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iCoreConnect Inc. - Quarter Report: 2014 December (Form 10-Q)

 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q
 
☑  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended December 31, 2014
 
Commission file number:  000-52765
 
iMEDICOR, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Nevada
 
95-4696799
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
13506 Summerport Village Pkwy #160, Windermere, FL 34786
(Address of principal executive offices) (Zip Code)
 
(888) 810-7706
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☑
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, ever y Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☑
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☑
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
 
There were 1,416,080,409 outstanding shares of the issuer’s Common Stock, $0.001 par value, on September 2, 2016.
 
 

 
 
 
TABLE OF CONTENTS
 
   
 Page
PART I    FINANCIAL INFORMATION 
 
 
   
 
 
Item 1. Consolidated (Unaudited) Financial Statements  
 3
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of December 31, 2014 (Unaudited) and June 30, 2014
 3
 
 
 
 
 
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2014 and 2013 (Unaudited)
 4
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2014 and 2013 (Unaudited)
 5
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 6
 
 
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations  
 11
 
 
 
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk 
 13
 
 
 
 
 
Item 4. Controls and Procedures  
 13
 
 
 
 
PART II    OTHER INFORMATION  
 
 
 
 
 
 
Item 1. Legal Proceedings  
 15
 
 
 
 
 
Item 1a Risk Factors  
 15
 
 
 
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  
 15
 
   
 
 
Item 3. Defaults Upon Senior Securities  
 15
 
 
 
 
 
Item 4. Mine Safety Disclosures  
 15
 
   
 
 
Item 5. Other Information  
 15
 
   
 
 
Item 6. Exhibits  
 15
 
 
 
 
 
Signatures  
 16
 
Cautionary Statement. This Form 10-Q contains certain statements relating to future results of the Company that are considered “forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions; interest rate fluctuations; competitive pricing pressures within the Company’s market; equity and fixed income market fluctuation; technological change; changes in law; changes in fiscal, monetary, regulatory and tax policies; monetary fluctuations as well as other risks and uncertainties detailed elsewhere in this Form 10-Q or from time-to-time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events except as required by the federal securities laws.
 
 
2
 
 
PART I FINANCIAL INFORMATION
 
iMEDICOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
December 31,
2014
 
 
June 30,
2014
 
ASSETS
 
(Unaudited)
 
    * 
 
       
Cash and cash equivalents
  $59,608 
  $190,820 
 
       
       
 Accounts receivable, net of allowance for doubtful accounts of $9,563 and $0, respectively
    68,280 
    18,897 
Prepaid expenses
    31,062 
    25,691 
Total current assets
    158,950 
    235,408 
 
       
       
Property and equipment, net of accumulated depreciation of $6,621 and $3,729, respectively
    11,759 
    13,051 
Software development costs, net of accumulated amortization of $52,787 and $4,147, respectively
    237,243 
    117,218 
Deferred loan costs, net of accumulated amortization of $907,367 and $366,634, respectively
    819,617 
    1,354,243 
Security deposits
    3,600 
    3,600 
Total long-term assets
    1,072,219 
    1,488,112 
TOTAL ASSETS
  $1,231,169 
  $1,723,520 
 
       
       
LIABILITIES AND STOCKHOLDER'S DEFICIT
       
       
Line of credit
  $748,000 
  $499,000 
Accounts payable and accrued expenses
    361,119 
    442,407 
Employee/contractor payables
    270,000 
    200,000 
Related party payable
    - 
    692,225 
Current portion of long-term debt
    6,178,715 
    793,064 
Total current liabilities
    7,557,834 
    2,626,696 
 
       
       
Long-term debt
    102,125 
    4,604,006 
Accrued severance settlement
    200,000 
    200,000 
Embedded conversion liability - convertible debt
    362,406 
    304,699 
Derivative liability - preferred stock, options, and warrants
    1,324,709 
    1,452,677 
Liability for unissued common stock - subsequently issued
    1,807,572 
    2,156,877 
Total long-term liabilities
    3,796,812 
    8,718,259 
TOTAL LIABILITIES
    11,354,646 
    11,344,955 
 
       
       
COMMITMENTS AND CONTINGENCIES
       
       
The Company disputes the validity of certain notes payable shown on its Balance Sheet as of December 31, 2014 and June 30, 2014 (See Note 5)
       
       
 
       
       
