Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - Cliff Rock Resources Corp. | ex321.htm |
| EX-31.2 - EXHIBIT 31.2 - Cliff Rock Resources Corp. | ex312.htm |
| EX-32.2 - EXHIBIT 32.2 - Cliff Rock Resources Corp. | ex322.htm |
| EX-31.1 - EXHIBIT 31.1 - Cliff Rock Resources Corp. | ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
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x
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Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended December 31, 2010
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o
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Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ______________ to _____________
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VIRTUAL MEDICAL CENTRE, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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000-52090
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98-0459440
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(State of Incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification Number)
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L1, 414 Scarborough Beach Road,
Osborne Park, WA, Australia 6017
(Address of principal executive offices)
+61-8-938-80344
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every 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 x NO o
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. (Check one):
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES o NO x
As of February 14, 2011, the number of shares of the registrant’s common stock, par value $0.001 per share, outstanding was 85,153,764.
Form 10-Q
For the Quarterly Period Ended December 31, 2010
Table of Contents
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Page
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VIRTUAL MEDICAL CENTRE, INC.
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Consolidated Balance Sheets
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ASSETS
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December 31,
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June 30,
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|||||||
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2010
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2010
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CURRENT ASSETS
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(unaudited)
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Cash
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$ | 33,783 | $ | 41,475 | ||||
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Prepaid expenses
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16,881 | 8,254 | ||||||
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Accounts receivable, net
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93,912 | 27,271 | ||||||
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Current tax asset
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- | 269,639 | ||||||
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Total Current Assets
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144,576 | 346,639 | ||||||
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PROPERTY, PLANT AND EQUIPMENT, net
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41,911 | 41,389 | ||||||
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TOTAL ASSETS
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$ | 186,487 | $ | 388,028 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT LIABILITIES
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Accounts payable and accrued expenses
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$ | 2,033,593 | $ | 1,168,431 | ||||
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Notes payable-related parties
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49,521 | 143,308 | ||||||
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Convertible notes payable, net
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507,576 | 104,438 | ||||||
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Lines of credit payable
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- | 19,230 | ||||||
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Capital leases payable
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13,358 | 13,387 | ||||||
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Employee benefits payable
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194,834 | 164,237 | ||||||
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Deferred income
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204,465 | 174,196 | ||||||
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Total Current Liabilities
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3,003,347 | 1,787,227 | ||||||
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LONG TERM LIABILITIES
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Capital leases payable
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10,605 | 13,358 | ||||||
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Employee benefits payable
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22,275 | 18,777 | ||||||
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Total Long Term Liabilities
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32,880 | 32,135 | ||||||
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TOTAL LIABILITIES
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3,036,227 | 1,819,362 | ||||||
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STOCKHOLDERS' EQUITY (DEFICIT)
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Common stock, $0.001 par value, 200,000,000 shares
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authorized, 85,153,764 and 84,253,764 outstanding
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issued and outstanding, respectively
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85,154 | 84,254 | ||||||
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Additional paid-in capital
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3,949,746 | 3,742,653 | ||||||
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Other comprehensive income
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(127,248 | ) | 130,164 | |||||
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Accumulated deficit
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(6,757,392 | ) | (5,388,405 | ) | ||||
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Total Stockholders' Equity (Deficit)
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(2,849,740 | ) | (1,431,334 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS'
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||||||||
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EQUITY (DEFICIT)
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$ | 186,487 | $ | 388,028 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Statements of Operations
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(unaudited)
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For the Three Months Ended
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For the Six Months Ended
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December 31,
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December 31,
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|||||||||||||||
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2010
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2009
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2010
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2009
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REVENUES
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$ | 269,627 | $ | 189,246 | $ | 482,846 | $ | 333,937 | ||||||||
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OPERATING EXPENSES
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Depreciation expense
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3,233 | 3,230 | 6,995 | 6,941 | ||||||||||||
