iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements prepared in accordance with 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 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 months ended September 30, 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 September 30, 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.
G
O
I
NG
C
O
N
C
E
RN
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 $56,311,528, $10,707,400 and $7,509,118 respectively at September 30, 2014. The Company is delinquent on several of its debt and equity related obligations. The Company’s activities have been primarily financed through 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 allow the Company to generate revenues that will enable the Company to be self-sustaining. 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.
iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 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.
This stock has not been issued as of September 30, 2014 and is included in liability for unissued common stock - subsequently issued
on the accompanying condensed consolidated balance sheets.
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 September 30, 2014 and June 30, 2014 consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
Schneller note payable bearing interest at 8.5% per annum due June 30, 2017, in default
|
|
$
|
127,625
|
|
|
$
|
125,500
|
|
Sonoran convertible note bearing interest at 10% - 12% per annum
maturity extended to August 31, 2015, in default
|
|
|
2,391,084
|
|
|
|
2,322,712
|
|
Sonoran secured convertible note bearing interest at 8% - 18% per annum
maturity extended to August 31, 2015, in default
|
|
|
2,029,274
|
|
|
|
1,988,899
|
|
Wellbrock note bearing interest at 8% per annum, due November 2008 - disputed
|
|
|
397,472
|
|
|
|
391,805
|
|
Coddington note bearing interest at 8% per annum - disputed
|
|
|
397,465
|
|
|
|
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
|
|
Total long-term debt
|
|
|
5,507,920
|
|
|
|
5,397,070
|
|
Less current maturities
|
|
|
(5,382,420
|
)
|
|
|
(793,064
|
)
|
Total long-term maturities
|
|
$
|
125,500
|
|
|
$
|
4,604,006
|
|
Total future minimum payments due on long-term debt as of September 30, 2014:
2015
|
|
$
|
5,382,420
|
|
2016
|
|
$
|
-
|
|
2017
|
|
$
|
125,500
|
|
Subsequent to September 30, 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.
The Company also questions the existence of the obligations of the Company represented by the Wellbrock Group 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 $397,472. 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.
N
E
T
E
ARN
I
N
G
S
(
L
O
S
S
)
P
E
R
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 185,800,000 and 20,000,000 and from warrants are 417,997,000 and 400,361,000 at September 30, 2014 and September 30, 2013, respectively. The amount of excluded securities from convertible debt and shares of Series A and Series B Preferred Stock are convertible into 967,723,776 and 886,698,659 shares of Common Stock, at September 30, 2014 and September 30, 2013, respectively.
The amount of excluded securities from convertible debt and shares of Series A and Series B Preferred Stock are 967,723,776 and 886,698,659 shares of Common Stock, at September 30, 2014 and September 30, 2013, respectively.
iMEDICOR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 $324,958 and $304,699 at September 30, 2014 and June 30, 2014, respectively. (See Note 10).
8.
WARR
A
N
T
S
AND
O
P
TI
O
NS
The following table shows warrant activity for the three-month periods ended September 30, 2014 and September 30, 2013.
|
|
September 30, 2014
|
|
|
September 30, 2013
|
|
|
|
|
|
|
Weighted Ave
|
|
|
|
|
|
Exercise Price
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Warrants
|
|
|
Range
|
|
Outstanding at beginning of period
|
|
|
419,997,000
|
|
|
$
|
0.0736
|
|
|
|
407,927,667
|
|
|
$
|
0.01-$0.237
|
|
Issued
|
|
|
-
|
|
|
|
|
|
|
|
3,500,000
|
|
|
$
|
0.01-$0.010
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(2,000,000
|
)
|
|
$
|
0.0370
|
|
|
|
(11,066,667
|
)
|
|
$
|
0.01 - $0.105
|
|
Outstanding at end of period
|
|
|
417,997,000
|
|
|
$
|
0.0736
|
|
|
|
400,361,000
|
|
|
$
|
0.01 - $0.240
|
|
Excersiable at end of period
|
|
|
417,997,000
|
|
|
$
|
0.0736
|
|
|
|
400,361,000
|
|
|
$
|
0.01 - $0.240
|
|
The intrinsic value of the outstanding warrants at September 30, 2014 and September 30, 2013 is $-0-.
Summary of Options:
On July 1, 2013, the Company granted 100,000,000, four year options to Robert McDermott. The options vest as follows: 25,000,000 immediately, and 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 Don Douglas and Srini Parthasarthy pursuant to their employment agreements. Options for each individual vest 12,500,000 immediately and 12,500,000 on each annual anniversary of the employment agreements. The Company recorded $816,081 and $443,371 of stock compensation expense for the three months ending September 30, 2014 and September 30, 2013, respectively. The Company uses the Black Scholes option pricing model to value options. The significant assumptions relating to the valuation of the Company’s options granted during the period ended September 30, 2014 were as follows:
Exercise Price
|
|
$
|
0.0054-$0.01492
|
|
Term
|
|
1-4 years
|
|
Volatility
|
|
|
206%-305
|
%
|
Risk Free Rate of Return
|
|
|
0.11% - 1.02
|
%
|
As of September 30, 2014, the remaining unamortized stock compensation expense is $1,862,605 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 $1,108,676 and $894,231 as well as for options and Preferred Stock of $573,201 and $558,446 for September 30, 2014 and June 30, 2014, respectively. As of September 30 and June 30, 2014, there were 35.75 shares of Series A convertible Preferred Stock and 47.83 and 38.70 shares of Series B convertible Preferred Stock outstanding, respectively. (See Note 10).