STOCKHOLDERS' DEFICIT
       
       
Preferred Stock, Convertible Series A par value $.001; Authorized: 37.00 shares;
       
       
Issued and Outstanding: 35.75 shares as of December 31, 2014 and June 30, 2014
       
       
Preferred Stock, Convertible Series B par value $.001; Authorized: 63.00 shares; Issued and
       
       
Outstanding: 51.83 and 38.70 shares as of December 31, 2014 and June 30, 2014, respectively
    - 
    - 
Common Stock par value $.001;
       
       
Authorized: 2,000,000,000 shares; Issued and Outstanding: 1,216,220,590 and 1,151,410,590 shares as of December 31, 2014 and June 30, 2014, respectively
    1,216,221 
    1,151,411 
Additional Paid-In-Capital
    45,826,349 
    43,491,445 
Accumulated Deficit
    (57,166,047)
    (54,264,291)
TOTAL STOCKHOLDERS' DEFICIT
    (10,123,477)
    (9,621,435)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $1,231,169 
  $1,723,520 
 
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
3
 
 
iMEDICOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
December 31,
 
 
December 31,
 
 
 
2014
 
 
2013
 
 
2014
 
 
2013
 
 
 
 
 
 
(Restated)
 
 
 
 
 
(Restated)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
  $99,309 
  $38,610 
  $244,927 
  $107,430 
Cost of Sales
    41,004 
    11,396 
    70,851 
    67,621 
Gross Profit
    58,305 
    27,214 
    174,076 
    39,809 
 
       
       
       
       
Expenses
       
       
       
       
General and administrative
    780,164 
    1,008,800 
    2,270,182 
    1,881,599 
Depreciation and amortization
    37,879 
    - 
    51,533 
    - 
Total operating expenses
    818,043 
    1,008,800 
    2,321,715 
    1,881,599 
 
       
       
       
       
Loss from operations
    (759,738)
    (981,586)
    (2,147,639)
    (1,841,790)
 
       
       
       
       
Other Income (Expense)
       
       
       
       
 Change in fair value of derivative liabilities
    317,865 
    4,190,641 
    83,161 
    3,871,087 
 Forgiveness of debt
    21,011 
    225,155 
    21,011 
    692,821 
 Interest expense
    (433,657)
    (107,902)
    (842,835)
    (269,442)
 Failed offering costs
    - 
    (110,200)
    - 
    (110,200)
 Other expense
    - 
    (12,053)
    (15,554)
    (26,387)
Total other income (expense)
    (94,781)
    4,185,641 
    (754,217)
    4,157,879 
 
       
       
       
       
Net income (loss)
  $(854,519)
  $3,204,055 
  $(2,901,856)
  $2,316,089 
 
       
       
       
       
 
       
       
       
       
Net income (loss) per basic and diluted share
  $(0.00)
  $0.00 
  $(0.00)
  $0.00 
 
       
       
       
       
Weighted average number of shares, basic
    1,197,041,776 
    1,027,516,981 
    1,175,356,618 
    1,015,253,394 
 
       
       
       
       
Weighted average number of shares, diluted
    1,197,041,776 
    2,055,139,012 
    1,175,356,618 
    1,956,778,557 
 
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
4
 
 
iMEDICOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
 
Six Months Ended
 
 
 
December 31,
 
 
 
 2014
 
 
2013
 
 
 
 
 
 
(Restated)
 
CASH FLOWS FROM OPERATING ACTIVITTIES:
 
 
 
 
 
 
Net income (loss)
  $(2,901,856)
  $2,316,089 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
       
       
Depreciation and amortization
    2,892 
    - 
Amortization of software development costs
    48,640 
    - 
Amortization of deferred loan costs
    540,733 
    7,110 
Change in allowance for doubtful accounts
    9,563 
    - 
Stock-based compensation
    1,222,456 
    667,017 
Gain on change in value - derivative warrants
    (140,868)
    (4,023,437)
Change in embedded conversion liability
    57,707 
    152,350 
Gain on debt settlement
    (21,011)
    - 
Decrease (increase) in:
       
    - 
Accounts receivable
    (58,846)
    6,807 
Prepaid expenses
    (5,371)
    - 
Accounts payable
    38,608 
    (79,346)
Accrued expenses
    (10,015)
    (35,409)
Deferred loan costs
    (3,100)
    - 
Related party payable
    - 
    53,440 
Accrued interest payable
    269,460 
    188,515 
Employee/contractor payable
    70,000 
    (703,531)
NET CASH USED IN OPERATING ACTIVITIES
    (881,008)
    (1,450,395)
 