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Employment expenses
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197,920 | 264,698 | 510,814 | 504,394 | ||||||||||||
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Professional fees
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647,644 | 83,235 | 856,301 | 353,957 | ||||||||||||
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Marketing expenses
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34,430 | 25,858 | 69,876 | 79,066 | ||||||||||||
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General and administrative expenses
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260,546 | 66,403 | 322,451 | 105,379 | ||||||||||||
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Total Operating Expenses
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1,143,773 | 443,424 | 1,766,437 | 1,049,737 | ||||||||||||
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LOSS FROM OPERATIONS
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(874,146 | ) | (254,178 | ) | (1,283,591 | ) | (715,800 | ) | ||||||||
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OTHER INCOME AND EXPENSE
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Interest income
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1,632 | 112 | 1,632 | 268 | ||||||||||||
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Interest expense
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(22,900 | ) | (339 | ) | (87,028 | ) | (16,196 | ) | ||||||||
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Total Other Expenses
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(21,268 | ) | (227 | ) | (85,396 | ) | (15,928 | ) | ||||||||
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NET LOSS BEFORE INCOME TAXES
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(895,414 | ) | (254,405 | ) | (1,368,987 | ) | (731,728 | ) | ||||||||
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Income tax benefit
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- | - | - | - | ||||||||||||
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NET LOSS
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$ | (895,414 | ) | $ | (254,405 | ) | $ | (1,368,987 | ) | $ | (731,728 | ) | ||||
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FOREIGN CURRENCY
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TRANSLATION GAIN (LOSS)
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(78,979 | ) | 129,428 | (257,412 | ) | 6,906 | ||||||||||
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TOTAL COMPREHENSIVE INCOME
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$ | (974,393 | ) | $ | (124,977 | ) | $ | (1,626,399 | ) | $ | (724,822 | ) | ||||
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BASIC AND DILUTED LOSS
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PER COMMON SHARE
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$ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
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WEIGHTED AVERAGE NUMBER OF
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||||||||||||||||
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COMMON SHARES OUTSTANDING
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84,575,503 | 61,230,285 | 84,466,807 | 61,320,285 | ||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Statements of Stockholders' Equity (Deficit)
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(unaudited)
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Total
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Additional
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Other
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Stockholders'
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Common Stock
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Paid-in
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Comprehensive
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Accumulated
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Equity
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Shares
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Amount
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Capital
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Income
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Deficit
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(Deficit)
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Balance, June 30, 2009
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59,749,794 | $ | 3,584,149 | $ | - | $ | 114,929 | $ | (3,922,477 | ) | $ | (223,399 | ) | |||||||||||
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Stock issued for cash, net
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1,162,595 | 162,955 | - | - | - | 162,955 | ||||||||||||||||||
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Stock issued for services
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565,375 | 79,803 | - | - | - | 79,803 | ||||||||||||||||||
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Recapitalization pursuant to
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reverse merger agreement
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22,776,000 | (3,742,653 | ) | 3,742,653 | - | - | - | |||||||||||||||||
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Net loss for the year ended
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June 30, 2010
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- | - | - | 15,235 | (1,465,928 | ) | (1,450,693 | ) | ||||||||||||||||
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Balance, June 30, 2010
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84,253,764 | 84,254 | 3,742,653 | 130,164 | (5,388,405 | ) | (1,431,334 | ) | ||||||||||||||||
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Options granted for services
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- | - | 83,659 | - | - | 83,659 | ||||||||||||||||||
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Benefical conversion feature
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- | - | 8,334 | - | - | 8,334 | ||||||||||||||||||
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Stock issued for extension
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of purchase option
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200,000 | 200 | 59,800 | - | - | 60,000 | ||||||||||||||||||
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Stock issued for services
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700,000 | 700 | 55,300 | - | - | 56,000 | ||||||||||||||||||
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Net loss for the six months ended
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December 31, 2010
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- | - | - | (257,412 | ) | (1,368,987 | ) | (1,626,399 | ) | |||||||||||||||
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Balance, December 31, 2010
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85,153,764 | $ | 85,154 | $ | 3,949,746 | $ | (127,248 | ) | $ | (6,757,392 | ) | $ | (2,849,740 | ) | ||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Statements of Cash Flows
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(unaudited)
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For the Six Months Ended
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December 31,
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||||||||
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2010
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2009
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OPERATING ACTIVITIES
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Loss from Operations
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$ | (1,368,987 | ) | $ | (731,728 | ) | ||
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Adjustments to reconcile loss from operations to
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the net cash used in operating activities:
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Common stock issued for services
