|
|
$
|
-
|
|
|
|
|
|
|
Nonvested - January 1, 2018
|
|
|
18,719
|
|
|
$
|
10.40
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,300,000
|
|
|
$
|
0.13
|
|
|
|
|
|
|
Vested
|
|
|
452,052
|
|
|
$
|
0.31
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Nonvested - December 31, 2018
|
|
|
866,667
|
|
|
$
|
0.13
|
|
|
|
1.6
|
|
Future compensation related to nonvested awards expected to vest of $143,000 is estimated to be recognized over the weighted average vesting period of approximately 1.6 years.
Restricted Stock for Services
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 management, for services rendered, of which 2,858,107 shares vested upon issuance and 1,429,054 shares will vest ratably through May 22, 2020. Compensation expense of approximately $360,000 will be recognized in future periods, related to this grant of restricted common stock.
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. 1,731,667 restricted shares of common stock vested on the date of Board of Director approval, with all other shares to vest as follows: 33% on the date of Board of Director approval, with 33% on each of the next two anniversary dates of the Board of Director approval. Compensation expense related to these grants for the twelve month period ended December 31, 2018 was $96,000 based on the estimated fair value of our common stock of $0.25 per share. Of the 2,500,000 restricted shares of common stock authorized on November 3, 2017, there were 2,079,833 vested, 348,167 shares unvested and 72,000 shares forfeited, as of December 31, 2018. Compensation expense of approximately $96,000 will be recognized in future periods, related to this grant of restricted shares of common stock.
Warrants
Warrants to purchase shares of common stock were issued during the twelve month period ended December 31, 2018, the six month period ended December 31, 2017 and the twelve month period ended June 30, 2017, in conjunction with the issuance of common stock.
During the twelve month period ended December 31, 2018, warrants to purchase shares of common stock were issued in conjunction with the issuance of shares of common stock. During the twelve month period ended December 31, 2018, the Company issued 4,002,646 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 twelve month period ended December 31, 2018, no warrants were exercised and 72,668 expired.
Warrants to purchase shares of common stock were issued during the six month period ended December 31, 2017 and the fiscal year ending June 30, 2017, in conjunction with the issuance of common stock, bridge loan financings 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. The Company issued warrants to Bridge Loan investors of 2,253,426 for the fiscal year ended June 30, 2017. During the six month period ended December 31, 2017 and the fiscal year ended June 30, 2017, no warrants were exercised and 35,259 warrants expired.
The warrants issued by the Company contain a provision that allows the Company to redeem any or all outstanding and unexercised Warrants at a redemption price of $0.001 per Warrant upon fourteen (14) days’ written notice in the event (i) a Registration Statement registering for sale under the Securities Act of 1933, as amended (the “Act”), the shares of the Company’s Common Stock issuable upon exercise of this Warrant, has been filed with the Securities and Exchange Commission and is in effect on the date of written notice and the redemption date contained therein, (ii) there exists on the date of written notice a public trading market for the Company’s Common Stock and such shares are listed for quotation on the NASDAQ Stock Market or OTC Electronic Bulletin Board, (iii) the public trading price of the Company’s Common Stock has equaled or exceeded 150% of the Exercise Price, as then in effect, for twenty (20) of the preceding thirty (30) Trading Days immediately preceding the date of such notice and (iv) the average daily trading volume during such period has been at least 50,000 shares. The holders of the Warrants called for redemption shall have the right to exercise the Warrants until the close of business on the date next preceding the date fixed for redemption.
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
4,002,646
|
|
|
$
|
1.35
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
Expired
|
|
|
(72,668
|
)
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
11,572,980
|
|
|
$
|
1.35
|
|
5. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consist of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
8,000
|
|
|
$
|
8,000
|
|
|
Leasehold improvements
|
|
|
26,000
|
|
|
|
26,000
|
|
|
Equipment
|
|
|
16,000
|
|
|
|
11,000
|
|
|
|
|
|
50,000
|
|
|
|
45,000
|
|
|
Less accumulated depreciation
|
|
|
(39,000
|
)
|
|
|
(35,000
|
)
|
|
|
|
$
|
11,000
|
|
|
$
|
10,000
|
|
Depreciation expense on property and equipment for the twelve month period ended December 31, 2018, the six month period ended December 31, 2017 and the twelve month period ended June 30, 2017 was $4,000, $3,000 and $7,000, respectively.