       
       
INVESTING ACTIVITIES
       
       
Purchase of property & equipment
    (1,600)
    (16,780)
Increase in security deposits
    - 
    (3,600)
Increase in capitalized software development costs
    (168,665)
    - 
NET CASH USED IN INVESTING ACTIVITIES
    (170,265)
    (20,380)
 
       
       
FINANCING ACTIVITES
       
       
Proceeds from line of credit
    299,000 
    250,000 
Proceeds from short term debt
    660,806 
    16,508 
Payments on short term debt
    (70,995)
    (20,000)
Proceeds from issuance of common stock
    31,250 
    767,575 
NET CASH PROVIDED BY FINANCING ACTIVITIES
    920,061 
    1,014,083 
 
       
       
NET DECREASE IN CASH
    (131,212)
    (456,692)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
    190,820 
    513,272 
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
  $59,608 
  $56,580 
 
       
       
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
       
       
Cash paid during the period for interest
  $59,101 
  $3,870 
Issuance of additional debt as payment of accrued interest
  $269,460 
  $188,515 
Unissued stock liability for deferred loan costs
  $3,007 
  $- 
Issuance of Series B preferred stock to satisfy debt
  $806,596 
  $- 
 
The accompanying notes are an integal part of these condensed consolidated financial statements
 
 
5
 
 
iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
 
1. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements prepared in accordance with the instructions for Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission, include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the Company’s Annual Report for the year ended June 30, 2014. The balance sheet as of June 30, 2014 has been condensed from audited consolidated financial statements as of that date. The results of operations for the three and six months ended December 31, 2014 are not necessarily indicative of the results to be expected for the full year.
 
The unaudited condensed consolidated financial statements include the accounts of iMedicor, Inc. and its wholly-owned subsidiaries Nuscribe, Inc. and ClariDIS Corporation (the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
 
2. RECENT ACCOUNTING PRONOUNCEMENTS
Refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended June 30, 2014 for recent accounting pronouncements.
 
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 amends current presentation guidance by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as an asset in the balance sheet. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods. The Company has not early adopted this standard for the December 31, 2014 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.
 
3. GOING CONCERN
 
The accompanying unaudited condensed consolidated 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 of $57,166,047 , $10,123,477 and $7,398,884 respectively at December 31, 2014. The Company is delinquent on several of its debt and equity-related obligations. 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 debt or equity securities to fund its operations. Such financing may not be available on terms satisfactory to the Company, if at all. (See Notes 5 and 10).
 
Currently, management intends to develop a vastly improved healthcare communications system and attract 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 consolidated 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.
 
 
6
 
 
iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
 
4. 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 is collateralized by all assets of the Company plus a $250,000 certificate of deposit owned by a stockholder of the Company who is also the guarantor for the line of credit. The Company agreed to issue the stockholder 50 million shares of Common Stock as consideration for providing the guarantee. The stock, valued at $500,000, has not been issued as of December 31, 2014 and is reported as liability for unissued common stock - subsequently issued on the accompanying condensed consolidated balance sheets as a long term liability. In addition, the Company granted its Chief Executive Officer 50 million shares of Common Stock valued at $285,000, as consideration to the Chief Executive Officer to provide a personal guarantee to the stockholder for 50% of any loss that might be incurred under his guarantee. The stock was issued on October 22, 2014. The line carries interest at the Wall Street Journal Prime rate + 1.0% with a floor rate of 6.5%. Interest is payable monthly with all outstanding principal and unpaid interest due on January 30, 2016. (See Note 10).
 
5. LONG-TERM DEBT
 
Long-term debt at December 31, 2014 and June 30, 2014 consisted of the following:
 
 
 
December 31,
2014
 
 
June 30,
2014
 
 
 
 
 
 
 