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116,000 | - | ||||||
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Amortization of discount on debt
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28,468 | - | ||||||
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Depreciation
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6,995 | 6,941 | ||||||
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Options granted for services
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83,659 | - | ||||||
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Beneficial conversion feature
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8,334 | - | ||||||
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Changes in Operating Assets and Liabilities
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Prepaid expenses
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(8,627 | ) | (739 | ) | ||||
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Accounts receivable
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(66,641 | ) | 12,402 | |||||
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Tax refund receivable
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269,639 | 246,604 | ||||||
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Accounts payable and accrued expenses
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865,162 | 176,777 | ||||||
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Employee benefits
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34,095 | (10,090 | ) | |||||
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Deferred income
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30,269 | 194,526 | ||||||
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Net Cash Used in Operating Activities
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(1,634 | ) | (105,307 | ) | ||||
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INVESTING ACTIVITIES
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Purchase of equipment
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(7,517 | ) | (9,588 | ) | ||||
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Net Cash Used in Investing Activities
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(7,517 | ) | (9,588 | ) | ||||
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FINANCING ACTIVITIES
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Proceeds from the issuance of share capital
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- | 6,780 | ||||||
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Proceeds from notes payable
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291,488 | 29,762 | ||||||
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Repayment of notes payable
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(29,864 | ) | - | |||||
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Repayment of capital leases payable
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(2,753 | ) | - | |||||
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Net Cash Provided by Financing Activities
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258,871 | 36,542 | ||||||
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NET INCREASE (DECREASE) IN CASH
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249,720 | (78,353 | ) | |||||
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EFFECT OF FOREIGN CURRENCY TRANSLATION
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(257,412 | ) | 6,906 | |||||
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CASH AT BEGINNING OF PERIOD
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41,475 | 135,119 | ||||||
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CASH AT END OF PERIOD
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$ | 33,783 | $ | 63,672 | ||||
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SUPPLEMENTAL DISCLOSURES OF
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CASH FLOW INFORMATION
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CASH PAID FOR:
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Interest
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$ | 4,407 | $ | 16,196 | ||||
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Income Taxes
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$ | - | $ | - | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
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4
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by Virtual Medical Centre, Inc. (the “Company”) without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at December 31, 2010, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2010 audited financial statements. The results of operations for the period ended December 31, 2010 are not necessarily indicative of the operating results for the full fiscal year.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. The Company continues to pursue capital raising activities and is in active discussions with a number of parties that have indicated interest in the Company’s business and growth strategy. The Company, in coordination with its consultants, is engaged in ongoing negotiations as to possible financing terms that will meet its current capital needs necessary to execute its growth plan as it broadens its online footprint in the medical content space.
The Company believes current discussions are positive and that interested parties understand the Company’s current financing needs. The Company is currently working with various third parties towards a funding structure that will satisfy its immediate capital requirements and deliver a return on capital that will satisfy potential investor needs. However, no assurance can be given that the Company will be successful in obtaining any additional capital or that parties that have previously expressed interest in the Company will provide it with the funding necessary to permit it to execute its current plans, or that such financing will be available on terms favorable to the Company.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
5
VIRTUAL MEDICAL CENTRE, INC.
Notes to the Condensed Financial Statements
December 31, 2010 and 2009
Fiscal Year End
Upon completion of the Exchange Agreement more fully described in Note 4, the Company changed its fiscal year end to June 30.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial statements or financial position.
NOTE 4 – SIGNIFICANT EVENTS
On May 27, 2010, Cliff Rock Resources Corp. (“Cliff Rock”), predecessor to the Company, entered into an Exchange Agreement with Virtual Medical Centre Pty Ltd (“VMC”) and a Share Sale Agreement with each of the shareholders and option holders of VMC, pursuant to which Cliff Rock acquired all of the issued and outstanding ordinary shares and options of VMC (the “VMC Shares”). In accordance with the terms of the Exchange Agreement, Cliff Rock issued an aggregate of 71,471,764 shares of its common stock, par value USD $0.001 per share (the “Cliff Rock Shares”), to the shareholders of VMC in exchange for all of the issued and outstanding VMC Shares or approximately 1.16 Cliff Rock Shares for every VMC Share held by the shareholders of VMC.
Prior to May 27, 2010, Cliff Rock cancelled 32,500,000 shares of its common stock. As a result, on May 27, 2010, 84,253,764 Cliff Rock Shares were issued and outstanding, including the 71,471,764 Cliff Rock Shares issued in connection with the Exchange Agreement, which represented approximately 84.8% of the post-exchange issued and outstanding shares of Cliff Rock common stock. Accordingly, the former shareholders of VMC have the capability to substantially control the vote on all significant matters pertaining to the Company without approval of the shareholders. Following May 27, 2010, in accordance with the terms of the Exchange Agreement, the authorized capitalization of the Company was increased from 100,000,000 shares of common stock, USD$0.001 par value, to 200,000,000 shares of common stock, USD$0.001 par value by a Certificate of Amendment effective July 12, 2010.