6. SOFTWARE DEVELOPMENT COSTS
A summary of the capitalization and amortization of software development costs as of the dates indicated follows:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Development costs
|
|
$
|
1,513,000
|
|
|
$
|
1,176,000
|
|
|
Acquired technology
|
|
|
630,000
|
|
|
|
630,000
|
|
|
Less accumulated amortization
|
|
|
(1,069,000
|
)
|
|
|
(692,000
|
)
|
|
|
|
$
|
1,074,000
|
|
|
$
|
1,114,000
|
|
Amortization of software development costs and acquired technology for the twelve month period ended December 31, 2018, the six month period ended December 31, 2017 and the twelve month period ended June 30, 2017 were $377,000, $157,000 and $255,000, respectively. The Company also amortized acquired customer relationship assets related to the ICDLogic LLC acquisition (See Note 12.), of $ 25,000 during the twelve month period ending December 31, 2018.
7. LINE OF CREDIT
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 December 31, 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 December 31, 2018). Interest is payable monthly with all outstanding principal and interest due on July 15, 2019.
8. LONG-TERM DEBT
Notes payable (including accrued interest) are summarized as follows:
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Note payable bearing interest at 12.0% per annum, due December 31, 2019
|
|
$
|
106,000
|
|
|
$
|
106,000
|
|
|
(2)
|
Note bearing interest at 8% per annum, in default
|
|
|
494,000
|
|
|
|
471,000
|
|
|
(3)
|
Non-interest bearing note, in default
|
|
|
10,000
|
|
|
|
10,000
|
|
|
(4)
|
Related Party Long term debt, bearing interest at 8%, due April 15, 2021
|
|
|
92,000
|
|
|
|
-
|
|
|
(5)
|
Related Party Convertible Promissory notes, bearing interest at 8 - 18%, due December 31, 2019
|
|
|
714,000
|
|
|
|
657,000
|
|
|
(6)
|
Stockholder Convertible notes bearing interest at 18%
|
|
|
-
|
|
|
|
217,000
|
|
|
|
|
|
|
1,416,000
|
|
|
|
1,461,000
|
|
|
|
Less current maturities
|
|
|
(1,361,000
|
)
|
|
|
(1,461,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term debt
|
|
$
|
55,000
|
|
|
$
|
-
|
|
|
Total future minimum payments due on long-term debt as of December 31, 2018:
|
|
|
|
|
2019
|
|
|
1,361,000
|
|
|
2020
|
|
|
42,000
|
|
|
2021
|
|
|
13,000
|
|
|
|
|
|
1,416,000
|
|
_____________
|
(1)
|
A promissory note dated December 31, 2018 was issued with a principal amount of $100,000 bearing interest at a rate of 12.0% per annum, with a maturity date of December 31, 2019.
|
|
(2)
|
An unsecured note, with an annual rate of 8% per annum. The debt is in default as of December 31, 2018.
|
|
(3)
|
An unsecured, non-interest bearing note. The debt is in default as of December 31, 2018.
|
|
(4)
|
The Company executed a long term debt with a director of the Company as a part of the terms to a settlement agreement dated April 1, 2018 for $113,000 with an annual rate of 8.0% per annum. Principal payments in the amount of $3,000 with accrued interest were payable monthly starting May 15, 2018.
|
|
(5)
|
The Company issued a note payable on June 30, 2017 with a principal amount of $747,000, with an annual rate of 18%, with principal and accrued interest due on July 1, 2018. On June 30, 2018, the Company issued a second note with a principal amount of $225,000, with an annual rate of 8%, and a default rate of 18%, with principal and accrued interest due on July 1, 2019. On December 31, 2018, the Company extended the terms of both notes until December 31, 2019. The outstanding balance on the notes as of December 31, 2018 was $699,000 with accrued interest of $15,000.