 
Schneller note payable bearing interest at 8.5% per annum, due June 30, 2017, in default
  $102,125 
  $125,500 
Sonoran convertible note bearing interest at 10% - 12% per annum maturity extended to August 31, 2015, in default
    2,457,728 
    2,322,712 
Sonoran convertible note bearing interest at 8% - 18% per annum maturity extended to August 31, 2015, in default
    2,070,469 
    1,988,899 
Wellbrock note bearing interest at 8% per annum, due November 2008 - disputed
    403,139 
    391,805 
Coddington note bearing interest at 8% per annum - disputed
    403,671 
    391,259 
Shemen non-interest bearing note executed September 22, 2009 in default
    10,000 
    10,000 
Genesis note bearing interest at 18%, maturity extended to February 23, 2017
    155,000 
    166,895 
Bridge Loans bearing interest at 18% due December 31, 2016
    678,708 
    - 
Total long-term debt
    6,280,840 
    5,397,070 
Less current maturities
    (6,178,715)
    (793,064)
Total long-term maturities
  $102,125 
  $4,604,006 
 
Total future minimum payments due on long-term debt as of December 31, 2014:
 
2015
  $6,178,715 
2016
    0 
2017
    102,125 
 
Subsequent to December 31, 2014 several of the above notes were modified and/or extended. (See Note 10).
 
The Company disputes the existence of the Coddington note payable and any interest accrued on the note shown on the Balance Sheet as part of Current Portion of Long Term Debt in the aggregate amount of $397,465. No actual note has been produced by Mr. Coddington or is known by current management to exist. The Company’s records are incomplete with respect to this note payable transaction. The Company believes that any amounts previously owed Mr. Coddington or any entities associated with Mr. Coddington in connection with a guarantee by Mr. Coddington of a loan by Citibank made to the Company and no longer outstanding were satisfied by the issuance by the Company to Mr. Coddington of 24,918,130 shares of common stock of the Company on March 8, 2013. The Company has a record of the stock issuance but does not have the document in respect to their issuance for the cancellation of debt. The Company has no record of default being declared by the holder which would entail production of the actual note which has not occurred.
 
 
7
 
 
iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
 
 
The Company also questions the existence of the obligations the obligations to the Wellbrock Group shown on the Balance sheet as part of Current Portion of Long Term Debt in the aggregate amount of $397,472. Management of the Company has not been able to obtain a copy or verify the existence of such note. The Company has no record of default being declared by the holder which would entail production of the actual note which has not occurred.
 
6. NET EARNINGS (LOSS) PER SHARE
 
Basic net earnings (loss) per share are computed by dividing net income or loss by the weighted average number of shares of common stock outstanding for the period. In gain periods, diluted net income per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, warrants and convertible notes to the weighted-average number of shares of Common Stock outstanding for a period, if dilutive. In loss periods, all anti-dilutive securities are excluded.
 
The amount of excluded securities from vested options are 193,300,000 and from warrants are 357,655,000 at December 31, 2014. The amount of excluded securities from convertible debt and shares of Series A and Series B Preferred Stock are 1,065,165,993 shares of Common Stock, at December 31, 2014.
 
7. EMBEDDED CONVERSION LIABILITY – CONVERTIBLE DEBT
 
The Company has outstanding convertible debt. Due to an insufficiency of authorized common shares, there is not enough Common Stock in the event that all convertible securities and convertible debt were to be converted or exercised. The derivative liability for the convertible debt is $362,406 and $304,699 at December 31, 2014 and June 30, 2014, respectively. (See Note 10).
 
8. WARRANTS AND OPTIONS
 
The following table shows warrant activity for the six-month periods ended December 31, 2014 and December 31, 2013.
 
Summary of the outstanding warrants is as follows:
 
 
 
December 31, 2014
 
 
December 31, 2013
 
 
 
 
 
 
Weighted Ave
 
 
 
 
 
Exercise
 
 
 
Warrants
 
 
Exercise Price
 
 
Warrants
 
 
Price Range
 
Outstanding at beginning of period
    417,997,000 
  $0.0736 
    407,927,667 
  $0.01-$0.24 
Issued
    660,000 
  $1.3500 
    12,500,000 
  $0.01 
Excercised
    - 
    - 
    - 
    - 
Forfeited
    - 
    - 
    - 
    - 
Expired
    (61,002,000)
  $0.0649 
    (14,251,666)
  $0.01-$0.105 
Outstanding at end of period
    357,655,000 
  $0.0953 
    406,176,001 
  $0.01-$0.24 
Excersiable at end of period
    357,655,000 
  $0.0953 
    406,176,001 
  $0.01-$0.24 
 
The intrinsic value of the outstanding warrants at December 31, 2014 and December 31, 2013 is $-0-.
 