The Company accounted for this transaction as a reverse-acquisition, with Cliff Rock as the continuing legal entity and VMC presented as the accounting acquirer. Therefore, the historical financial statements presented herein reflect only those of VMC, the accounting acquirer. The reverse-acquisition is presented as a recapitalization of the Company. Accordingly, the historical stockholders’ equity (deficit) of the Company prior to the acquisition transaction has been retroactively restated pursuant to ASC 805.
On August 24, 2010, the Company awarded executive performance bonuses to 2 executive officers who were each granted 100,000 stock options at $0.16 per share, exercisable within 4 years from the date of the grant upon the Company reaching 25,000 subscribers and an additional 100,000 stock options at $0.143 per share upon the Company reaching 300,000 unique visitors over a six month period. As of September 3, 2010, the performance levels were reached and the options were fully vested. The vested options were valued using the Black-Scholes model and assuming a dividend yield of 0.00%, a risk free interest rate of 1.35%, a volatility of 70.46% and a term of 4 years which resulted in an expense of $83,659 during the 6 months ended December 31, 2010. The executive officers returned the stock options to the Company on January 1, 2011 for cancellation.
During the 6 months ended December 31, 2010, the Company received an additional $291,488 in proceeds from notes payable. The Company also repaid $15,000 in convertible debt and extended $80,000 in convertible debt for a forbearance fee of $28,000. The Company is delinquent on $5,000 of convertible debt as of December 31, 2010.
6
VIRTUAL MEDICAL CENTRE, INC.
Notes to the Condensed Financial Statements
December 31, 2010 and 2009
NOTE 5 – WARRANTS
The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to the convertible note holders.
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Number of Warrants
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Weighted Average Exercise Price
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|||||||
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Outstanding as of June 30, 2009
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429,281
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$
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0.30
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|||||
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Granted
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(100,000)
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0.30
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||||||
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Exercised
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-
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0.00
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||||||
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Cancelled
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-
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0.00
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||||||
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Outstanding as of June 30, 2010
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329,281
|
0.30
|
||||||
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Granted
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-
|
0.30
|
||||||
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Exercised
|
-
|
0.00
|
||||||
|
Cancelled
|
-
|
0.30
|
||||||
|
Outstanding at December 31, 2010
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329,281
|
$
|
0.30
|
|||||
NOTE 6 – OPTIONS
The following table summarizes the options outstanding and the related prices for the shares of the Company’s common stock issued to employees and non-employees of the Company. These options were granted in lieu of cash compensation for services performed.
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Number of Options
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Weighted Average Exercise Price
|
|||||||
|
Outstanding as of June 30, 2009
|
2,416,670
|
$
|
0.09
|
|||||
|
Granted
|
1,500,000
|
0.19
|
||||||
|
Exercised
|
-
|
0.00
|
||||||
|
Cancelled
|
-
|
0.00
|
||||||
|
Outstanding as of June 30, 2010
|
3,916,670
|
0.19
|
||||||
|
Granted
|
400,000
|
0.14
|
||||||
|
Exercised
|
-
|
0.00
|
||||||
|
Cancelled
|
-
|
0.00
|
||||||
|
Outstanding at December 31, 2010
|
4,316,670
|
$
|
0.19
|
|||||
NOTE 7 – SUBSEQUENT EVENTS
In accordance with ASC 855, Company management reviewed all material events and determined that there are no material subsequent events to report other than those reported.
Cautionary Statement on Risks Associated With Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. The words “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or other similar expressions are intended to identify such statements. Further, statements concerning projections, predictions, expectations, estimates or forecasts and statements that describe our objectives, future performance, plans or goals are, or may be, forward-looking statements. These forward-looking statements reflect management’s current expectations concerning future results and events and are not guarantees of future performance, anticipated trends or growth in businesses, or other characterizations of future events or circumstances. Although we believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions, we can give no assurance that we will attain these expectations or that any material deviations will not occur.
Forward-looking statements are to be interpreted only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statement. You should not place undue reliance on these forward-looking statements.
Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks described below and elsewhere in this Quarterly Report on Form 10-Q, and in other documents we file with the Securities and Exchange Commission (the “SEC”) from time to time.