|
|
(6)
|
The Company executed a convertible promissory note to a majority shareholder, on June 15, 2017 for $50,000 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. The note and all accrued interest was paid on November 2, 2018.
|
9. INCOME TAXES
The Company has incurred net losses since inception. As of December 31, 2018, the Company had federal net operating loss carryforwards of approximately $3,450,000, which will be available to be carried forward indefinitely and federal net operating loss carryforwards of approximately $67,596,000, which at the latter date may be carried forward for tax years ending through December 31, 2037. Utilization of NOL carryforwards may be limited under various sections of the Internal Revenue Code depending on the nature of the Company’s operations. The Company’s income tax returns are subject to examination by the Internal Revenue Service and applicable state taxing authorities, generally for a period of three years from the date of filing.
Deferred taxes comprise the following as of December 31, 2018 and December 31, 2017:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax Assets
|
|
13,779,000
|
|
|
|
13,328,000
|
|
|
Valuation Allowance
|
|
(13,779,000
|
)
|
|
|
(13,328,000
|
)
|
|
Net Deferred Tax Asset
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of the effective income tax rate to the federal statutory rate:
|
|
|
|
|
|
|
|
|
Federal Income Tax Rate
|
|
21
|
%
|
|
|
21
|
%
|
|
Change in valuation allowance including the effect of the rate change
|
|
-21
|
%
|
|
|
-21
|
%
|
|
Effective income tax rate
|
|
0
|
%
|
|
|
0
|
%
|
10. CONCENTRATION OF CREDIT RISK
The Company has historically provided financial terms to customers in accordance with what management views as industry norms. 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 condition of our customers were to deteriorate, or if they were otherwise unable to make payments in accordance with management’s expectations, we might have to increase our allowance for doubtful accounts, modify their financial terms and/or pursue alternative collection methods.
Revenue concentrations for the twelve months ended December 31, 2018 and the six months ended December 31, 2017, and the twelve months ended June 30, 2017 and the accounts receivables concentrations at December 31, 2018 and 2017 are as follows:
|
|
|
Net Sales
for the twelve months ended
|
|
|
Net Sales
for the six
months ended
|
|
|
Net Sales
for the twelve months ended
|
|
|
Accounts
receivable at
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
33
|
%
|
|
|
10
|
%
|
|
|
0
|
%
|
|
|
15
|
%
|
|
|
40
|
%
|
|
Customer B
|
|
|
8
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
42
|
%
|
|
|
0
|
%
|
|
Customer C
|
|
|
9
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
14
|
%
|
|
|
0
|
%
|
|
Customer D
|
|
|
0
|
%
|
|
|
9
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
20
|
%
|
11. COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
On November 15, 2017 the Company signed a three-year lease agreement for approximately 4,100 square feet of office space located in Winter Garden, Florida in which the Company has its headquarters. The lease provides for a one-year renewal term at the option of the Company. Future lease obligations for the office space are as follows:
|
Year Ended
|
|
Lease Amount
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
93,000
|
|
|
December 31, 2020
|
|
|
78,000
|
|
|
|
|
$
|
171,000
|
|
Total rent expense for the twelve month period ended December 31, 2018, the six month period ended December 31, 2017 and the twelve month period ended June 30, 2017 was approximately $94,000, $42,000 and $80,000, respectively.