 
8
 
 
iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
 
Summary of Options:
 
On July 1, 2013, the Company granted 100,000,000, options to Robert McDermott. The options vest as follows: 25,000,000 immediately, 25,000,000 on each of July 1, 2014, 2015, and 2016. On July 3, 2014, pursuant to the terms of his employment agreement, the Company granted 235,000,000, three-year options to Robert McDermott. The options vest as follows: 117,500,000 immediately, 58,750,000 on July 3, 2015 and 58,750,000 on July 3, 2016. Also on July 3, 2014, the Company granted 3,300,000 three year options to Donald Douglas. All of these options vested immediately. On January 1, 2014, the Company granted 50,000,000 options each to Donald Douglas and Srini Parthasarthy pursuant to their employment agreements of the same date. Options for each individual vest 12,500,000 immediately and 12,500,000 on each annual anniversary of the employment agreements. In addition, the Company granted 15,000,000 options to Don Sproat pursuant to his employment agreement of December 15, 2014. 7,500,000 options vested immediately and another 7,500,000 vests on December 15, 2015. For the six months ended December 31, 2014, the Company recorded $1,046,114 of stock compensation expense. The Company uses the Black Scholes option pricing model to value options. The significant assumptions relating to the valuation of the Company’s options for the period ended December 31, 2014 were as follows:
 
Exercise Price
$0.0038-$0.01492
Term
 
1-4 years
Volatility
 
206%-305%
Risk Free Rate of Return
0.11% - 1.02%
 
As of December 31, 2014, the remaining unamortized stock compensation expense is $1,684,819 which will be recognized through June 30, 2017.
 
The Company has various outstanding Common Stock purchase warrants, options, convertible debt, and Series A and B Preferred Stock. Due to an insufficiency of authorized common shares, there is not enough Common Stock in the event that all convertible securities and outstanding warrants and options were to be converted or exercised, respectively. The Company is reporting derivative liabilities for the warrants of $753,363 and $894,231 as well as for options and Preferred Stock of $571,346 and $558,446 for December 31, 2014 and June 30, 2014, respectively. As of December 31 and June 30, 2014, there were 35.75 shares of Series A convertible Preferred Stock and 51.83 and 38.70 shares of Series B convertible Preferred Stock outstanding, respectively. (See Note 10).
 
9. LIABILITY FOR UNISSUED COMMON STOCK SUBSEQUENTLY ISSUED
 
At December 31, 2014, the Company was obligated to issue 250,000,000 shares of Common Stock which arose from several agreements. A summary of the shares and subsequent issuances of Common Stock is as follows:
 
 Recipient
 
 Purpose
 
 # Shares
 
 
 Value
 
 Issue Date
 Sonoran
 
 Omnibus Loan Extension
    150,000,000 
  $1,200,000 
01/09/15
 Smith
 
 Line of Credit Guarantee
    50,000,000 
  $500,000 
01/09/15
 Sonoran
 
 Loan Extension
    50,000,000 
  $107,572 
Not issued
 
 
    250,000,000 
  $1,807,572 
 
 
Common Stock issued for guarantees and loan extension modifications are valued at the trading closing price of the Company’s Common Stock on the agreement date of the guarantee or loan extension (See Note 10).
 
 
9
 
 
iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
 
10. SUBSEQUENT EVENTS
 
For purposes of disclosure in the financial statements, the Company has evaluated subsequent events through the date the financial statements were issued.
 
The Company launched the iCoreExchange, the iCoreMD, and the iCoreDental cloud-based software products during the first quarter of fiscal year 2015.  The iCoreExchange has approximately 1000 users at June 30, 2016.
 
On December 12, 2014 John Schneller resigned as a Board Member and the Company’s Chief Financial Officer.  On December 15, 2014 Don Sproat was hired as Chief Financial Officer.  Mr. Warner resigned from the Board of Directors on December 19, 2014.  In addition, the Company hired a Vice President of Sales on March 1, 2015 and a Director of Software Integration on April 6, 2015. The Company’s former Chief Technical Officer, Mr. Srini Parthasarthy, mutually agreed to end his employment with the Company on December 31, 2015. The Vice President of Sales separated from the Company on December 23, 2015.
 
On June 7, 2016, Board Members JD Smith, Jeff Stellinga, and Robert McDermott were elected by a majority of the voting power of the shareholders to serve until the next annual meeting of the shareholders of the Company.
 