The following is a list of risks that could affect our ability to generate revenue and have a negative impact on our financial condition. This list is not, and is not intended to be, exhaustive:
· our substantial dependence on the commercial success of advertising and sponsorship of the Virtual Medical Centre website;
· our ability to attract and retain consumers and healthcare professionals visiting the Virtual Medical Centre website;
· increased subscriber churn to our e-newsletters;
· our ability to attract and retain qualified employees and key personnel;
· our ability to protect our intellectual property;
· our ability to expand our product offerings;
· our ability to manage our growth;
· our ability to predict our revenue, operating results and gross margin accurately;
· changes in legislation or regulatory conditions affecting the pharmaceutical, healthcare and information technology industries;
· a competitor taking significant market share;
· adverse events or conditions that affect the promotional and/or educational spending by pharmaceutical companies or the proportion of that spend allocated to online;
· adverse economic conditions in the capital markets;
· competition for advertisers and sponsors for our health professional portals;
· any potential loss of or reduction of sponsorship from certain sponsors or partners;
· the length and unpredictability of our sales cycles; and
· foreign currency exchange risk.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
Company Overview
Virtual Medical Centre, Inc. (the “Company”) was incorporated on February 4, 2005 under the laws of the state of Nevada under the name Cliff Rock Resources Corp (“Cliff Rock”) for the purpose of acquiring mineral exploration projects. On July 12, 2010, the Company filed an amendment to its Articles of Incorporation changing its name to “Virtual Medical Centre, Inc.” pursuant to the terms of the Exchange Agreement entered into between the Company and Cliff Rock, as described below. The Company conducts its business through its subsidiary, Virtual Medical Centre, Ltd. (“VMC”).
Our common stock is quoted on the Over-the-Counter Bulletin Board and Pink Sheets under the symbol “VMCT” (formerly “CLFR”).
Recent Transactions: Cliff Rock and VMC Share Exchange
On May 27, 2010 (the “Closing Date”), Cliff Rock entered into an Exchange Agreement (the “Exchange Agreement”) with VMC, an entity organized originally as “Virtual Cancer Centre Pty Ltd.” under the laws of Australia on April 10, 2002 and a Share Sale Agreement (the “Share Sale Agreement”) with each of the shareholders and option holders of VMC, pursuant to which the Company acquired all of the issued and outstanding ordinary shares (“VMC Shares”) and options (“VMC Options”) of VMC. In accordance with the terms of the Exchange Agreement, Cliff Rock issued an aggregate of 71,471,764 shares of its common stock, par value $0.001 per share (the “Cliff Rock Shares”), to the shareholders of VMC (the “VMC Shareholders”) in exchange for all of the issued and outstanding VMC Shares, or approximately 1.16 Cliff Rock Shares for every VMC Share held by the VMC Shareholders (the “Share Exchange”). In addition, all options currently held by VMC shareholders were exchanged for options to purchase an equal number of Cliff Rock shares. The options to purchase Cliff Rock shares are exercisable upon the same terms and conditions as the options issued by VMC.
The Exchange Agreement further provided that after the Closing Date, the Company would use all reasonable efforts to raise up to USD$5,298,890.07, either through the issuance of equity, convertible securities or debt, or a combination thereof, at a purchase price of not less that USD$0.2652 (AUD$0.30) per share (the “Minimum Purchase Price”). In order to mitigate the effects of future financings, Wayne Hughes, VMC’s Chief Executive Officer, Thomas Maher, VMC’s Chief Operating Officer, and Dr. Andrew Dean, a director of VMC (collectively, the “VMC Officers and Directors”) agreed that an aggregate of 20,000,000 shares of common stock of Cliff Rock otherwise issuable to them under the Share Exchange would be placed into escrow (the “Escrow Shares”) for a period of three years from the Closing Date, in accordance with the terms of an escrow agreement (the “Escrow Agreement”). Under the Escrow Agreement, one-sixth (1/6) of the Escrow Shares are to be released to the VMC Officers and Directors, on a pro-rata basis, for every USD$883,614 (AUD$1,000,000) in financing raised by the Company at a price per share equal to or greater than USD$0.2652 (AUD$0.30) (the “Financing Release”). If the Company consummates one or more financing transactions at a price per share that is less than USD$0.2652 (AUD$0.30), the Escrow Shares are to be released to the Company for cancellation at the following rate:
X = Y - (A)(Y)
B
Where:
X = the number of Escrow Shares to be released for cancellation by the Company.
Y = the number of shares of Cliff Rock Shares (and/or Cliff Rock Shares acquirable upon exercise or conversion of securities issued in the financing).
A = the price per share of Cliff Rock Shares (and/or Cliff Rock Shares acquirable upon exercise or conversion of securities issued in the financings) issued in the financing.
B = USD$0.2652 (AUD$0.30).
Any Escrow Shares remaining three years after the Closing Date, after giving effect to the Financing Release and the cancellation of Escrow Shares set forth above, will be released to the VMC Officers and Directors.