(B) EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
On July 1, 2018, Robert McDermott entered into an Employment Agreement (the ‘McDermott 2018 Agreement’) with the Company. The McDermott 2018 Agreement is a three year and six month Employment Agreement wherein Mr. McDermott is to receive an annual base salary of $250,000. In addition, Mr. McDermott was awarded an option to acquire 700,000 shares of the Company’s Common Stock. Thirty three percent of the option award (233,333 options) was vested on July 1, 2018. The remaining options are to be vested at the rate of 233,333 shares and 233,334 shares, respectively, each on the subsequent anniversary dates of the date of the McDermott 2018 Agreement. Further, In the event of termination of employment due to change in control, as defined, Mr. McDermott will continue to receive his 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 the 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 October 1, 2018, David Fidanza entered into an Employment Agreement (the ‘Fidanza 2018 Agreement’) with the Company. The Fidanza 2018 Agreement is a three year Employment Agreement wherein Mr. Fidanza is to receive an annual base salary of $115,000. In addition, Mr. Fidanza was awarded an option to acquire 300,000 shares of the Company’s Common Stock. Thirty three percent of the option award (100,000 options) was vested on October 1, 2018. The remaining options are to be vested at the rate of 100,000 shares each on the subsequent anniversary dates of the date of the Fidanza 2018 Agreement. Further, 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 the event of termination during the initial three year term of the agreement without cause, Mr. Fidanza will receive his base salary for the six month period after the 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 1, 2018, Murali Chakravarthi entered into an Employment Agreement (the ‘Chakravarthi 2018 Agreement’) with the Company. The Chakravarthi 2018 Agreement is a three year Employment Agreement wherein Mr. Chakravarthi is to receive an annual base salary of $120,000. In addition, Mr. Chakravarthi was awarded an option to acquire 300,000 shares of the Company’s Common Stock. Thirty three percent of the option award (100,000 options) was vested on October 1, 2018. The remaining options are to be vested at the rate of 100,000 shares each on the subsequent anniversary dates of the date of the Chakravarthi 2018 Agreement. Further, 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 the event of termination during the initial three year term of the agreement without cause, Mr. Chakravarthi will receive his base salary for the six month period after the 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.
(C) LITIGATION
From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is, however, subjective to inherent uncertainties and an adverse result in these or other matters may harm the Company’s business. The Company is not aware of any legal proceedings or claims that it believes would or could have, individually or in the aggregate, a material adverse effect on its operations or financial position.
12. ACQUISITIONS
Electro-Fish Media Inc.
On January 19, 2018, iCoreConnect Inc. acquired all of the outstanding common stock of Electro Fish Media Inc., a Texas corporation, in exchange for 3,400,000 shares of the Company's Common Stock.
Pursuant to the guidance in FASB Accounting Standards Codification (“ASC”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, the Company performed a review of the essential elements of inputs, activities and outputs of the acquisition. The Company determined that the purchase of the Electro-Fish Media stock did not qualify as a business combination. The Company has recorded the $1,700,000 purchase price as an other non-operating expense in the accompanying Statement of Operations for the twelve months ended December 31, 2018.
ICDLogic LLC
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 $710,000, including goodwill of $371,000, 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:
|
Consideration Paid:
|
|
|
|
|
Common stock
|
|
$
|
970,000
|
|
|
|
|
$
|
970,000
|
|
|
|
|
|
|
|
|
Fair values of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
Cash
|
|
$
|
5,000
|
|
|
Accounts receivable
|
|
|
41,000
|
|
|
Other intangible assets
|
|
|
710,000
|
|
|
Goodwill
|
|
|
371,000
|
|
|
Total assets acquired
|
|
|
1,127,000
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accounts payable
|
|
|
157,000
|
|
|
Total liabilities assumed
|
|
|
157,000
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
970,000
|
|
The consideration paid was 1,940,000 shares of the Company's common stock 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.
13.
RECAPITALIZATION
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.
14. SUBSEQUENT EVENTS
Since December 31, 2018, the Company has issued 2,067,802 shares of common stock, for the conversion of a $20,000 note payable and cash proceeds totaling $559,000.
On February 21, 2019, our Board of Directors granted 675,000 shares of restricted stock and 135,000 stock options with an exercise price of $ 0.15 per share to certain employees and directors of the Company.
On March 13, 2019, the Chief Financial Officer tendered and our Board of Directors accepted the resignation of our Chief Financial Officer for personal reasons. On March 18, 2019, the Company filed with the Securities and Exchange Commission with respect to the resignation of the Chief Financial Officer. A copy of the Form 8-K filed with the Securities and Exchange Commission is attached.