On July 1, 2015, Chief Executive Officer, Robert McDermott executed a three-year Employment Agreement with the Company. In addition, on January 1, 2016, Chief Financial Officer, Don Sproat executed a two-year Employment Agreement with the Company. (See Exhibits 10.1 and 10.2).
 
Further, the Company initiated a Bridge Loan offering under Rule 506(b) during the second quarter of fiscal 2015. The total Bridge Loan offering was $4,000,000 (subsequently increased to $10,000,000) of which $3,584,654 had been subscribed as of August 31, 2016. The Bridge Loan provides for an 18% annual interest rate with the loan maturing on December 31, 2016, as extended by signed amendments from the original December 31, 2015 maturity date. The loan principal and accrued interest are convertible into the Company’s Common Stock pursuant to the Subscription Agreement executed by the Convertible Bridge Note investors. In addition, Bridge Loan investors received a warrant to purchase Common Shares in the amount of one share for each dollar of principal invested. At the same time, the associated warrant exercise period was extended from June 30, 2018 to December 31, 2019. (See Exhibit 10.3).
 
The Company’s Line of Credit with Western State Bank had been in default since January 30, 2016. However, on May 16, 2016, the bank renewed the Company’s Line of Credit for an amount of $500,000 with the same interest terms of a floor rate of 6.5% or Wall Street Journal Prime + 1.0% whichever is higher. Interest is payable monthly and the maturity date is September 30, 2016. The Line of Credit is guaranteed by an investor in the Company. The Bank did apply a $250,000 certificate of deposit that was partial security against the principal owed shortly after the default.
 
In addition, as of February 23, 2016, the Company was in default on its note payable to Genesis Financial Corporation in the principal amount of $155,000 plus accrued interest of $23,250. Genesis has agreed to extend the maturity of the note to February 23, 2017 for an extension fee of 2% of the principal which amounts to $3,100. The loan is secured by a security interest in an iMedicor investor’s assets. On June 30, 2016, the Company paid Genesis the accrued interest, extension fee, and prepayment of interest through the maturity date of the note in the amount of $47,275.
 
The Company has secured additional non-Bridge Loan related loans from Mr. Jerry Smith in the amount of $1,330,000 as of August 31, 2016. The loans each carry interest at 18% per annum and accrued interest and principal balances are due December 31, 2016.
 
 
10
 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Statements made in this Quarterly Report on Form 10-Q, including without limitation this Management's Discussion and Analysis of Financial Condition and Operations, other than statements of historical information, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by such words as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. We believe it is important to communicate our future expectations to investors. However, these forward-looking statements involve many risks and uncertainties, including the risk factors disclosed under the heading “Risk Factors” included in the Company's Form 10-K filed with the Securities and Exchange Commission (“SEC”) on December 9, 2015 and the 10-K/A amended on May 6, 2016. Our actual results could differ materially from those indicated in such forward-looking statements as a result of certain factors. We are under no duty to update any of the forward-looking statements after the date of this Report on Form 10-Q to conform these statements to actual results, other than to comply with the federal securities laws.
 
Overview
 
In 2014 we decided to focus all our sales and development efforts on creating and providing a product for the health care market that allows medical providers, hospitals, clearing houses, labs, local physicians and dentists a software product that enables them to transfer patient health information via the internet without violating HIPAA law. The goal was to provide the health community with a product that did not alter their current workflow while, at the same time, providing a productivity tool for the offices with the ultimate outcome resulting in more robust communication and better health outcomes for the patient. We accomplished our goals and launched the product in the calendar year 2014. After deploying our product and speaking to our customers, we realized there was a great need in the marketplace for a cloud based, customizable and HIPAA compliant Electronic Health Record software product. We began developing a medical Electronic Health Record software and launched our first custom built, customizable Electronic Medical Health system for the medical community in 2014. Shortly thereafter we expanded our Electronic Health Record system software to include dental practice software.
 
Presently we have two Electronic Health Record systems - iCoreMD and iCoreDental. Both were “ONC” certified in November of 2015 meeting all clinical, security and interoperability requirements of the Federal government. ONC certification also allows providers to receive money from the Federal EHR incentive program. This program was launched to help providers move from paper to a digital format or from a non-ONC certified software to an ONC certified software. The program was formed with the intention to achieve better health outcomes based on the reporting that ONC collects. We plan on marketing and securing Medical and Dental State associations as a preferred vendor to help reach their members with our product the iCoreExchange, our HIPAA compliant email exchange. This will create a recurring revenue stream for us while at the same time expanding our product through referrals as the medical community shares Patient Health Information via our product.
 