Under the Exchange Agreement and the Share Sale Agreement, the VMC Shareholders have agreed that their Cliff Rock Shares issued pursuant to the Share Exchange are subject to a six (6) month voluntary lock up commencing on the Closing Date.
Prior to the Closing Date, Cliff Rock cancelled 32,500,000 shares of its common stock. As a result, on the Closing Date, 84,253,764 Cliff Rock Shares were issued and outstanding, including the 71,471,764 Cliff Rock Shares (approximately 84.8% of the issued and outstanding Cliff Rock Shares) issued in connection with the Exchange Agreement, which represented approximately 84.8% of the post-exchange issued and outstanding shares of Cliff Rock common stock. Following the Closing Date, in accordance with the terms of the Exchange Agreement, the authorized capitalization of the Company was increased from 100,000,000 shares of common stock, USD$0.001 par value, to 200,000,000 shares of common stock, USD$0.001 par value by a Certificate of Amendment effective July 12, 2010. On November 9, 2010, the Company filed an Amended and Restated Articles of Incorporation to, among other things, (i) increase the number of shares of authorized common stock, par value $0.001, that the Company is authorized to issue from 200,000,000 to 425,000,000; and (ii) create a new class of Preferred Stock, par value $0.001, of which the Company is authorized to issue 75,000,000 shares.
The issuance of the 71,471,764 Cliff Rock Shares to the VMC Shareholders was deemed by the Company and VMC to be a reverse acquisition for accounting purposes, as VMC will control the Company following the Share Exchange. Accordingly, VMC is regarded as the predecessor entity as of the Closing Date. Further, for accounting purposes, the Company will account for the assets and liabilities of the Company and VMC on a consolidated basis at their historical cost, with VMC being the acquirer for accounting purposes. The Company adopted the fiscal year-end of VMC, the accounting acquirer, which ends June 30.
Cliff Rock Resources Corporation
Cliff Rock Resources Corp. (“Cliff Rock”) was incorporated on February 4, 2005 under the laws of the state of Nevada with the intention of acquiring mineral exploration projects. Cliff Rock proposed conducting mineral exploration activities on its IQUE Claim, located on Vancouver Island, British Columbia, but had not identified any commercially exploitable reserves of copper, gold or other metals at the time of the Share Exchange. In 2010, the Company made the decision to abandon the IQUE Claim with no further obligations or costs in light of the Company’s recent commercial focus and the uncertainty regarding their mineral exploration phases.
Virtual Medical Centre
VMC was originally organized as Virtual Cancer Centre Pty Ltd. under the laws of Australia on April 10, 2002. The corporation’s name was changed to Virtual Medical Centre Pty Ltd. on July 23, 2007.
Virtual Cancer Centre began in August 2001 as an intranet site with credible, evidence-based health information about cancer, created by Dr. Andrew Dean, a senior palliative care specialist in Western Australia. The Virtual Cancer Centre website grew in popularity on the strength of its easy presentation of useful information and successful implementation of the Editorial Advisory Board (“EAB”) model (which afforded participating specialists direct ownership and control of the website and its information). As a result, the appeal of the EAB model to practitioners in other specialties became clear, and demand spread to extend the website’s coverage to include information on non-cancer illnesses. Thus, in 2007, Virtual Cancer Centre became Virtual Medical Centre, Ltd., providing free health information to health professionals and the general public on over 22 specialist areas at its health portal, www.virtualmedicalcentre.com.
VMC has grown to become a leading provider of online medical content, continuing medical education and health information for consumers, patients and medical professionals in Australia. VMC has been expanded to most medical disciplines, including gastroenterology, rheumatology, cardiology, respiratory medicine and neurology, and features more than 1,100 medical specialists from Australia, the U.S., Canada, New Zealand and the United Kingdom. The EAB regularly contributes content in the form of articles and videos, and also edits and reviews other content for quality control purposes.
Results of Operations for the Three Months and Six Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009
Key Financial Highlights of this Quarter:
Key financial highlights for the quarter ended December 31, 2010 include:
· During the three months ended December 31, 2010, total revenue increased by 42% to $269,627, compared to $189,246 in the quarter ended December 31, 2009.
· Loss from operations increased by 344% to $(874,146), compared to $(254,178) in the quarter ended December 31, 2009.
· Net loss increased by 352% to $(895,414), compared to a loss of $(254,405) in the quarter ended December 31, 2009.
Revenue for the Three Months
Our total revenue was $269,627 for the three months ended December 31, 2010, an increase of $80,381 from the corresponding period ended December 31, 2009. The reasons for such increase are more fully described below. Our total revenue is comprised of advertising revenue and education fees.
Revenue for the Six Months
Our total revenue was $482,846 for the six months ended December 31, 2010, an increase of $148,909 from the corresponding period ended December 31, 2009. The reasons for such increase are more fully described below. Our total revenue is comprised of advertising revenue and education fees.
Advertising Revenue
Advertising revenue came from advertising and sponsorship for both our Medical Consumer services (content aimed at general consumers) and Medical Professional services (content aimed at medical professionals).
Advertisement placements appeared on both the VMC website and our fortnightly e-newsletters. Sponsorship included providing educational information relevant to the disease and product area, creating interactive screening and monitoring tools, and promoting educational videos and brochures.
Advertising revenue came from advertising and sponsorship for both the Medical Consumer and Medical Professionals market. Earnings from the Medical Consumer market were primarily a result of increased revenues from VMC’s joint venture with Telstra Australia (BigPond).
Increases in the Medical Professional market were attributable to contracts for 12 month advertising and educational sponsorships with new clients, St Jude Medical, Orphan Australia and Novogen Consumer Healthcare. VMC’s significant growth in revenue in this market as compared to the same periods last year were due to VMC continuing to develop our relationship and reputation within the pharmaceutical industry and also to evolve our product offering to better respond to clients’ needs. VMC will continue to enhance its product offering to the pharmaceutical industry in an effort to further increase revenue.
Education Fees
Advertising revenue came from providing continuing education services to medical professionals in Australia.
Operating Expenses for the Three Months
Our total operating expenses for the three months ended December 31, 2010 was $1,143,773 compared to $443,424 for the three months ended December 31, 2009, an increase of $700,349. The reasons for such increase are more fully described below.
Employment expenses
We have 9 full-time employees, 4 part-time employees and 11 independent contractors including 8 medical researchers. Employment expenses decreased by $66,778, from $264,698 for the three month period December 31, 2009 to $197,920 for the three month period ended December 31, 2010.
General and administrative expenses
Our general and administrative expense for the three months ended December 31, 2010 increased by $194,143 from $66,403 in the three month period ended December 31, 2009 to $260,546 for the three month period ended December 31, 2010. During the three months ended December 31, 2010, we hired business and capital advisors in the United States to assist us with the re-listing of our stock on the OTCBB, as well as to assist us with the preparation of the filings required by the Securities and Exchange Commission (“SEC”) and in establishing the business for trading and capital raising purposes.
Interest expense
Our interest expense for the three months ended December 31, 2010 and 2009 was $22,900 and $339, respectively, an increase of $22,561. This was primarily because we accrued interest and fees of $11,688 relating to the extension of convertible debt previously issued by the Company and amortized the discount on its convertible debt of $7,906.
Operating Expenses for the Six Months
Our total operating expenses for the six ended December 31, 2010 was $1,766,437 compared to $1,049,737 for the six months ended December 31, 2009, an increase of $716,700. The reasons for such increase are more fully described below.
Employment expenses
We have 9 full-time employees, 4 part-time employees and 11 independent contractors including 8 medical researchers. Employment expenses increased by $6,420, from $504,394 for the six month period December 31, 2009 to $510,814 for the six month period ended December 31, 2010. Included in employment expenses for the six month period ended December 31, 2010 is $83,659 for the value of options granted to executives of the Company.
General and administrative expenses
Our general and administrative expense for the six months ended December 31, 2010 increased by $217,072 from $105,379 in the six month period ended December 31, 2009 to $322,451 for the six month period ended December 31, 2010. During the six months ended December 31, 2010, we hired business and capital advisors in the United States to assist us with the re-listing of our stock on the OTCBB, as well as to assist us with the preparation of the filings required by the Securities and Exchange Commission (“SEC”) and in establishing the business for trading and capital raising purposes.
Interest expense
Our interest expense for the six months ended December 31, 2010 and 2009 was $87,028 and $16,196, respectively, an increase of $70,832. This was primarily because we accrued interest and fees of $42,364 relating to the extension of convertible debt previously issued by the Company and amortized the discount on its convertible debt of $28,468.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The Company has analyzed recent accounting pronouncements and determined that no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
Liquidity and Capital Resources
As of December 31, 2010 we had cash of $33,783 compared to $41,475 as of June 30, 2010. We had a deficit in working capital as of December 31, 2010 of $2,858,771 compared to a deficit of $1,440,588 as of June 30, 2010.
During the six ended December 31, 2010, we used $1,634 in operating activities compared to $105,307 in the six month period ending December 31, 2009. The change is primarily the result of the increase in accounts payable and accrued expenses between the two periods.