After deployment of the iCoreExchange, we are planning on going back to the State Associations and having them endorse our other products the iCoreMD and iCoreDental allowing us to reach a large market share with backing from the associations.
 
Critical Accounting Policies and Estimates
 
Our discussion and analysis of financial condition and results of operations are based upon the condensed consolidated financial statements included in the Company’s Form 10-Q for the quarterly period ended December 31, 2014, 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. Our estimates include those related to revenue recognition, derivative liabilities, and valuation of deferred tax assets and liabilities, useful lives of intangible assets and accruals. 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.
 
Liquidity and Capital
 
Cash and cash equivalents was $59,608 , at December 31, 2014 compared to $190,820 at June 30, 2014. Net cash declined by $131,212 for the six months ended December 2014. The use of cash for the six months ended December 31, 2014 is primarily attributed to funding Company operations.
 
Net cash used in operating activities for the six months ended December 31, 2014 was $881,008, a decrease from the corresponding period ended December 31, 2013 of 39% attributed primarily to a reduction in consulting fees. Net cash used in investing activities was $170,265 for the six month period ended December 31, 2014 an increase from $20,380 for the corresponding period ended December 31, 2013. The increase in investing activities in 2014 was primarily due to an increase in capitalized software development costs. Net cash provided by financing activities was $920,061 for the six months ended December 31, 2014 as compared to $1,014,083 for the corresponding period ended December 31, 2013. The Company had a greater reliance on bridge loans as opposed to sales of common stock for funds during the six-month period ending December 31, 2014 compared to the corresponding period ending December 31, 2013.
 
 
11
 
 
The Company continues to operate at a loss and is projected to do so until at least the end of fiscal 2017. The Company will continue to rely on raising capital through equity investments and/or debt instruments and commercial lending to maintain operations. There is no assurance that the Company will be able to raise additional capital.
 
Going Concern
 
The accompanying unaudited condensed consolidated 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 of $57,166,047, $10,123,477 and $7,398,884 respectively at December 31, 2014. The Company is delinquent on several of its debt and equity-related obligations. 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 debt or equity securities to fund its operations. Such financing may not be available on terms satisfactory to the Company, if at all. (See Notes 5 and 10).
 
Currently, management intends to develop a vastly improved healthcare communications system and attract 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 consolidated 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.
 
Results of Operations
 
The following table sets forth statement of operations data of the Company for the periods indicated:
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
December
 
 
December
 
 
December
 
 
December
 
 
    31, 2014 
    31, 2013 
    31, 2014 
    31, 2013 
Revenues
  $99,309 
  $38,610 
  $244,927 
  $107,430 
Costs of Sales
    41,004 
    11,396 
    70,851 
    67,621 
General and Administrative
    780,164 
    1,008,800 
    2,270,182 
    1,881,599 
Depreciation and Amortization
    37,879 
    - 
    51,533 
    - 
Loss from Operations
  $759,738 
  $981,586 
  $2,147,639 
  $1,841,790 
 
Revenues
 
The Company's revenues for the three months ended December 31, 2014 increased approximately 157% compared to the corresponding period ended December 31, 2013. Revenues for the six months ended December 31, 2014 increased 128% compared to the corresponding period ended December 31, 2013. These increases were due primarily to increased Meaningful Use revenue. “Meaningful Use compliant” is a term relating to the qualification for Federal incentive funds under the Federal Meaningful Use incentive Funds Program. The Meaningful Use program pays both medical and dental healthcare providers up to $63,750 and iMedicor receives 20% of the amount a healthcare provider is paid under this government program for the Company’s Meaningful use consulting effort on their behalf.
 
Cost of Sales
 
Cost of sales for the three and six months ended December 31, 2014 increased approximately 260% and 5% compared to the corresponding periods ended December 31, 2013. These increases were primarily attributable to increased costs relating to secure computer server service.
 
 
12
 
 
General and Administrative Expenses
 
General and administrative expenses for the three months ended December 31, 2014 decreased approximately 23% compared to the corresponding period ended December 31, 2013. For the six month periods ended December 31, the Company’s general and administrative expenses increased by approximately 21% compared to the corresponding period ended December 31, 2013. The six month period increase was primarily due to a significant increase in options expense recognized in the amount of $1,046,114 as compared to $532,045 in the corresponding period ended December 31, 2013.
 
Loss from Operations
 
Loss from operations for the three months ended December 31, 2014 decreased 23% compared to the corresponding period ended December 31, 2013. For the six month period ended December 31, 2014, the loss from operations increased 17% compared to the corresponding period ended December 31, 2013. The increase in loss from operations for the six month period was primarily attributed to an increase in options expense of approximately $514,000.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
There are no matters to disclose.
 
ITEM 4. CONTROLS AND PROCEDURES ITEM
 
Disclosure Controls and Procedures
 
As of December 31, 2014, under the supervision and with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation and because of the material weaknesses in our internal control over financial reporting described below, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2014.
 
Management identified the following control deficiencies that constitute material weaknesses that are not remediated as of the filing date of this report:
 
The Company did not maintain an effective financial reporting process to prepare financial statements in accordance with U.S. GAAP. Specifically, our process lacked timely and complete financial statement reviews, appropriate account closing procedures, and appropriate reconciliation processes. Further, we were unable to complete regulatory filings as required by the rules of the SEC.
 
We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and internal control over financial reporting and has concluded that the control deficiency that resulted represented a material weakness.
 
On November 5, 2013 the Board of Directors created an Audit Committee as a permanenet committee of the Board of Directors by unanimous written consent. Our current Audit Committee is chaired by Mr. Jeff Stellinga. Mr. JD Smith also serves on the committee. During the period ended March 31, 2014 the Board of Directors adopted a formal charter for the Audit Committee which is to be chaired by an independent director or board member with the requisite credentials and experience to qualify as an “Audit Committee Financial Expert” as set forth in Section 407 of the Sarbanes Oxley Act of 2002.
 
This Committee is tasked, along with other appropriate matters, with the improvement of previously ineffective oversight of financial internal controls and the concomitant accuracy and timeliness of financial reporting.
 
We currently do not have sufficient segregation of duties within accounting functions, which is a basic internal control. To the extent possible, the initiation of transactions, the custody of our assets, and the recording of transactions are performed by separate individuals.
 
 
13
 
 
Limitations on the Effectiveness of Internal Controls
 
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
 
14
 
 
PART II - OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
None.
 
ITEM 1A. RISK FACTORS
 
There have been no material changes from the Risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2014 filed with the Securities and Exchange Commission on December 9, 2015.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Six million-five hundred thousand shares of Common Stock were sold for $31,250. The securities are exempt from registration as a private sale and, as such, have not been registered with the Securities and Exchange Commission. Proceeds from this sale were used for working capital. (See Exhibit 10.4)
 
ITEM 3. DEFAULTS ON SENIOR SECURITIES
 
There was a default on the Line of Credit which was due January 30, 2016 but which has subsequently been extended as of May 16, 2016 to September 30, 2016. There was also a default on the Genesis note but the note has been extended until February 23, 2017. Both Sonoran notes are in default as of August 31, 2015, and the Sheman note as of September 22, 2009. There was a default on the Schneller note on December 31, 2015 due to non-payment of interest.  However, in August 2016, $6,375 was paid for interest on the note which brought the interest current.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
N/A.
 
ITEM 5. OTHER INFORMATION
 
The Board of Directors of the Company had amended and restated the Bylaws as of August 15, 2013. A copy of the Amended and Restated Bylaws are submitted as Exhibit 3(ii).
 
ITEM 6. EXHIBITS
 
10.1
Chief Executive Officer Employment Agreement (1).
10.2
Chief Financial Officer Employment Agreement (1).
10.3
Bridge Loan Offering (1).
10.4
Ramos Subscription Agreement (1).
Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a).
Certification of the Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a).
Certification of the President and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
 
(1) Incorporated by reference to Exhibits 10.1, 10.2, 10.3, and 10.4 in Form 10-Q filed on August 5, 2016.
 
 
15
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
iMedicor, Inc. (Registrant)
 
 
 
 
 
Date: September 7, 2016
By:  
/s/  Robert McDermott
 
 
 
Robert McDermott
 
 
 
Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
 
 
Date: September 7, 2016 By: /s/ Donald G Sproat
 
 
 
Donald G Sproat
 
 
 
Chief Financial Officer
 
 
 
(Principal Accounting Officer)
 
 
 
 
 
 

 
 
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