During the six months ended December 31, 2010, we used $7,517 in investing activities compared to $9,588 in the six month period ending December 31, 2009. This increase is the result of additional purchases of fixed assets in connection with the growth of our business.
Cash provided by financing activities totaled $258,871 compared to $36,542 in 2009. The primary source of financing capital in 2010 came from proceeds from notes payable $291,488. We used $27,617 to reduce debt obligations in 2010.
We continue to pursue capital raising activities and are in active discussions with a number of parties that have indicated interest in our business and growth strategy. We, in coordination with our consultants, are engaged in ongoing negotiations as to possible financing terms that will meet our current capital needs necessary to execute our growth plan as we broadens our online footprint in the medical content space.
We believe current discussions are positive and that interested parties understand our current financing needs. We are currently working with various third parties towards a funding structure that will satisfy our immediate capital requirements and deliver a return on capital that will satisfy potential investor needs. However, no assurance can be given that we will be successful in obtaining any additional capital or that parties that have previously expressed interest in us will provide us with the funding necessary to permit us to execute our current plans, or that such financing will be available on terms favorable to us.
Off-Balance Sheet Arrangements
As of December 31, 2010, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), has evaluated the effectiveness of our disclosure controls and procedures (“Disclosure Controls”) as defined in Rules 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report (the “Evaluation Date”). Based on such evaluation, our PEO and PFO have concluded that as of the Evaluation Date, our Disclosure Controls were not effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the SEC, and that material information relating to our company and any consolidated subsidiaries is made known to management, including the PEO and PFO, particularly during the period when our periodic reports are being prepared to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Management assessed the effectiveness of our internal control over financial reporting as of the Evaluation Date based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has determined that as of the Evaluation Date, there were material weaknesses in our internal control over financial reporting. The material weaknesses identified during management’s assessment were (i) a lack of sufficient internal accounting resources; and (ii) a lack of segregation of duties to ensure adequate review of financial statement preparation. In light of these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting at the Evaluation Date.
A clear and concise segregation of duties is important to maximize checks and balances so that no single individual has control over two or more phases of a transaction or operation. A strong segregation of duties also is critical to reduce effectively the risk of mistakes and inappropriate actions to prevent fraud and to discourage collusion. It can be difficult for small businesses such as the Company to always have a clear separation of duties because of insufficient personnel to cover each and every process and procedure. Ultimately, checks and balances need to be in place as a supportive measure to the business operations, but also as a fraud prevention measure as well. Because we have limited financial personnel and limited resources, there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls procedures. However, the Company’s management believes that the material weaknesses set forth above were the result of the scale of our operations, are intrinsic to our small size and are of a nature that companies of our size would normally encounter. In order to remediate such weaknesses, the Company has engaged the services of a third-party accountant as well as skilled outside consultants tasked to assist the Company in strengthening its internal control procedures over financial reporting. The addition of these individuals has led management to believe that the weaknesses discussed above did not have a material effect on our financial results.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) that occurred during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings.
There are no legal proceedings against the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 4, 2010 the Company issued 200,000 shares of its common stock for the option to purchase shares in Pharmacy Online. Such shares were valued at $60,000.
On December 15, 2010 the Company issued 700,000 shares of its common stock for services rendered to it. Such shares were valued at $56,000.
Item 3. Defaults Upon Senior Securities.
Company is delinquent on $5,000 of convertible debt as of December 31, 2010.
Item 4. [Removed and reserved].
Item 5. Other Information.
None.
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Exhibit
Number
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Description
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10.1
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Exchange Agreement dated May 27, 2010 (previously included as an exhibit to the Form 8-K filed by Virtual Medical Centre, Inc. with the Securities
and Exchange Commission on May 28, 2010.)
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10.2
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Share Sale Agreement dated May 27, 2010 (previously included as an exhibit to the Form 8-K filed by Virtual Medical Centre, Inc. with the Securities
and Exchange Commission on May 28, 2010.)
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10.3
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Escrow Agreement dated May 27, 2010 (previously included as an exhibit to the Form 8-K filed by Virtual Medical Centre, Inc. with the Securities and
Exchange Commission on May 28, 2010.)
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31.1
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Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.
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31.2
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Certificate of Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.
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32.1
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Certificate of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*.
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32.2
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Certificate of Interim Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*.
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* Filed herewith
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 authorized.
Date: February 22, 2011 VIRTUAL MEDICAL CENTRE, INC.
By: /s/ Wayne Hughes
Wayne Hughes
Chief Executive Officer
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